Sony: Ramping Up for Big Growth in Sales

Companies need quick solutions in order to keep pace with rapid growth. In the case of Sony's operations in Mexico, the time between negotiations and the opening of a new distribution center was less than four months.

The Sony supply chain might have seemed sufficient to the casual observer. Prior to this year, the company had one main facility in Mexico City for the domestic distribution of audio and video electronics components, the handling of replacement parts and a service center. The warehouse covered 200,000 square feet. Four others, of approximately 10,000 square feet each, were located in Tijuana, Guadalajara, Monterrey and Veracruz.

But Sony was looking well beyond its current market position in Mexico. It was projecting sales growth of at least 40 percent annually over the next three years, says Carlos Irving Rojas, logistics manager of Sony Mexico. The existing distribution network wouldn't be able to cope. Already the company was having trouble making the necessary transfers of inventory in order to keep up with demand outside Mexico City.

Guadalajara, viewed as Sony's second biggest market in Mexico and its most promising area of growth, was selected as the location for a new and bigger regional distribution center. Sony turned to Alpharetta, Ga.-based Redwood Systems, a subsidiary of Consolidated Freightways, to create and manage the facility.

Following a visit by Sony to the Guadalajara facilities of Redwood, negotiations began in January of this year, with operations under way by mid-April. The new center for Sony covers 50,000 square feet and is projected to expand to 100,000 square feet by year's end. It combines inventory from the previous warehouses in Guadalajara, Monterrey and Veracruz.

	Sony trained warehouse personnel on Thursday, transferred inventory on Saturday, and shipped the first order on Monday..

Sony continues to occupy three other DCs in Mexico: the main one in Mexico City, and a pair of smaller free trade zone operations in Tijuana and Cancun. The Tijuana facility is run by Border Trade Services, an independent third-party logistics provider. Operations there take up between 10,000 and 20,000 square feet, depending on seasonal requirements.
But Guadalajara is Sony's fastest-growing operation. A dozen other Redwood clients have dedicated space and dock doors there, an arrangement that Rojas views as a plus in the short term. Shared space means shared overhead, he says, at least until Sony's growth necessitates occupying the entire facility within the next two to three years. Other users can be accommodated at Redwood warehouses in the area, says Luis Rivas, the provider's divisional manager for Mexico.

The Sony warehouse represents but a small portion of Redwood's total business in Guadalajara, which is fast becoming a center of high-tech assembly and distribution for Mexico. Redwood's 370,000-square-foot operation includes a 40,000 square-foot semi-clean room for finished assembly of various items. Shipping destinations include South America, Singapore, Israel and Russia.

While consumer electronics shipped out of the new DC are sold only within Mexico, sourcing is from multiple points. Sixty percent of the items are produced in Mexico, 30 percent in Asia and 10 percent in the U.S., says Rojas.

A major selling point of the Redwood facility was its present size and ability to expand. Most Mexican warehouses lack large container yards and access to shipping docks for the easy marshaling of equipment, Rojas says. In Guadalajara, Sony has 56 docks.

The new DC features radio-frequency terminals which connect directly to Sony's AS400 computer system in Mexico City. Data on imports, consolidation and distribution flow into the company's ERP system from J.D. Edwards, which links into Sony's global network. Redwood's menu of services includes receiving, putaway, shipping, and total inventory control.

Sony plans to ship more than $200m worth of product out of Guadalajara this year. That number is expected to grow dramatically. Current volumes are one-quarter those of Mexico City, but should equal them by 2001.

By reducing the number of distribution points within Mexico, Sony hasn't jeopardized its ability to reach customers quickly. On the contrary, says Rojas, the former order-cycle times of 12 to 16 days have been reduced to a maximum of five. The improvements were the result of Sony's supply-chain reengineering effort, in tandem with logistics partners such as Redwood.

Sony wasted no time getting up to speed in Guadalajara. With the help of Redwood and its own experts, it trained warehouse personnel on a Thursday, transferred inventory from the old locations on Saturday, and shipped the first order on Monday. Rojas says the new facility is second only to the Mexico City distribution center of Wal-Mart Stores as the best in Mexico.

The country still presents challenges. There is a substantial knowledge gap between young, adaptable workers and their older managers, Rojas says. And Mexico's infrastructure still isn't good enough to sustain a modern-day supply-chain, with its demands for minimal inventory, fast transit, and strict adherence to schedules.

The presence of 3PLs from the U.S., Japan and Europe has raised the level of logistics performance in Mexico, says Rojas. Still, infrastructure investment is lacking, especially outside the major industrial and distribution centers of Mexico City, Guadalajara and Monterrey.

Manufacturers are increasingly turning to 3PLs to help defray the cost of building an efficient supply chain in Mexico. "I have limited resources of international traffic," says Rojas. "Redwood will be a means of increasing my operation without affecting my internal numbers."