Reaching for the top: reorganization into four groups
In April 2003, Sanyo Electric radically reorganized its company structure, reshaping various sectors of the company including subsidiaries into four business groups. The aim was to reinvent all aspects of the company as a 21st century entity and leave behind old patterns rooted in the 20th century. The four groups are the Consumer Business Group; the Commercial Business Group, which provides professional devices and systems for enterprises; the Components Business Group, which produces parts for manufacturers; and the Service Business Group, which operates distribution, financial and service units.
Each business group comprises companies and independent organizations that foster autonomous core competencies. Completing the new organization are a Strategy Center charged with formulating goals for the business groups and a Managing Center to foster efficient management.
The large-scale server consolidation described in this document was carried out for Sanyo Semiconductor Company, which is part of Sanyo’s Components Business Group.
Sanyo Semiconductor Company handles the development, production and marketing of semiconductor components used in a wide range of consumer electronics devices, including A/V and communications equipment and personal computers. Fueled by the rapid spread of digital technology in consumer products, demand is increasing for custom components rather than general-purpose circuit parts as well as products with a high degree of integration. Facing ever-shorter product and delivery cycles and the need for precisely timed product rollouts, the company recognized that conventional business models simply could not cope with these challenges.
A new business model built around the “5 Cs”
Semiconductor manufacturing is an industry that requires considerable production facility investments. As companies in Korea and Taiwan spend enormous amounts to ramp up their capacities, some Japanese companies look beyond the field of general components.
“So far we have concentrated on semiconductors for analog products, but in the future we intend to also cover the increasing range of digital products,” says Kenichiro Harigane, executive manager of the IT Center within the Management Planning Business Unit. “Many digital products also require an analog display, and digital consumer products such as DSCs [Digital System Camera] and DVDs require both digital and analog signal processing. Semiconductors for this area are Sanyo’s forte.
“Building on our rich experience and know-how in analog technology,” Mr. Harigane continues, “we are partnering with companies with expertise in complementary areas in order to meet the demands of the market. We are preparing to manage shorter market cycles and achieve significant cost reductions by implementing a speed-conscious design for production processes. In order to create a new business model, we are promoting the concept of the ‘5 Cs’.”
Sanyo’s “5 Cs” begin with change: Rethinking its business model, in April 2003, Sanyo implemented a new business unit system. Replacing the former vertical, product-oriented system are units organized according to function, such as R&D, manufacture and marketing.
The second “C,” challenge, emphasizes the new management philosophy to focus on creating rather than simply making products and strengthening core competencies to improve the rate of profitability.
The third “C,” create, cultivates new design approaches and the skill levels to develop and manufacture innovative products.
Customer satisfaction is the fourth “C,” driving shorter lead times, strict adherence to delivery schedules, compliance with environmental requirements and responsible management.
The fifth “C” is China, an important market where Sanyo intends to significantly strengthen its presence. In December 2003, Sanyo established a production facility in Suchow.
Adaptive IT infrastructure turns static systems into dynamic resourcesSanyo Semiconductor Company has been continuously revising its internal structure to make better use of IT. Tadahiko Tanaka, president of Sanyo Semiconductor Company, directed his staff to look into adopting Supply Chain Management (SCM) back in January 1999, when he was assistant general manager of the Semiconductor Department. From the beginning, IT Center Executive Manager Kenichiro Harigane has been involved with this project, which engaged HP to deploy the SCM system.
“For three months, we conducted interviews with managementlevel staff involved in day-to-day operations,” says Mr. Harigane. “It became apparent that the length of the manufacturing process and decision-making delays were major bottlenecks. Therefore, decision-making was moved to a decision center, information about stock in process was made more transparent, and other measures were implemented to improve the SCM business model.”
The implementation of SCM proved more difficult than initially expected. A major hurdle was the variety of code systems used by the 20 companies in Japan and overseas that participate in manufacturing and marketing. And due to network infrastructure problems, about 10 percent of the existing data could not be migrated. Data normalization and a network backbone upgrade took about a year. At the same time, the business model was revised to manage production, marketing, and stock management on a weekly basis.
As a result of these efforts, the ratio for meeting delivery targets is now 94% on a weekly basis and almost 100% on a monthly basis. These rapid, responsive processes are helping Sanyo to increase customer confidence.
“We knew from the start that Enterprise Resource Planning (ERP) was necessary for assessing the rate of profitability,” says Mr. Harigane, “but the return on IT investment was not so clear at that time so we could not justify a large-scale investment. SCM was a practical example, something of a test case. Reorganization of the manufacturing process showed results in the third year. At the first stage of ERP implementation, it became obvious that a consolidation of IT resources was necessary to increase efficiency and reduce costs.”
Back to drawing board: rebuilding IT based on business model
Various elements coexist in the company’s basic IT infrastructure, such as hosts for performing SCM and backbone tasks, business-to-business networks such as VANEDI and RosettaNet for communicating with customers, and Web systems for daily operations. Implementing ERP in this environment would preserve inefficient processes and pose risks such as potential code mismatches at the development stage. To avoid such drawbacks, a restructuring of the entire IT platform was called for.
“For our rebuild of the IT infrastructure, we went back to the drawing board and reexamined our business model,” says Mr. Harigane. “We then fleshed out a plan of what IT should be for us. Finally, we made an assessment of the current state to find the gaps between the model and the reality. In doing so, we identified ways to close these gaps. Rather than attempting isolated solutions, ideally the entire IT framework should be consolidated and made more adaptive. However, we didn’t have a large enough budget. Rather than creating and owning entirely new systems, we decided to reduce TCO by making better use of existing resources. And by not owning the hardware system, we would gain the freedom to devise flexible operational schemes.”
HP pay-per-use and IT consolidation increases IT agility, lowers costs
After the implementation of SCM revolutionized the manufacturing process, the next logical step was a consolidation of overall IT resources to accelerate companywide reformation of business processes. The ERP system is built on the newly consolidated infrastructure and then SCM was migrated onto it. Other systems can also be gradually migrated to the new environment.
The first task was the consolidation of servers forming the backbone of the IT infrastructure. “In 2002, the company had a total of 730 UNIX and IA servers,” says Yasushi Sekiguchi, a senior member of the IT Center. “We had to maintain and manage each server. These were the hidden costs. In the three existing facilities, there was not enough space for a newly configured ERP system with the required large-scale servers. And we learned that we could obtain higher capacity from new technology that required less space. Therefore, in December 2002 we asked three companies, including HP, to provide us with proposals for updating and consolidating our IT resources.”
The HP proposal was accepted in March 2003.
“The company that seemed to best understand our needs was HP,” says Mr. Sekiguchi. “Their proposal for server consolidation reflected knowledge of our background and the task at hand. It contained appealing features such as the payper- use financial plan, which enabled us to enjoy the benefits of using the equipment without the headaches, risks and costs of owning it. No other vendor had a concrete proposal for pay-per-use. Also, the fact that management of SCM was to be operated by HP OpenView products was a reassuring factor.
“And the suggestion for midrange class HP rp8400 server, which has the virtualization capabilities of a Superdome, keeps the initial investment low,” Mr. Sekiguchi continues. “At first, high-end Superdome servers were considered for overall servers, but the final decision was made to go for the rp8400 with their lower initial cost. Although categorized as a midrange server, in terms of expandability and performance the rp8400 can actually be called a ‘small Superdome.’ We are satisfied with its performance.” Consolidation of the UNIX and IA servers was successful, enabling the company to start small and grow the infrastructure with its business.
Managing by service level agreement
“The overall aim of server consolidation was to create a system that would allow anybody in Sanyo Semiconductor Company to tap into its power as easily as opening a water faucet,” says Mr. Sekiguchi. “With the objective of transforming the IT center into a profit center, service costing was performed on the basis of a SLA (Service Level Agreement). Compared with conventional SCM management, this arrangement is several notches more sophisticated.”
In June 2003, the consolidation policy was finalized. To improve the level of service and reduce operation loads, an internal data center was created with the task of managing the consolidated environment. However, for cost advantages, the servers were placed in the IT facility of a Sanyo Electric subsidiary connected to the corporate network. Company staff can access these IT resources at any time.
TCO reduction was achieved by managing the consolidated servers from the same operating environment created for SCM. The consolidated servers are not equipped with their own disks. Instead, unified storage is implemented with an HP SAN (Storage Area Network).
Also lowering cost is the HP pay-per-use program, which enables Sanyo to access additional capacity without paying for that capacity when it is not in use. And because Sanyo does not own the servers, the company reduces the risks associated with ownership such as obsolescence or costs associated with disposing of the asset at the end of its useful life.
In conjunction with server consolidation, the company network was upgraded to a 2.4 Gbps DPT link. HP designed the subrouter layer of the network, which provides the base for the SLA. The standard for connection of overseas networks was changed from Internet VPN to IP VPN, and this new standard is already implemented in the Asian region, including China. Bringing ease of use to applications, Microsoft Exchange is the new groupware standard throughout Sanyo Semiconductor Company.
Proactive IT department provides spectrum of services
“Consolidating servers on a pay-per-use basis has reduced costs and made it possible to provide IT services to anyone at any time for a reasonable cost,” says Mr. Sekiguchi. “Since we plan to charge user departments for IT services, in the future the IT department will have increasing responsibility for providing service without interruption. Operations and infrastructure teams are no longer separate entities. We aim to define the process for SLA-based services and improve individual skill levels.”
SLA functionality for the new IT infrastructure is drawn from the ERP system and the business information warehouse. To strengthen the Asian strategy of Sanyo Semiconductor Company, a data center is to be established at the facility in China, allowing consolidation via the IP VPN network.
“From now on, we will provide various services as a profit center,” says Mr. Sekiguchi. “The consolidated servers offer resources such as CPU, disk storage and memory space on a rental basis. Initially, this will be limited to Sanyo Semiconductor Company, but other companies of the group and related firms will be given access to such services in the future. By adopting wireless LAN technology for the network, a ubiquitous environment can be created that supports ubiquitous access, in conjunction with mobile devices such as cell phones and PDAs. The palette of services is to be expanded in various directions. Providing services to clients outside the company is another avenue that we intend to explore.”
The IT strategies and operational directions of Sanyo Semiconductor Company have undergone a significant transformation. A new vision and forward-looking IT consolidation have helped the company’s IT Department transform itself from a passive branch into an active force for change.
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