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Supply Chain Management of Fujitsu Limited
Supply Chain Management of Fujitsu Limited - January 7th, 2011
Perhaps the most dramatic example of Japan's ability to overcome long odds in a short space of time has been the growth of its computer industry, and the undisputed leader among Japanese computer makers is Fujitsu Limited. Ranked second in the world behind IBM, Fujitsu is very much a product of Japan's willingness to tackle large-scale industrial projects with a combination of private ambition and governmental funding. Since 1950 Fujitsu has become the Japanese government's primary weapon in its struggle to develop an indigenous computer industry in the face of IBM's superior might. Fujitsu operates within three main areas: computer systems--once predominantly mainframes, it now also includes client-server systems, personal computers, supercomputers, software, and peripherals--telecommunications systems, and semiconductors.
Fujitsu was created on June 20, 1935 as the manufacturing subsidiary of Fuji Electric Limited and charged with continuing the parent company's production of telephones and automatic exchange equipment. Fuji Electric, itself a joint venture of Japan's Furukawa Electric and the German industrial conglomerate Siemens, was part of Japan's attempt to overcome its late start in modern telecommunications. Spurred by Japan's expanding military economy, Fujitsu quickly branched off into the production of carrier transmission equipment in 1937 and radio communication two years later. Yet the country's telephone system remained archaic and incomplete, with German and British systems in use that were not fully compatible. World War II ruined a large part of this primitive system, destroying some 500,000 connections out of a total of 1.1 million, and leaving the country in a state of what might be called communication chaos. At the insistence of the occupying U.S. forces, Japan's Ministry of Communications was reorganized and nearly became a privately owned corporation that would have simply adopted existing U.S. technology to rebuild the country's telephone grid. A coalition led by Eisaku Sato, however, convinced the government to instead form a new public utility, Nippon Telephone and Telegraph (NTT). Created in 1952, NTT soon became a leading sponsor and purchaser of advanced electronic research, and it continued to be one of Fujitsu's key customers.
The link with NTT may well have been Fujitsu's greatest asset, but Fujitsu was only one of a series of increasingly determined government partners for the country's young computer industry. Fujitsu first became interested in computers in the early 1950s, when Western governments and large corporations began making extensive use of them for time-consuming calculations. After a number of years of experimentation Fujitsu succeeded in marketing Japan's first commercial computer, the FACOM 100.
This was a start, but the Japanese computer business was still in its infancy when IBM brought out the first transistorized computer in 1959. So great was the shock of this quantum leap in design that the Japanese government realized it would have to play a far more vigorous role if the country was not to fall permanently behind the United States. The government formulated a comprehensive plan that included restrictions on the number and kind of foreign computers imported, low-cost loans and other subsidies to native manufacturers, and the overall management of national production to avoid needless competition while encouraging technological innovation. Of equal importance, in 1961 the Japanese government negotiated with IBM for the right to license critical patents, in exchange allowing the U.S. giant to form IBM Japan and begin local production.
1960s Computer Developments
Patents in hand, seven Japanese companies entered the computer race. All of them except Fujitsu quickly formed alliances with U.S. companies to further their research; Fujitsu, refused by IBM in a similar offer, remained the only "pure," or junketsu, Japanese computer firm, committed to the development of its own technological expertise. The other Japanese companies were all much larger than Fujitsu and devoted only a fraction of their energy to computers, while Fujitsu soon devoted itself to communications and computers.
Able to build on its already substantial electronics experience Fujitsu was directed by the government to concentrate on the development of mainframes and integrated circuitry, and in late 1962 it was given the specific goal of developing a competitor to IBM's new 1401 transistorized computer. The government stalled IBM's plans for local production and enlisted Hitachi, NEC, and Fujitsu in what it called project FONTAC, the first in what would become a series of government-industry drives. From the perspective of the marketplace, FONTAC was a complete failure--before it got off the ground IBM had launched its revolutionary 360 series, pushing the Japanese further behind than when they started--but as a first try at a coordinated national computer program, FONTAC proved to be extremely important. Fujitsu and the other Japanese manufacturers could afford poor initial performance, knowing that funds were available for further research and development. In particular, the Japanese government had by this time formed the Japanese Electronic Computer Company (JECC), a quasi-private corporation owned by the seven computer makers but given unlimited low-interest government loans with which to buy and then rent out newly produced computers. In effect, this allowed Fujitsu and the others to receive full payment for their wares immediately, thus greatly increasing corporate cash flow and making possible the huge outlays for research and development.
The result of JECC's largesse was immediate: in the space of a single year--1961 to 1962--Japanese computer sales increased by 203 percent. In 1965 Fujitsu, relying largely on technology developed as part of the FONTAC project, brought out the most advanced domestic computer yet built, the FACOM 230. The company had quickly become JECC's leading manufacturer, supplying approximately 25 percent of all computers purchased by the firm during the 1960s. In addition, Fujitsu had continued its substantial work for NTT, with over half of its telecommunication products going to the phone company by the end of the decade. NTT remained a critically important governmental agency for Fujitsu and the computer industry, routinely shouldering research-and-development costs and paying high prices to ensure that its suppliers remained profitable. NTT also sponsored a super-high-performance computer project in 1968, similar in design and scope to one begun the previous year by the Ministry for Trade and Industry (MITI), to develop a new computer for its complex telecommunications needs. Both of these ambitious programs, were paid for by rival government ministries.
Development of the M Series in the 1970s
Despite this concerted effort, however, by 1970 the Japanese were suffering from IBM's recent introduction of its 370 line. Worse yet, under international pressure the Japanese government had agreed to liberalize its import policy by 1975, giving the local computer industry a scant five years in which to become truly competitive. MITI responded by making computer prowess a national goal, greatly increasing subsidies, and reorganizing the six remaining companies into three groups of cooperative pairs. Fujitsu, as the leading mainframe maker, was paired with its arch-rival Hitachi and given the task of matching IBM's 370 line with a quartet of its own heavy-duty computers, to be called the M series.
The need to build IBM-compatible machines led Fujitsu to an important decision. In 1972 the company invested a small but vital sum of money in a new venture started by Gene Amdahl, a former IBM engineer who had been largely responsible for the design of its 360 series computers. Amdahl Corporation had been formed with the express intent of building a cheaper, more efficient version of IBM's 370 line, which made a joint venture with Fujitsu highly advantageous for both partners. With its strong government support, Fujitsu had access to the capital Amdahl badly needed, while the U.S. engineer was a valuable source of information about IBM operating systems. Fujitsu and Amdahl persevered in what became a most profitable sharing of technology and capital.
A key factor in the Fujitsu-Amdahl deal was the Japanese company's confidence that it could rely on NTT to pay top dollar for whatever computer evolved from the new venture. In this, as in many other situations, NTT served as a kind of guaranteed market for Fujitsu, which in turn was well on its way to becoming a world leader in telecommunication technology and hence a more valuable supplier to NTT. The Fujitsu-Hitachi M series of high-speed computers emerged in the late 1970s. With the M series, the Japanese had achieved a rough parity with the IBM systems. Fujitsu had become one of IBM's very few real competitors in the area of general-purpose mainframe computers; in 1979 Fujitsu took a narrow lead over IBM in Japanese computer sales that held through the mid-1990s.
New Initiatives of the 1980s
After the watershed events of the 1970s, Fujitsu in the 1980s pushed ahead with an impressive array of projects in each of its three main marketing areas. In computers, which generated 60 to 70 percent of overall corporate revenue, Fujitsu continued the success of its M series while branching out into minicomputers, workstations, and personal computers. The company spent much of the 1980s in a legal dispute with IBM over the latter's charge that Fujitsu had improperly copied IBM's software. An arbitrator decided in 1988 that, after $833 million in payments to IBM, Fujitsu could continue to buy access to IBM software for ten years at a cost of at least $25 million a year. The agreement was meant as a spur to further mainframe competition. In the 1980s Fujitsu also became a leading manufacturer of supercomputers, with some 80 such units installed by the end of the decade. Though easily the leading mainframe maker in Japan, Fujitsu had little success exporting its products--with only 22 percent of corporate sales made overseas, Fujitsu remained overly dependent on its Japanese business. In particular, the company was unable to break into the U.S. market, where, in addition to the obvious presence of IBM, its mainframe bias was seen as somewhat outdated. The trend in large computer systems at the time was toward greater distribution of processing power, aided by individually tailored software applications--two areas in which Fujitsu was notably weak.
Fujitsu remained strong in telecommunications, however, where it continued its close relationship with NTT as well as with the newly emerging New Common Carriers. In light of its origin in the telecommunication field, it was not surprising that Fujitsu became a world leader in the development of Integrated Services Digital Network (ISDN), a convergence of data processing and telecommunications aiming to carry voice, image, data, and text all on one system. Fujitsu was also active in other improvements in telecommunications such as COINS (corporate information network systems), PBXs (private branch exchanges), and digital switching systems. The company also provided important terminal and branching equipment for the Trans-Pacific Cable #3, the Pacific Ocean's first optical submarine cable.
Fujitsu maintained a strong presence in its third product area as well, electronic devices. In 1987 the firm was prevented by the U.S. government from acquiring Fairchild Camera, a leading U.S. manufacturer of memory chips, but it still managed to sell about $2.5 billion worth of chips annually. The very fact that Fujitsu was barred from purchasing Fairchild was a testament to the company's strength in semiconductors as well as computers. In conjunction with the Japanese government and other Japanese computer firms, Fujitsu continued to refine its chip technology in anticipation of the arrival of the fifth generation of computers, proposed machines that would be able to write their own software and in some meaningful sense "think."
Partnering and Restructuring in the 1990s
In the end, however, Fujitsu's 1980s activities proved unable to carry a healthy firm into the 1990s. Observers noted (in hindsight) that the company had played a mainly follow-the-leader (IBM) strategy which emphasized mainframe computers--this began to catch up with Fujitsu in the early 1990s as the shift to networked systems and client-server systems accelerated, cutting the market for mainframes dramatically. Other initiatives undertaken in the 1980s to great fanfare proved less important long-term than little-noticed projects; in telecommunications, for example, ISDN was still being touted as the system of the future as late as 1996, while Fujitsu's NIFTY-Serve online service, which debuted in 1986, was seen as the centerpiece of the company's telecommunications operation in the mid-1990s because of the emergence of the Internet (NIFTY-Serve had about 1.6 million subscribers in Japan in 1996).
The year 1990, then, became a year of transition for Fujitsu upon the appointment of Tadashi Sekizawa, a telecommunications engineer, as president. Sekizawa wanted Fujitsu to be more aggressive in its pursuit of foreign markets (80 percent of revenue in 1989 came from Japan), to become more market-driven, and to lessen the stifling bureaucracy that impeded product development.
To bolster the firm internationally, Sekizawa continued to seek non-Japanese partners for growth, wishing to utilize local experts knowledgeable about local markets. Already having a partner in the United States through its 43 percent stake in Amdahl, Fujitsu gained a major European partner in July 1990 when it spent £700 million (US$1.3 billion) for an 80 percent stake in International Computers Ltd. (ICL), Britain's largest and most important mainframe maker. Fujitsu and ICL--which had become a subsidiary of STC in 1984--had already collaborated on several projects, beginning in 1981. Fujitsu's European operations were further bolstered in 1991 when ICL acquired Nokia's data systems group, which was the largest computer company in Scandinavia. The U.S. market was further targeted as well with a $40 million investment in HaL Computer Systems, Inc., a start-up firm aiming to develop UNIX systems, UNIX being an increasingly popular operating system.
Unfortunately for Fujitsu, the Japanese economic bubble burst in 1991 just as the company was beginning to implement Sekizawa's program. As a result, profits fell 85.2 percent from ¥82.67 billion in fiscal 1990 to ¥12.21 billion in fiscal 1991; the following two years, Fujitsu posted losses--¥32.6 billion in fiscal 1992 and ¥37.67 billion in fiscal 1993. Looming over these figures was the downside of the company's huge investments of the 1980s--a US$12.4 billion debt by 1992.
The recession precluded Fujitsu from making further international moves in 1991, and capital spending was slashed one-third that year. Strategically, however, research and development spending was not cut. Since the Japanese culture prevents companies in Fujitsu's position from making large work force reductions to cut costs, Sekizawa dramatically cut the number of new hires. Meanwhile, to lessen its dependence on mainframe sales and strengthen its PC area, Sekizawa in 1992 established a cross-functional Personal Systems Business Group with the aim of speeding up product development. Also intended to improve product development speed was a restructuring that created a flatter organizational structure and lessened corporate bureaucracy.
Fujitsu's huge debt ruled out any major investments to create new products, so the company turned to partnerships to an even greater degree as the decade continued. The deals included: developing a next generation of less expensive mainframes with Siemens; establishing a joint venture with Advanced Mirco Devices, Inc. called Fujitsu AMD Semiconductor Limited to produce flash memory; creating multimedia technology with Sharp Corp.; developing microprocessors for Sun workstations with Sun Microsystems; and relying on Computer Associates to market Jasmine software in the United States.
Clearly, Fujitsu was juggling a number of initiatives as well as dealing with weakening mainframe sales and a difficult, highly competitive semiconductor market. Encouragingly, revenues rose sharply in fiscal 1994 (¥3.26 trillion) and 1995 (¥3.76 trillion), while the company also returned to profitability, posting net income of ¥45.02 billion in 1994 and ¥63.11 billion in 1995. It was too soon to know for sure whether Fujitsu had weathered the storms of the early 1990s, but under Sekizawa's forceful guidance the company seemed determined to regain its lofty position of the late 1980s.
Principal Subsidiaries: Fujitsu Laboratories Ltd.; Fujitsu Business Systems Ltd.; Fujitsu Kiden Ltd.; Fuji Electrochemical Co., Ltd.; Shinko Electric Industries Co., Ltd.; Fujitsu TEN Limited; PFU Limited; Fujitsu Denso Ltd.; Fujitsu FACOM Information Processing Corporation; Fujitsu AMD Semiconductor Limited; Fujitsu America, Inc. (U.S.A.); Fujitsu Business Communication Systems, Inc. (U.S.A.); Fujitsu Network Transmission Systems, Inc. (U.S.A.); Fujitsu Personal Systems, Inc. (U.S.A.); HaL Computer Systems, Inc. (U.S.A.); Fujitsu Computer Products of America, Inc. (U.S.A.); Fujitsu Microelectronics, Inc. (U.S.A.); Fujitsu Compound Semiconductor, Inc. (U.S.A.); Fujitsu--ICL Systems Inc. (U.S.A.); Fujitsu Network Switching of America, Inc. (U.S.A.); Fujitsu Computer Packaging Technologies, Inc. (U.S.A.); Fujitsu Open Systems Solutions, Inc. (U.S.A.); Fujitsu Systems Business of America, Inc. (U.S.A.); Ross Technology, Inc. (U.S.A.); Fujitsu Canada, Inc.; Fujitsu Systems Business of Canada, Inc.; Fujitsu do Brasil Limitada (Brazil); International Computers (South Africa) (Pty) Ltd.; Fujitsu Europe Limited (U.K.); Fujitsu Microelectronics Ltd. (U.K.); Fujitsu Deutschland GmbH (Germany); Fujitsu Mikroelektronik GmbH (Germany); Fujitsu Microelectronics Ireland Limited; Fujitsu International Finance (Netherlands) B.V.; Fujitsu España, S.A. (Spain); ICL PLC (U.K.; 84%); Fujitsu Europe Telecom R&D Centre Limited (U.K.); Fujitsu Telecommunications Europe Limited (U.K.); Fujitsu Finance (U.K.) PLC; Fujitsu France S.A.; Fujitsu Italia S.p.A. (Italy); Fujitsu Microelectronics Italia S.r.l. (Italy); Fujitsu Nordic AB (Sweden); Fujitsu Australia Ltd.; Fujitsu Microelectronics (Malaysia) Sdn. Bhd.; Fujitsu Microelectronics Asia Pte. Ltd. (Singapore); Fujitsu (Thailand) Co., Ltd.; Fujitsu Australia Software Technology Pty. Ltd.; Fujitsu Australia Wholesale Pty. Ltd.; Fujitsu Australia Finance Pty. Ltd.; Nanjin Fujitsu Computer Products Co., Ltd.; Beijing Fujitsu System Engineering Co., Ltd. (China); Fujitsu Hong Kong Limited; Fujitsu Microelectronics Pacific Asia Ltd. (Hong Kong); Fujitsu India Telecom Limited; Fujitsu Optel Limited; Fujitsu ICIM Software Technologies Pty. Ltd.; P.T. Fujitsu Systems (Indonesia); Fujitsu Korea Limited; Fujitsu Component (Malaysia) Sdn. Bhd.; Fujitsu New Zealand Holdings Limited; Fujitsu New Zealand Limited; Fujitsu Computer Products Corporation of the Philippines; Fujitsu (Singapore) Pte. Ltd.
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