how Sony CD-romps over the competition

If success in the electronics industry were defined as, say, market share in console games or in name recognition, you would likely find Sony at or near the top of the list. But what if you were to look beyond products at supply chain innovation and leadership? You might be surprised to learn that by almost any measure, Sony would earn a spot on that list as well. Sony—specifically, Sony Disc Manufacturing (SDM),the Optical Disc Division—has concentrated in recent years on building a reputation as a strong supply chain leader in the delivery of its products and services.

What has led to Sony Disc Manufacturing's success in managing its supply chain? We believe our success can be traced directly to our ability to drive standardization and automation through out all aspects of the supply chain—and then leverage it to produce a competitive advantage.

Sony Disc Manufacturing, which is now the world's largest manufacturer of CDs and DVDs, competes in the optical media industry against more than 200 optical media manufacturers worldwide. It's no secret that products in this industry have extremely short lifecycles and that the industry itself operates in a continuous state of flux (think of the way the DVD format is rapidly taking over as the industry standard versus the CD format, for example). That being the case, you might expect that SDM would be anxious to hand off as many tasks as possible to third-party providers—especially in the commodity area of CD production, where prices are always dropping. However, Sony Disc Manufacturing has strategically chosen to make optical media manufacturing and distribution our core competency with key products like DVD-Video, PlayStation, DVD-ROM, SACD, CD Audio and CD-ROM. In fact , SDM has become a third-party provider itself, marketing its distribution expertise to clients in other industries.

Up to standards
As product lifecycles become more and more compressed, we believe the best way for SDM to maintain our leadership position is to standardize, automate and continuously refine our core supply chain processes. One way is by striving to set the standards that will drive the industry as early as possible in the products' lifecycle and set up standardized processes with the goal of becoming the low-cost provider.

If we can find a way to standardize our equipment and leverage all of our media products, we can drive costs down further. SDM integrates the majority of its own manufacturing and distribution equipment. Sony's Disc Technology group manufactures the equipment for our optical disc molding machines and Sony engineers design and integrate our complex communication systems for SDM's core operating equipment, like our automated storage and retrieval systems. We strive to integrate our systems using proven components from known manufacturers and then create standardization within our process. In essence we have built core com petencies around manufacturing design that enable us to be both fast and flexible. This, in turn, allows us to be a just-in-time (JIT) producer on relatively complex processes, with inventories at minimal (or zero) levels.

At the same time, Sony Disc Manufacturing is also a firm believer in automation. In our experience, automation both reduces costs and improves quality. In addition, automation helps shorten cycle time and decrease process variability. Many of our high-volume long-lead time competitors operate in the Far East, where labor is notoriously cheap. We would not be able to compete with them if we depended heavily on direct labor.

For example, we have automated the final product pack-out of PlayStation games. When we entered the game market, there was no standardization with regard to case pack counts or sizes. Early on we pushed for retailers to set standards for master and inner pack carton sizes. Today, PlayStation games go to the retailers in master cartons of 12. Each master carton contains three inner packs of four games each. Each of the inner packs is labeled for direct distribution (as is the master carton). The entire pack-out and palletization process is fully automated by robots and then routed to distribution. This ensures that we never break an inner carton for distribution. This year, SDM will manufacture and distribute more than 150 million PlayStation software units with this process.

Getting some leverage
Some companies work hard to recover their assets; at Sony Disc Manufacturing, we concentrate on leveraging our assets—our physical assets, our systems infrastructure and our people. Here's what we've accomplished to date:

• Physical Assets. Sony Disc Manufacturing has made a strategic decision not only to manufacture and distribute Sony products, but also to open up SDM 's internal business infrastructure to offer non-Sony clients access to our state-of- the-art supply chain. Today SDM has m ore than 200 third-party customers that leverage our low-cost, high-quality, high-throughput infrastructure. This added volume helps drive down costs for both SDM and our clients even further. When we add our third-party clients' freight volume to our own, for example, we are able to negotiate additional freight discounts. This not only drives our own costs down, but also allows us to pass the savings along to our third-party clients.
• Systems. Sony Disc Manufacturing relies heavily on the use of our Oracle enterprise resource planning (ERP) planning systems to drive our business. We have also tied our i2 and Catalyst planning systems tightly together with a custom client order management system sitting within Oracle. Coupling our frontend advance planning with our back-end automated processes allows us to align supply and demand in near real time and helps us accommodate changing market demands. By carefully and strategically integrating and leveraging around our Oracle platform, we have full visibility and can optimize all activities within the supply chain.
• People. Sony Disc Manufacturing strives to hire and retain the best and brightest people in our field. At SDM, we place high value on technically skilled workers and strong emphasis on continuous training and skill improvement. We provide multiple educational assistance and career development programs. Without a skilled workforce, we can't solve problems effectively and remain at the foref ront of our market . Even in today's cost-driven environment, significant investments are still being made to enhance the skill sets of our employees. We believe that this will give us a competitive advantage and increased loyalty in our workforce.

For Sony Disc Manufacturing, the keys to success are fourfold: standardize the market early; automate to lower costs; leverage all possible assets and volumes—even those of our suppliers and clients; and hire, retain and continuously improve our workforce. These may sound like simple—even unoriginal—steps. But it's hard to argue with the division's success in the cutthroat electronics optical media market. And harder still to dismiss a music and game business that is now setting the standard for the thirdparty distribution industry as well.