Comprehensive Thinking Drives Reverse Logistics Success at Sony Ericsson

by Eric M. Hemming

Reverse Logistics Magazine, Aug/Sept 2007

R. Buckminster Fuller, a 20th century inventor and futurist once stated, "Of course, our failures are a consequence of many factors, but possibly one of the most important is the fact that society operates on the theory that specialization is the key to success, not realizing that specialization precludes comprehensive thinking."

Sony Ericsson Mobile Communications (USA) Inc., the North American subsidiary of Sony Ericsson Mobile Communications AB, has jumped from specialization to comprehensive thinking in its efforts to drive reverse logistics success.

Sony Ericsson had driven process specialization through operating centralized Sourcing and Supply Operations, supporting global demand. The company’s Global Customer Services organization owned the reverse logistics process within the company, and Sales and Operations Planning was part of Sales and Marketing. The operations were scalable, driving towards world-class performance. Global leadership, however, had a desire to drive forward additional improvements.

After a comprehensive review of the existing supply chain was complete, the company initiated a pilot program, in North America, to focus on integrating plan, source, make, deliver and return elements of the business.

Management felt outsourced back-end operations might be consolidated and that improvements within forward and reverse supply chain planning might be recognized from this type of effort. It was also felt that an expansive integration would increase data exchange between functions. This would lead to improved supply chain visibility, prompting additional supply chain enhancements.

In late 2006, Magnus Berg joined the North America Region as Vice President of Operations, and as a member of Sony Ericsson’s Global Operations Leadership Team.

The program was to be deployed under Magnus’ leadership. The intent was for the region to test the end-to-end approach, not only to support the local business, but also to help deliver value back to the other Sony Ericsson sites.

Magnus and his team were charged with balancing the deployment of the pilot and ensuring that the specialization and scale that had been established through centralized global operations stayed intact. Yet at the same time they had to facilitate a tighter integration of local plan, source, make, deliver, and return processes.

An Integrated Approach

Magnus promptly formed a North America Operations Leadership Team compromised of the local Heads of Sales and Operations Planning, Sourcing, Supply, Customer Service, and Program Management.

He began to blueprint specific objectives for the newly formed team:

• To establish an integrated way of working
• To develop a local operations community
• To drive world-class supply chain performance
• To contribute to the greater Sony Ericsson community

He targeted reverse logistics as the first direct area of the supply chain to drive towards world-class achievement.

The call for a holistic perspective to the supply chain did not go unchallenged. Local processes were connected by material, information, and financial flows, but the supporting functions had not operated under the same tightly integrated direction locally. Local operations leadership had to deprogram their tendency to look at the supply chain vertically, and begin to embrace the environment that had been established to promote a comprehensive supply chain discussion. It took a number of weeks for each function to grasp the detail of each process, how they aligned, or did not align, with their specific view of the operation.

"As the North America Operations Leadership Team began working together, dialogue increased from week to week. A common point of view was achieved; the environment was ripe for aligned forward thinking, forward planning and improvement." Berg observes.

Jeremy Murchland, Head of Customer Service, had recently taken over responsibility for the region’s post sales support activity.

"As I began to digest the many details and variables associated with our post sales operations, it felt like a bed of hot coals," Murchland recalls. "Fortunately, I had numerous team members to help."

"I had a sourcing professional on my right hand; a supply professional to my left. Directly in front of me stood a quality management expert, along with a seasoned planning resource," he said.

After setting post sales service targets for the team, Murchland next began working directly with the heads of each function to drive forward the anticipated improvements within the returns process.

Supply and Customer Service Collaboration Drive Post Sale Improvements

Local Supply and Customer Service organizations began to focus on three critical areas – freight, service operations and parts cost avoidance.

Integrated management of these processes, and the associated suppliers supporting them, became a point of concentration for the groups. They began to discuss the potential for consolidating outsourced forward and reverse service operations, shipping points and properly aligning internal resources.

As a first step, the team incorporated logistics practices, currently executed within their Supply organization, into the post sales parts fulfillment process. Mirroring the forward process within a reverse setting improved parts turn around time by 13%.

Customer Service also began to drive forward a revised capacity planning process based upon principles used by Sony Ericsson Supply Planning Operations. This process ensured adequate capacity to support volatility associated with inbound returns. Turnaround time on swap unit replenishment has dropped by 41%over the past quarter.

"A complete local operations consolidation between forward and reverse flows may not be the best alternative for us in all areas, but we are at least challenging ourselves with the options, and taking advantage of it when it does make sense," stated Murchland.

Customer Service and Sourcing Facilitate "Smart" Asset Recovery, Improved Procurement and Cultivate an Operations Community

Magnus’ integration of functional leadership allowed the sourcing group the opportunity to interact with Customer Service more regularly. Customer Service management now understands the value of the many components that comprise completed wireless kits and what key factors contribute to component cost.

Smarter judgments regarding asset recovery decisions could now be made. The operation found itself harvesting additional parts from return products to repair other defective return products, avoiding expensive spare parts procurement.

Murchland also anticipates that the collaboration between groups will bring about improved local purchasing agreements for items such as corrugate and other locally sourced materials used in the returns process.

An informal mentoring partnership between Sourcing and Customer Services has also commenced. It has provided employees the opportunity to interact one-on-one with the leadership of the alternate function. This has opened up the opportunity for local Sourcing and Customer Service management to groom up-and-coming employees deemed to have the potential to move up into leadership roles, or roles within the alternate function. There have been a handful of career-coaching interactions, which have provided employees within reverse logistics additional insight into the Sourcing elements of the business. It has also helped individuals learn the organization's structure, culture and processes, and has begun to establish the "operations" community anticipated.

Integrated Forward and Reverse Planning Drives Improved Product Availability and Savings

The increased affiliation between forward and reverse material planning also drove immediate improvement in swap stock availability. The region had experienced swap stock shortages due to a lack of integrated planning between Sales and Operations Planning and post sales demand planning. Ensuring timely Customer Service input into the planning process also drove an increase in product availability and also drove a minimization of excess and obsolescence.

Both forward and reverse planning teams have identified the demand and value for products and components as they are in the channel. They analyze the structure of returned products to make planning decisions about goods prior to their ultimate return. This is allowing them to pre-schedule specific repair and asset recovery work effectively.

Process Standardization Drives Internal Alignment

As the local Operations Leadership Team continued to assemble, it was discovered that issues were being driven to resolution, but through different means. There was a clear opportunity to drive improvement through integrated approaches to change management and closed loop corrective action across functions. Customer Services took the lead in working with Operational Development personnel, within Program Management, to press these improvements forward. Specifications for standard change management and closed loop corrective action tools were developed. Internal scorecards previously used within the post sales operations were deployed for use across all local supply chain functions.

"Standardized ways of working have improved our supply chain flexibility and responsiveness towards our customers," stated Berg. "We are able to carry out rapid change, and have built in triggers that allow us to ensure issues are close looped," he adds.

Murchland also worked with Program Management to map post sales processes to determine the optimal organizational structure for the department. This resulted in the ability for the organization to re-align its resources, freeing up qualified talent that could be allocated to additional pilots planned within the operation.

With a lean optimized organization Murchland pushed forward discipline at the individual post sales process level. Customer Services mapped all core reverse logistics processes, assigned direct ownership to them, and implemented key performance measurements to monitor them. Program Management then incorporated reverse logistics process audits into the local internal audit program to validate process improvements quarter over quarter.

"Process maturity has allowed us to move from fire fighting to solution building. We have found ourselves in a lead position with our customers. We’ve even seen our customers adopt some of our ways of working. While this is something that is a bit hard to quantify, I am confident the value we are providing is an element in our value mix that is driving up our orders," Murchland relays.

Results

Initial results have been impressive. In addition to the 13% improvement on the spare parts fulfillment rate, and the 41% decrease in turn around time on warranty exchange material, Murchland and team have driven down the warranty cost per unit by 30% over the past year, within the integrated structure. To cap it off, the improved data exchange across plan, source, make, deliver, and return functions has provided visibility to key supply chain data that has allowed the team to drive down the scrap rate by 19%.

"I expect we will see improvement akin to these reverse logistics enhancements within our plan, source, make and delivery processes," stated Berg. "The other functions have learned a great deal from returns data already. As returns processes continue to mature, the exchange of information between Customer Service and the other disciplines will permit improvement within forward supply and directly within our products."

Outlook

In its last earnings announcement, Sony Ericsson global shipments in the past quarter (Q1 2007) reached 21.8 million, a 63% increase compared to the same period last year, generating significant year-on-year market share gains and continuing the momentum of 2006.

Sony Ericsson also announced a number of attractive new products during the quarter, including two new Cyber-shot™ phones, five additional Walkman® models across a variety of price points to further strengthen its unique music offering, and its first HSDPA handset aimed primarily at the North American market.

In March, Sony Ericsson signed licensing and development service agreements concerning entry-level GSM, GPRS and EDGE mobile phones with Sagem Communication (SAFRAN Group). Through this co-operation, Sony Ericsson will strengthen its position in the entry-level area of the market.

Sony Ericsson forecasts the 2007 global handset market will be above 1.1 billion units.

Najmi Jarwala, President of Sony Ericsson (USA) Inc. said, "Sony Ericsson is setting the standard for innovation, and we continue to create mobile devices that lead in design, quality and are easy to use."

"That’s what makes the initial results of this pilot so encouraging – not only does it enable us to deliver quality products to our customers, but more importantly we can deliver a better service experience."

Eric Hemming, Head of Program Management at Sony Ericsson Mobile Communications (USA) Inc. has over 11 years of Supply Chain experience. Prior to joining Sony Ericsson in 2005, Eric worked for Moduslink, as Director of Business Management, leading end-to-end global supply chain management solutions for technology-based clients across Communications, Computer, Software, and Storage Device industries.

Reverse Logistics Magazine, Aug/Sept 2007