If you have been following recent news related to Sony Corporation, it should be evident that this company is embarking on a number of significant challenges, one of which includes a re-structuring of its global supply chain. A recent Business Week article.  reports that Sony recently announced its first annual loss in 14 years ($1 billion) with a forecast of another losing year.  Upwards of 16,000 people are in the process of losing their jobs at Sony, which is a shock to a company that prides itself on lifetime employment.

The backdrop leading-up to the current situation is a rather long one, one which will probably play out in a number of existing and future business case studies.  In consumer electronics, the company was slow to respond to the vastly popular digital music product entries from Apple, such as the iPod and iPhone. In televisions, Sony has a stellar reputation for innovation and quality, but has lost volume market leadership to Samsung Electronics Company. A New York Times article indicates that Sony has lost money in its television manufacturing unit for the last five consecutive years.  In gaming devices, Nintendo‘s Wii and the Xbox360 from Microsoft have been outselling the Playstation 3.  As an industry analyst, I penned a number of research insights that pointed to Sony’s decision to initially include the newer BluRay disc technology as a key distracter in gaining initial market and volume producer acceptance.  And the list goes on, leading to today’s current situation.

Chairmen and CEO Howard Stringer, who was brought on four years ago to transform the company, has now taken more direct day-to-day control.  In late February, Sony announced a massive management re-structuring with Mr. Stringer taking on operational CEO responsibilities, along with a revised management team tasked with turnaround profitability.  While Business Week reports that Stringer has promoted four relatively young Japanese executives into his managerial team, the situation for supply chain is slightly different.

Included in this restructuring was the announcement of Yutaka Nakagawa, Executive Deputy President, to lead a combined manufacturing, logistics, and procurement organization. Mr. Nakagawa joined Sony in 1968, and has had a number of senior and executive management responsibilities primarily in Sony’s product businesses.  His former tenure at Semiconductor and Component Group, along with other businesses provides a well-grounded understanding of supply-chain strategy and operational needs.  But Sony’s supply chain challenge remains daunting.

Business Week reports that Sony is closing three plants in Japan by the end of December, and the number of plants around the world will be reduced to 49 from a current 57. A posting in The Deal indicates that the company will slash material costs by 20% ($5.3 billion USD), and cut total suppliers to 1200 from the current 2500 by March of 2011.

Taking on a challenge to reduce overall material costs by 20% in two years has proven to be challenge for companies in profitable times, let alone in crisis situations.  But perhaps Sony’s current crisis can drive change at a faster pace.  With competitors such as Apple positioned in a virtual supply chain, with enormous flexibilities, Sony will have no choice but to move quickly.  Soft demand and a declining yen have had their toll.  But there is a positive aspect to this pending change.  Sony’s existing supply chin management team has the benefit of learning what has and has not worked well in high tech value-chains. Advanced technology will certainly help if applied smartly.  The Sony brand also has enormous power within the market, something which other companies have failed to learn in wholesale slashing of supply chain costs.

We certainly wish Sony the best in their supply chain transformation challenge.  It will be interesting to observe in the coming months how Sony approaches its supply chain transformation  challenge.

Bob Ferrari