Japan Logistics 2006: Part II

This is Part II in my coverage of the Japanese logistics sector outlook for 2006, drawing from Logistics Systems. Please refer to Part I for a more detailed explanation.

A note about translation: Often, translation of words from Japanese to English can be arbitrary depending on the translators perspective and experience with vocabulary in context. Below I have translated the Japanese word "情報化" into "digitization," a word that is becoming more common in the business world to describe the transformation of physically executed processes to digitally executed processes utilizing computer-aided programs, automation, etc. In other words, this involves turning physical work into information.

"SCM Configuration in Response to Globalization"

"The key is managerial decisiveness...and driving the digitization of revised work systems."

Watanabe: First, regarding SCM, I'd like to consider its implications including the response to globalization that is sure to continue increasing from here on out. These days supply chains are taking several forms, with the two most obvious involving products that are made domestically and exported or built overseas and imported for distribution in Japan. In the "Comprehensive Logistics Policy" released by the government, one of the measures that must be advanced in the future is "realization of transportation that brings together domestic and foriegn supply chains as one body where cost is minimized and operations both speedy and seamless." This policy also has iterated the need for logistics site creation where interaction with overseas counterparts is easier and where processes are simplifed, both in the context of globalization.

I'm curious what the others here are doing at their companies in terms of SCM configuration in response to globalization.

Hironaka: For us, overseas production is overwhelmingly large and so following that expansion the logistics volume that doesn't pass through Japan will increase significantly. In other words, departing from Asia or arriving in Asia, and arriving in North America or Europe will be the pattern. In addition, we are forecasting that parts for those operations will be sent out from Asia as a region to the rest of the world, versus supplying from Japan.

Because of this trend, we believe that an SCM revolution is indispensable. More concretely, unification of order receiving/issuing rule-creation and systems, logistics tracking and traceability, and the talent to support that is necessary. As a result, SCM configuration in response to globalization, which covers all the above, has become an urgent business. In terms of scope, our company considers SCM issues from the parts supplier stage to the point when the finished product is delivered to the customer.

Hayashi: Our company is really in the business of harmonizing warehousing with SCM. The warehousing business has been influenced by globalization and as a result has changed. For example, if the productions base shifts to overseas, products at one time and in large quantities will then be inbound to domestic warehousing in large numbers. Based on this phenomenon, it is easy for unbalances to occur in warehouse spacing. Furthermore, if those inbound products are immediately outbound, the need for speed increases. For that reason, activities driving lower warehousing costs exist, but even more than that the "acceleration" of the market environment is a large topic. Previously where safety and accuracy primarily drove warehousing operations, the "sense of speed" and "low cost" drive today's operations. Although there is confusion about the level of customer requirements, meeting these requirements is the logistics company's role, its path of survival, from which our company is responding and making proposals.

Within logistics, there differences in range of what is considered part of SCM. In addition, there are various patterns of logistics such as with supply management and market distribution. However, regardless of the focus, lead time is given importance. While staying aware of safety, accuracy, speed and low costs, there is a desire to shorten lead times. Our logistics professionals encompass these concepts.

Watanabe: In order to respond to "acceleration," I wonder if it cannot be accomplished well without the ability to digitize processes. Those corporations that continue to survive today's intense competition hold tightly onto their core competencies, which become the base for driving additional efficiencies. Also, I feel that whether you are operating production domestically or overseas, successfully utilizing information technology is an important factor.

Seien: Speaking from the perspective of consulting, the purpose of SCM is to basically maximize sales while minimizing costs. In order to do that, lead time is shortened and inventory reduced through accurate demand forecasting. I think it can be said that the way to make this reality is through information technology. In order to configure SCM, there are a number of issues that must be overcome, but I believe the most important issue is leadership at the top. This is because we are dealing with several organizations following a large revolution. I've been to many corporations and where a tight project organization has been created following the top setting clear goals there is success. However, there have been many situations where logistics is kept on a limb without full support, resulting in insignificant reforms.

Takahashi: In response to that, the corporations that can actually tackle SCM are just one part of the majority of corporations within Japan. For most firms, even if they wanted to tackle SCM, current conditions are such that they have a hard time executing this effort. The major point in whether this will continue or not comes down to what Mr. Seien was saying earlier, and that is managerial decisiveness.

Watanabe: Yes, although IT is necessary as a way to make SCM a reality, ahead of that is "frontline strength"--in other words, the flow of products at the frontline and the movement of people at the frontline. In this context, I feel the utilization of IT is important. I too have been shown several production facilities and where normal products are flowing, I saw first hand how when told "hey, make this special express" or "make this the priority" systems could not respond.

Hironaka: Regarding that key phrase of "frontline strength," the top management of our company is always saying that the starting line for competition in relation to each area of SCM--manufacturing, sales, logistics, etc.--is at the frontline.

Takahashi: Since IT doesn't go beyond being a method, the process of revising work systems and then digitizing them needs to be experienced before kaizen projects can be drawn up.

Hayashi: The frontline is always changing. Work should be conducted so as to change systems, then apply IT to those new systems, leading to the eventual ability to execute SCM practices.

Seien: With environmental changes as difficult as they are, even after introducing systems, they must be made to be flexible and adaptive.

COMMENT: I believe what the conversation above shows is the difficulty traditional logistics firms have in reducing SCM to a set of principles from which their employees can derive executable strategies and related initiatives. In my view, SCM is not something most mid-size companies can tackle comprehensively in one giant leap. A firm must consider all their strengths and weaknesses and find the areas where they can create small successes towards realizing a more long-term strategic goal. As was mentioned, organizational leadership and the strength of workforce, or frontline operations, is key in enabling any type of SCM initiative. There are very few initiatives, if any, that will survive, let alone experience marginal success, in the face of a poor organizational environment.