Oct 25, 2013

Canon to reduce part/transport inventory


Kyoichi Fukumori, executive manager of Canon's logistics management center

Canon Inc. will advance the reduction of its part inventory and transport inventory (in-transit products/arts) worldwide in a bid to realize the target of a major pillar in its logistics strategies - to slash logistics costs and transport time. The company has been modifying its sales/logistics strategies, which call for not holding the conventional amount inventories, since 2011 and has shifted to a system where large volumes of product inventories are placed on the side of the distributors. With this, its utilization of air transport has significantly dropped, leading to lower logistics costs. In the future, the company will hold a certain volume of sales inventory, but intends to shorten transport time by further reducing part/transport inventory. Further, it will review the transport routes between countries and boost direct transport to customers all over the world without going through the inventories of the intermediate bases and distributors.

Kyoichi Fukumori, executive manager of Canon's logistics management center that administers the company's logistics strategies and operations, talked at the Nationwide Logistics Conference (sponsored by the Japan Institute of Logistics Systems) that was held in Tokyo on October 23.

Canon has been actively adopting a sale/logistics strategy wherein the company does not hold inventories since around 2006. But after it learned its lesson from the shortage in product stocks caused by the disruption of its logistics network after the Great East Japan Earthquake in 2011, it shifted to a strategy that calls on the increase in sales inventories. By 2012, the consolidated inventory stocks of the company was valued at around Y550 billion, up 16% from the previous year and 40% from 2010, a year prior to the earthquake. The turnover period of its inventories has also been extended to a little less than 60 days in 2012, double the level recorded in 2010.

The company will continue to hold large volumes of sales inventories to avert risks during major disasters and to support major sale activities, but it will further reduce inventories that are generated in the production/transport processes. In this regard, Fukumori discussed the measures Canon has been taking toward inventory reduction, saying that, "The policy for cutting down part/material inventories and work-in-progress stocks has been released from the top management, but it was a little late. There is an order to reduce transport inventory under the responsibility of the logistics, as much as possible."

With the rise in sales inventories, the planned transport ratio by sea has also surged, but the transport time is getting longer. In order to cut down the transport inventories, Canon aims to shorten the transport time, especially for cargoes hauled to the U.S. and Europe from Asia. For instance, in the Russia-bound shipments, the company once considered using the Siberian Railway, but the vibrations and other transport quality concerns surfaced. By converting to a sea route that goes via the Black Sea, the transport time has decreased compared to the conventional route that went through Helsinki, Finland, while the transport costs dropped by 16%. "We expect much from the Arctic Sea route for Europe-bound cargoes, so we will consider its use as well," said Fukumori.

At present, Canon is advancing moves to directly send the products to customers, instead of the hitherto system of mainly having them go through the distributors in each country. For instance, products that are to be sent to the Middle/Near East and Africa from Japan used to be forwarded to the logistics base in Rotterdam, which is under the control of Canon's Europe subsidiary, and then hauled to each country after going through the warehouse at Jebel Ali in Dubai. By having these cargoes directly sent to the Dubai warehouse, the transit time has been halved from the hitherto length to 23 days. Even cameras and other products that are shipped to the Latin American market from Hanoi, Vietnam used to be consolidated at the warehouse in Miami that is managed by the U.S. base and then shipped out to their final destination countries. But Canon has also shifted to the direct transport of these goods to the customers at each country today.

Logistics costs accounted for about 3.1% of the consolidated sales of Canon in 2012, down 0.4 points from the previous year. By segment, international transport accounted for 0.54% of the costs, while warehousing and regional transport accounted for 1.03% and 1.42%, respectively. International transport had the lowest ratio in the costs owing to the wide-margin reduction in the use of air for hauling cargoes. "We attach great importance to regional transport all over the world, which holds the largest cost ratio. We will engage in trucking and other transport means in the U.S. in the future," claimed Fukumori.

[Increased offshore transport with overseas production growth]

Canon has majority of its key production bases located in Asia, with the company owning multiple factories in Japan, as well as China, South Korea, Taiwan, Vietnam, Philippines, Thailand and Malaysia. Overseas production accounted for 52% of its total production in 2012, with the company continuing to expand its overseas production capacities this year by opening new factories in the Philippines and Thailand in June. The said overseas production ratio rose to as high as 58-59% in the January-June period owing to the low yen state of the exchange market.

The expansion in overseas production has remarkably contributed to the rise in international transport and country-to-country shipments. When viewed in terms of consolidated international transport volume in 2012, marine cargoes accounted for 98% of the total shipments, totaling 107,600 FEUs for the entire world. Of this volume, products manufactured in Asia accounted for more than 70% of the total at 75,600 FEUs. Cargoes to/from Japan reached 46,800 FEUs, comprising 32,000 FEUs of ex-Japan and 14,800 FEUs of Japan-bound cargoes. The remaining 60,800 FEUs are cargoes hauled between countries, exceeding 56% of the total.

Air cargoes in 2012 stood at 21,700 tons on a global scale, half of the 53,300 tons recorded in 2011. The volume of airfreight in 2012 was also less than a third of the volume registered in 2010, thereby significantly contributing to the reduction in the cost of international transport. Broken down, ex-Japan cargoes totaled 11,000 tons and ex-Asia cargoes amounted to 11,600 tons, with those originated from Japan, where high value-added products are made, accounting for more than half of the total volume. Ex-Asia cargoes that were transported between countries came to 6,600 tons.

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