1 Supply Chain Management In Japan November, 2003 Akiko Cho

2 Topics to be discussed Vendor Management Inventory Third Party Logistics SCM Finance

3 Subcontract System Subcontractor = ‘shita-uke-gaisha’ More than contractual Stable and constant - reliability in quality assurance - high reliability in timely delivery Rationalization= ‘gori-ka’ - Cooperation among participants

4 Reason for Subcontracting Subcontractors% Parent Companies% Steady amount of orders59.1Specialized know-how not held by oneself 57.6 Difficult to design and develop product by oneself 45.8Concentration on best suited work48.2 Difficult to obtain orders by oneself 42.4Past business relation and reliability46.5 Efforts concentrated on production 38.7Increased flexibility for order size37.1 No worry of default on debt27.7Lower personnel and unit costs36.5 Improved reputation26.2Efficiency in small lots30.6 Supply of raw materials, etc21.7Control size of own company9.4 Technical Guidance17.4Competition ensures high quality and lower unit Cost 8.8 Source: METI

5 Just-in-Time ‘Kan-ban’ System Toyota Production System 1950’s-60’s Materials, Parts, and Components are produced and delivered just before they are needed

6 Information Technology 1993 ： commercial utilization of internet Information = Visibility Supply Chain Management

7 Vendor Managed Inventory (1) Vendor manage buyer’s inventory in order to optimize supply chain management Buyer : disclose the level of inventory Vendor: forecast the level of production vendorBuyer Level of inventory Pick-up information Optimize supply chain © Hitachi Research Institute, 2003

8 Vendor Managed Inventory (2) Buyer-oriented Vendor’s inventory until ‘picking’ Postpone the payment Supplier Buyer (1) shipped(2) delivery (3) warehouse(4)picking Supplier’s warehouse Buyer’s VMISupplier’s Order Buyer’sOrder Buyer’s warehouse Supplier’s © Hitachi Research Institute, 2003

9 VMI: Buyer’s advantage Reduction ： inventory risk Reduction ： price Real time management of inventory

10 VMI: Impact on supplier Postponement of collection of A/R Increase: inventory risk Increase: shipment cost

11 General Trading Companies = Distributor Provision of channels into foreign markets Build the logistical and sales channels for exports ‘Sogo-Shousya’ vs direct marketing Production Time Local Office Warehouse Logistics Warehouse

12 Third Party Logistics(3PL) Visibility Information Technology Outsourcing services

13 3PL : Asset vs. Non Asset Physical transportation: trucks, ships, airplanes IT solutions

14 3PL: Services Consulting IT Solution Real Estate Outsourcing Transportation management Distributor Cost, Service and Quality Control Financial Service

15 3PL: Fees Actual fees Performance based fees Target

16 Kitting Pool Distribution Sub-Assembly Temperature Controlled Warehouse Management

17 © Hitachi Research Institute, 2003 Buyer Supplier 3PL Order/ fulfillment Logistics A/R Logistics Companies Inventory Bank order Pay ment A/R Reconciliation order Order Conf. Billing billing Conf. Order Conf. Pay ment Order A/R Reconciliation Conf. WM systems

18 Transport Management Consolidation Custom Brokerage Sub-Assembly

19 Suppliers Ｂ C Buyer A © Hitachi Research Institute, 2003 Milk-run

20 Cross-Docking Supplier Buyer A (X) A( Ｙ ) ＋Ｂ (×) C ＋ B( Ｚ ) A ＋ B (×) A (Y ) Ｂ (×) Ｂ(Ｚ)Ｂ(Ｚ) Ｃ(Ｚ)Ｃ(Ｚ) G H J © Hitachi Research Institute, 2003

21 Bill Payment Services © Schneider Logistics, 2003

22 Issues to be solved Global operation Flexibility and speed Management of diversified portfolio Logistic finance

23 Lead Logistics Party(4PL TM ) Toyota xxxOther auto 4PL 3PL Truckmid-sizedBusHinosmall © Hitachi Research Institute, 2003

24 SCM Finance

25 SCM Finance Flooring Factoring Invoice discounting Inventory finance

26 Factoring Suppliers Financial Institution (1)Bill (3)Payment Disputes (2)Confirmation Buyer © Hitachi Research Institute, 2003

27 Invoice Discounting © Hitachi Research Institute, 2003 (3)Cash Payment: 80 － 90 ％ (7)Cash Payment: 10-20% (5) Payment Financial Corporation (1)Shipment (4) Collection of A/C Supplier (2)Delivery Confirmation Bank A/C (6)Transfer Buyer

28 Future Scheme?? © Hitachi Research Institute, 2003

29 VMI factoring Buyer (1) shipped (2) delivery(3) warehouse(4) picking ファイナンス企業 3PL VMI factoring Supplier’s Cash Supplier Based on ‘Picking’ data Cash: 60days VMI A/R Supplier’s © Hitachi Research Institute, 2003

30 Inventory Finance Buyer (1) shipped (2) delivery (3) warehouse (4) picking Financial Corp 3PL Buyer’s VMI ） inventory finance A/R Supplier Financial CorporationA/R Supplier’s ©Hitachi Research Institute, 2003 Based on ‘movement’ of goods