Sony Ericsson, the fourth largest mobile handset manufacturer in the world, ships around 100 million units a year from a centralised supply chain and production capability, principally based in China, with some production in Latin America and an operation just starting up in India. There are extensive dependencies on global suppliers for components such as motherboards, but also a more localised supply base providing variants of keypads, for example, for specific markets.
That structure is pretty much a given but Matthew Costello, Sony Ericsson’s senior president, corporate development, explains that within this framework the company is engaging in some significant realignment and running a number of strategic change programmes.
‘We are trying to create an end-to-end supply chain, connecting our customers with our back end operations. Precisely because we are not as big as the likes of Nokia we need to focus customer interaction rather than achieving critical mass.
‘So we are putting a lot of work into the back end of the supply chain, synchronising our interactions, in two main ways – centralising a logistics hub for components and speeding up our processes for rapid configuration.’
The transformation programme has a variety of foci – finding ways of creating more robust connections to customers is critical, especially as, Costello concedes, ‘we can’t sell on price’. Moves in this area have been well received. There is also an extensive process around demand management, hedging capacity on raw materials and components and improving the planning process for niche and variant products. Particularly, the planning concept is being realigned to cut the decision time across the whole logistics footprint, and key performance indicators have been revised to become customer-facing.
That last point raises other issues. ‘Customers are only just figuring out what environmental and social issues mean to their consumers,’ Costello says. ‘With our Swedish-Japanese parentage, we have always taken the environmental focus very seriously. We have led the way in reducing the use of dangerous materials such as lead, we’ve developed innovative technology in energy conservation and we are running a programme to assess the impact of our operations in terms of carbon emissions. We should be rolling out programmes based on these findings in a few months.
‘We’ve tried to build and want to maintain an image as being environmentally sensitive; and more widely to recognise the global demand for sustainable operation in the widest sense with our employees and partners. A lot of our time is focussed on that.’
Sony Ericsson sees this as a good thing in itself but Costello concedes that such initiatives are not only offensive in the sense of securing a better market position but also defensive against regulatory burdens that are almost certain to increase.
‘With our historic roots, it is in our genes to be respectful of environmental trends,’ he says. ‘We are usually prepared well in advance of any new regulation but of course you never know all the details. The industry gets a reasonable hearing from legislators but knowing exactly what their requirements will be is still difficult.’
Looking forward, Costello says logistics and transport issues will become big – the impact of air travel on carbon emissions is still being argued about but new regulations and taxes are on our radar.
‘We have to find the right balance between air and surface transport, and that means we need to lay out a factory and distribution footprint to align with whatever may come up,’ says Costello.
The treatment of labour is a growing concern. ‘We manage these issues with our partners and in our own plants as diligently as we can. This requires good relationships, clear expectations and rigid follow-up,’ he says.
But can Sony Ericsson take its business elsewhere if a partner fails the test? ‘That depends on policy decisions – how many strikes before you are out? Typically we strive for a zero tolerance approach but that depends on the relationship and that’s something you can’t build in a day – there’s a lot of hard work involved’.
One of the reasons for establishing a centralised logistics hub in Hong Kong is that ‘we have a sort of neutral territory there, where we can get suppliers in and train them about our expectations and how to meet them,’ Costello concludes.
- Present responsibility
Matthew Costello is Sony Ericsson’s senior vice president with responsibility for corporate development initiatives including the ‘next generation supply chain transformation’ programme.
- Technology consulting
He was previously the global leader of supply chain for a leading international management and technology consulting firm.