Panasonic has revolutionised the way it thinks about its market, moving from selling only to large customers to understanding consumers and forecasting their daily purchases from each store. “We now manage the demand and replenishment planning for our customers and decide what merchandise to put in each of their stores each week,” says Michael Aguilar, executive vice-president at Panasonic Consumer Electronics Company in the US.
Based in Secaucus, New Jersey, the company is a wholly-owned subsidiary of Matsushita Electric and Industrial Company of Japan and markets and distributes consumer electronics. It is the leader in developing high-definition plasma display technologies. For this, raw panels are produced in Japan and shipped to Tijuana, Mexico for final assembly and are then distributed across the US. The company has to manage a long supply chain with a multitude of suppliers for sub-assembly parts. It also faces enormous demand volatility, short product life cycles and margin deterioration, as new manufacturers and brands enter the marketplace. The result is razor thin margins, both for the manufacturer and the retailer.
“Until early 2000, we were a ‘sell-in’ company, only concerned about getting an order from our customer and shipping the goods to them,” says Mr Aguilar. “That caused huge problems for them, with excess inventories in some areas and shortages in others. The sale doesn’t really happen until that consumer buys the product, so we had to change our focus to become a ‘sell-through’ company, concerned only about was what the stores sold to the consumer each day.”
Customers that were previously a large single entity became several hundred individual stores. As a result, Panasonic had to fundamentally change its entire way of working and needed software to support it.
Mr Aguilar was less concerned with the software than with the skills needed to analyse the huge volume of information pouring in each day from the customers about each of their retail outlets. He therefore decided to use i2 Technologies consultants and analysts in India to carry out the assessment, using i2’s own “hosted” software.
“With the market moving so quickly and retail changing so rapidly, there is never a guarantee that the software will be viable three or five years down the road,” he explains, “so we felt it was safer to rent the software. Without the day-to-day ‘number crunching’, my people can concentrate on providing the human intelligence.” This required new skills and the company had to rely on i2 as much as possible and then extensively recruit its own analysts.
In order refocus their attention on sell-through, everybody’s bonus structure base was changed from what customers bought to what they sold. “First thing in the morning, they all look on their computer screens to see what products were sold by which of our accounts every day,” says Mr Aguilar. “We were able to change everybody’s thinking and that now drives all their actions.”
Panasonic also made presentations to its largest customers to receive buy-in, starting in the boardroom and covering all managers and staff in procurement, logistics and warehousing. “It took months to get through all the hierarchies at each customer,” says Mr Aguilar. “No matter how good a system you develop, unless you get buy-in from everybody internally and at the customer, your timelines can stretch. The human effort took the most time, but once it was accomplished the rest was easy.”
Panasonic has revolutionised its way of thinking about the consumers who actually buy the product and who make or break any manufacturing or marketing company. It now understands consumer purchasing cycles and how their behaviour is influenced by promotions and advertising campaigns. Investigating unplanned lifts and drops enables it to create a “library” of events to help improve forecasting.
As a result of the new way of working, the forecast error rate for major customers was reduced from 40-50 per cent to 15 per cent. Also, the customer’s in-stock ratio for Panasonic has increased from 70-72 per cent to 93-95 per cent.
The company can now respond to changes in customer demand within a week, instead of six to eight weeks. Order lead times have dropped to three to five days from two to three weeks and the average inventory level at its customers’ distribution centres fell from 17 weeks to five weeks. Panasonic has increased its margins substantially by cutting supply chain costs and reducing price protection and markdowns.
The right product is now at the right place at the right time on almost every occasion, so the company is able to significantly increase sales. During a period in which the market tripled, Panasonic increased its sales fivefold, increasing its market share from 18 per cent to 40 per cent. Mr Aguilar attributes the bulk of this to acting rapidly on the sell-through information.
“We have used plasma screens, which we knew would have the highest price volatility in the history of consumer electronics, to develop a system that creates an equally winning situation for the retailer, the consumer and the manufacturer,” concludes Mr Aguilar. “It has revolutionised our thinking and introduced new ways of doing business.”
