Panasonic Spin-Off Camera Manufacturer’s Growth Strategy
Time-based Competition
We cannot reproduce the growth of Levi’s only through an open policy. i-PRO had many industry-first, world-first products, but rivals also continued to develop new products daily. Patents and technological innovation are short-lived, as we have entered an era of excessive competition and so-called engineered commodities (hi-tech everyday items). This is the exact opposite of the blue ocean enjoyed by Levi’s: a market known as a red ocean, that forces us into battles of attrition.
In order to break free of this red ocean, and build a competitive advantage, we devised the strategic concept of time-based competition. This is a strategy to maximize the value of time, aiming to differentiate ourselves from rivals and achieve our open policy. By combining these policies, we can supply products to anyone, while keeping the operational expertise, the source of our competitive advantage, an in-house secret, creating a situation that other companies cannot mimic. This operational excellence helps us differentiate ourselves from rivals, providing a stronghold to protect our profits.
The concept of time-based competition originates from a survey of global car manufacturers conducted by George Stalk, Jr., of Boston Consulting Group (BCG), which began with the exploration of the core competencies of the Toyota Production System and found that American makers took 60 months from development to launch of new models, which Japanese businesses achieved in 36 months.
The BGC survey showed that Japanese car manufacturers achieved higher growth than their US counterparts through improvements such as cutting inventory, reducing set-up time and interruptions, and improving workspace efficiency, whereby they boosted inventory turnover rates, along with equipment and labor occupancy rates.
The crux of time-based competition is that time is a source of competitive advantage. Specifically, it is a concept of controlling time, for example, minimizing time that does not produce added value and cutting lead time, helping to reduce customers’ opportunity costs, justifying premium cost, and achieving profitable growth. For example, if products that take average of one week for delivery can be delivered the next day if a customer makes an urgent request, it is possible to charge more than normal, because six days of wait time are eliminated. In economic theory, price is said to be determined according to the balance between supply and demand, but when the variable of time is factored in, the position of the equilibrium point changes. If delivery time is long, it falls (equilibrium point 1), and if delivery time is short, it rises (equilibrium point 2). Basically, the relationship between supply, demand and price is greatly affected by time. (Graph 3: Price as a Function of Supply/Demand and Time.)
Operational excellence and process innovation are essential to make it possible to flexibly adapt to situations. Furthermore, a virtuous cycle based on such unique organizational capability functions as a barrier that prevents entry by rivals. (Graph 4 Strategic Virtuous Cycle)
A prime example of this is Misumi Group Inc. Originally a trading company, Misumi Shoji Co., Ltd., which sold die components, but it introduced a business model of catalog mail order sales, thereby establishing itself as a unique presence. Furthermore, by merging component manufacturer Suruga Seiki into its operations, it transformed into a SPA (manufacturing retailer) in the components business, and now produces as many as 80 sextillion (80 billion times 1 trillion) types of machine components, to order.
I would like to reflect upon and revise the nature of the camera as a tool. Professional photographers select the optima camera according to the subject they will photograph as well as the time, place and occasion. For this reason, most of them have a variety of devices. It is the same with cameras needed for AI. Diverse capabilities are required of cameras depending on the object and shooting environment, including angle of view, distance to the object, resolution, shutter speed, and depth of field. The construction of outstanding AI requires a one-of-a-kind camera that optimally combines these factors. In order to respond to such needs, we need the organizational capability for high-mix, low volume production and to leverage economies of scale.
The camera industry changed dramatically with the advent of the smartphone. Businesses have risen to prominence with sales in the millions per model, and there has been no sign of makers aiming for high-mix, low volume production. It is not necessary to work like Misumi in quantities of hundreds of quintillions, trillions or even hundreds of millions. Still, by introducing the same business model as Misumi and having customers purchase in the same manner, we should be able to achieve a presence that other companies cannot replicate. In other words, by continuing to pursue the value of time through operational excellence, we can escape the game of the red ocean where returns on investment in technological and operational innovations are unpredictable.
i-PRO’s time-based competition refers to the construction of operational excellence in the following two fields. The first is the engineering chain, that is, product development lead time; and the other is the supply chain, production and logistics lead time.
In the case of B2B products, many customers have different needs. In the time of Panasonic, we would prepare demand forecasts for these needs, and develop products in order of models we expected would be in greatest demand. But design and development rules were strict. We were required to develop the optimally designed product at minimal cost per model, without redundancy. As a result, it took a long time to make each model, and the number of products that could be developed each year was limited.
Also, a system of production, sales and inventory (PSI) planning was simultaneously implemented at the manufacturing front line. This was because we believed that the production of a large lot minimizes costs and optimizes inventory. It can certainly be considered a safe way to operate, but lead times tended to grow, and the supply chain lacked flexibility. Consequently, we lost opportunities here and there, for example, from being unable to promptly respond to changes in demand. Viewed from the perspective of time-based competition, our ways of development and manufacturing were in opposition.
Even if we understood this, in the case of a large company with a long history, it is not easy to eradicate ingrained ways of thinking and working. Trying to resolve issues individually when they were complexly intertwined would end in an impasse. Resolution required not individual prescriptions but a general notion to liquidate the series of issues in one go. In the case of i-PRO, this was the modular concept. A restaurant is the epitome of this. Usually, restaurants have a large selection of items on their menu. Some restaurants prepare dishes from their ingredients at the time of ordering, but usually, they prepare items in advance, such as soups and stocks used in multiple dishes, and pre-cook meat and fish to save time. In production terminology, they are referred to as half-finished products. Fast-food chains and the like have a large selection of dishes, prepare half-finished products in advance and have processes to fix prepare finished dishes with minimal effort whether for an individual serve or a large order, thereby reducing the time required to fill customers’ orders.
In 2020, we revised the tailor-made system, the way we design a finished product from scratch, that we had used continuously for decades and began development of half-finished products. Essentially, we do not develop finished products, but switched to developing modules (general purpose half-finished products) for use in various types of products.
Actually, module design has a greater degree of difficulty than designing from scratch, model by model. This is because it is necessary to design to respond to diverse needs while minimizing redundancy, and to consider how to guarantee maximum compatibility between modules, for example. If you develop multiple modules with a high degree of versatility, it is possible to define all final products as a combination of them. The effectiveness of this is clear: the development cycle for one model is significantly reduced, and the number of new product models that can be released each year increases greatly. (Graph 5 Product Development Time and Number of Models) In the fast evolving digital industry, development cycle speed has greater significance than product range. This is because, by constantly incorporating the latest sensors and semiconductor chips released by suppliers into products faster than other companies, it is possible to retain the lead in product performance.
In the manufacturing front line, we mass produce these general-purpose modules to leverage the economy of scale, and retain them as inventory. We await orders with half-finished products, then quickly assemble and ship in response to demand, enabling us to immediately respond even to small-volume needs. This is also known as mass customization. (Diagram 6 Module Manufacturing Process) By delivering on customers’ requests in a timely manner and quicker than rivals, we can justify premium prices and also develop closer relationships with our customers. Then we can gain increased repeat business and customer life-time value (LTV) will increase.
Misumi succeeded in achieving rapid growth through its own unique business model but we can probably say that the key to its predominance is design expertise in generic modules (which Misumi refers to in-house as “blanks”.) The company has accumulated know-how in the degree of redundancy possible, and how much they can increase the final number of models, how many items should eventually be defined as blanks, which blank should be designed and manufactured in what way, how much inventory they should have, and so on. It goes without saying that it would be extremely hard for other companies to imitate them. Unlike product performance, it is not possible to see the engineering chain or supply chain from outside. Therefore, if you construct such a system, other companies will be unable to copy it, and you can maintain a competitive advantage. This is what i-PRO aims to do.