Designing & supply chain of

digital Cameras

Soumya Bandyopadhyay
RIIM-PUNE
DIVISION: D
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Table of Contents

Page

Topic 1............................................................................................................................. 2

Cost & Flexibility........................................................................................................ 3

Environment: The Major Factor? ................................................................................ 4

Topic 2............................................................................................................................. 6

Product Acquisition..................................................................................................... 6

Reverse Logistics......................................................................................................... 7

Inspection and Disposition........................................................................................... 8

Reconditioning (Remanufacturing).............................................................................. 8

Topic 3............................................................................................................................. 9

Understanding Supply-Chain Capabilities.................................................................. 10

Production Decisions.................................................................................................. 12

Information Decisions................................................................................................. 13

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Executive Summary
This report evaluates three areas of supply chain and logistics of a manufacturing company in
an electronic, digital and optical imaging industry, Canon. The aims of this report are:

1. To identify key factors influencing Canon’s transportation decisions,

2. To identify and discuss the obstacles involved in Canon’s forward and reverse logistics
operations, and
3. To identify how Canon understands the capabilities and limitations of its supply chain.

Accordingly, this report had been broadly organised into three sections; Topic 1, Topic 2 and
Topic 3. Literature review and company and industry analysis were conducted in achieving the
aims of this report.

Transportation decisions (Topic 1) have been found to be significantly influenced by three

interrelated factors: cost, flexibility and environmental factors. These factors appear to co-exist
and reciprocally shape transportation decisions. Additionally, these factors were also found to
contribute towards Canon’s logistical excellence and the creation of its overall sustainable
competitive advantage as the industry’s lowest-cost producer.

The main differences and obstacles in forward (FL) and reverse logistics (RL) operations
(Topic 2) were mainly attributed to forecasting and planning decisions. Primarily, main
obstacles relate to RL’s forecasting and planning challenges, associated with the
unpredictability of quantity, time and quality of returns. Four out of five areas deemed to
attribute to RL obstacles were investigated and discussed. The fifth area was excluded because
it is a realm of re-marketing.

Analysis of Canon’s production and information operations uncovered that understanding the
nature of its industry and its competitive environment contributes to Canon’s appreciation of
its supply chain capabilities and limitations (Topic 3). The nature of their business and
competitive environments dictate the critical importance of low-cost operation, rapid market
delivery, and information flow, which consecutively, influence Canon’s strategic supply chain
decisions.

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Topic 1
Companies make transportation decisions based on various factors. A considerable amount of
literature has investigated variables affecting the organizations’ transportation decisions (e.g.
Hsiao et al., 2010; Stank and Goldsby, 2000; Morlok and Chang, 2004; McGinnis, 1979;
Baumol and Vinod, 1970). The factors proposed by different authors are summarised in
Appendix 1. This section addresses the most common factors derived from the literature: cost,
flexibility and environmental factor.

Cost & Flexibility

Third-party distribution has developed rapidly over the past few years (Rushton, 2004) mainly
because of its cost advantages and efficiencies (Lieb, 1992). Reduced transportation cost may
result in lower prices for the end customer (Marijnissen, 2009). Therefore, being the lowest
price producer is a competitive advantage to the firm (Stock, 1999). Using third-party carriers
(3PC) allows companies to reduce the investment in logistics facilities (Rushton, 2004),
equipment (Fantasia, 1993; Foster and Muller, 1990), information technology (Fantasia, 1993;
Goldberg, 1990), manpower (Richardson, 1995) and to utilise the expertise of independent
carriers (Sheehan, 1989; Trunick, 1989); therefore organisations can concentrate on their core
activities (Waters, 2003; Africk and Markeset, 1996) and be more flexible to adjust to evolving
market requirements (Lieb, 1992). However, in terms of communication, insourcing has its
advantage since it can be performed more efficiently between staff members of the same
organisation as opposed to inter-organisational communication (Sikula Sr, 2010). Additionally,
control and supervision are perhaps simpler and cheaper when transportation system is owned
by the company (Sikula Sr, 2010). Reward system and motivation may be controlled, adjusted
and executed in-house in an optimal way to enhance working enthusiasm (Hirscheim, 1998).
The boost in productivity and operations’ efficiency could result in cost savings (Rushton,
2004).

The business environment is becoming more complex and unpredictable (Goetz, 1997).
Therefore, logistics operations need to be more flexible. On one hand, large 3PC usually
contract with thousands of carriers and have an extensive network. Hence, they can utilize
vehicles and warehouses more effectively and be more flexible (Handfield, 2002). On the other

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hand, administration and guidance are easier to accomplish within one organization (Hirscheim,
1998). Since it has direct contact with end customers, the organization can react promptly to
customer requirements and adjust its processes accordingly (Reilly, 1996). Moreover, direct
contact with the customer could provide an opportunity to develop a better supplier-to-buyer
relationship.

Environment: the Major Factor?

In addition, as green transportation is advocated by many large reputable companies,

environmental factor can be an important. However, whether it could actually be treated as a
fundamental factor in transportation policy or not is a subject to discussion. The
interrelationship between costs, flexibility and environment factors will be uncovered using
Canon as an example.

Since 2002 Canon has been focusing on CO2 emissions generated by its transport operations
(Canon Global, 2013). The enterprise decided to outsource physical distribution to experts to
undertake its core activities more efficiently. In this way they are assumed to preserve the
environment and reduce CO2 emissions. Canon implemented two major changes: reduction of
transport routes and shifting transport mode.

 Reducing transport routes

Canon works on routes shortening by reviewing logistics base locations and finding more direct
routes to reduce the environmental impact of logistics operations. After establishing a
distribution center (DC) in North America, Canon set up the west coast DC and is constantly
looking for new DCs (Canon global, 2013).

Cost and environmental factor appear to be linked since both factors encourage a reduction in
transportation distance. Continuous establishment of new DCs triggers significant investments
in equipment, software, facilities and personnel. These investments not only increase Canon’s
transport costs (including empty return costs), but also increase management and operational
costs. This could result in higher product prices and weaker market competitiveness. However,
3PCs might balance these deficiencies. They have their own planned route which could
significantly decrease transport costs and environmental impact. Thus, low transportation costs
seem to positively influence green logistics’ development and vice versa.

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 Shifting transport mode

Canon strives to reduce transport-related CO2 emissions through modal shifts inside and
outside Japan, from road and air transportation to a more environmental-friendly combination
of ocean and rail freight (Canon global, 2013). For example, the company switched from truck
to rail on the route from Oita (Japan) to Korea in 2011 and CO2 emissions were reduced by 33
tons as a result (Canon global, 2013).

Railways are often associated with very high costs of track and network construction, and the
costs of buying or leasing the trains (Economics online, 2013; Chase et al., 2002). It might stop
a company from shifting to rail transport. Nevertheless many reputable 3PCs have invested in
railway transport or developed their own. These networks can be used if cargo shipments are
outsourced to external carriers that have invested in railway systems.

Moreover, flexibility of 3PC is another advantage that allows for modal shifts. Compared to
the truck transport, railways are relatively inflexible. Although mixed provision transportation
has higher volume and flexibility, an increase in costs (e.g. empty return costs) may result in
flexibility being reduced. Therefore, flexibility seems to be closely related to green
transportation factor since costs are connected to the environmental factor (as discussed above).

To conclude, the environment is an important factor as stated by Canon (Canon Global, 2013).
However, it appears to be influenced significantly by cost and flexibility factors, with cost
playing a fundamental role in outsourcing decision making process. It seems that factors
influencing transportation decisions are interconnected, multidimensional and should be
treated as such.

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Topic 2
Companies form reverse supply chains (RSC) for different reasons: customer pressures,
government environmental regulations (Guide and Van Wassenhove, 2002) and/or value
recovery (profitability) incentives (Meyer, 1999; Ayres et al., 1997). This section will highlight
the key differences between forward logistics (FL) and reverse logistics (RL), identify typical
obstacles to performing FL and RL operations and analyse obstacles that are the most relevant
to Canon. The main focus is on the RSC as certain aspects of forward supply chain and logistics
have been analysed in the previous and following topics.

Despite certain obvious similarities, reverse logistics is quite different from its counterpart. The
fifteen core differences distinguished by Rogers and Tibben-Lembke (2002) are presented in
Appendix 2. The differences between FL and RL seem to uncover, to some extent, the main
obstacles to executing RSC activities. For instance, FL allows more precise forecasting and
planning. RL operations are more reactive and difficult to forecast: decisions are made on the
basis of customers’ actions (Rogers and Tibben-Lembke, 2002). This difference points to a
problem of uncertainty investigated by Guide et al. (2000): it is hard to predict the quantity,
time and quality of returns. Nevertheless, some differences explored by Rogers and Tibben-
Lembke (2002) are obstacles per se. For example, unclear disposition options are referred to
as a RL problem by Guide et al. (2000).

An extensive range of problematic issues is investigated in the academic literature (e.g. Guide
and Van Wassenhove, 2002; 2009; Guide et al., 2000; Fleischmann et al., 2001; Rogers and
Tibben-Lembke, 2001). The typical RSC obstacles relevant to the majority of industries are
summarised in Appendix 3. The obstacles may be roughly attributed to the five major
components (Appendix 4) of a RSC distinguished by Guide and Van Wassenhove (2002).

Product Acquisition

Canon deploys multiple acquisition methods including retail outlets, post offices, service
centres, stations, business and local authorities’ offices, shopping centres and schools.
Collection at schools is combined with consumer education programs on environmental issues
(Canon, 2013b). Additionally, the corporation has combined its efforts with other five printer

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manufacturers to collect ink cartridges. It has established common points of collection in 3600
offices in Japan. The collected cartridges are sent to a common sorting facility and later on
distributed to each company separately. This project increased return rates dramatically (Canon,
2013b). Moreover, the company ensures sufficient quantities of returns (discussed by Guide
and Van Wassenhove, 2009) through a trade-in collection system (Canon, 2013) which
provides an incentive for customers to return products.

Reverse Logistics

Collection of business machines is handled by members of Canon Group, such as Canon

Ecology Industry. It performs remanufacturing, repair and high-level recycling. The returns
collection is partly outsourced to increase efficiency (Canon, 2013). Outsourcing to 3PC, such
as Fedex (Canon, 2013b), might facilitate transportation of smaller quantities and variable
product types (Fleischmann et al., 2001). However, it may add to overall RSC complexity
(Guide and Van Wassenhove, 2009).

When returned products are collected, a barcode is placed on each item for monitoring purposes
and process accuracy (Canon, 2013). This measure allows for better management and
alignment of the whole RL process which might help reduce operations’ complexity (Guide
and Van Wassenhove, 2009) and uncertainty (Gudie et al., 2000).

There are no standard readymade information systems (IS). An IS has to be tailored to specific
industry and specific company (Rogers and Tibben-Lembke, 2001). Canon deploys an
information exchange system with its third party RL contractors. The system allows
information sharing on matters of usage of special equipment with partners (Canon, 2013). It
might partly reduce the risks of outsourcing (Guide and Van Wassenhove, 2002).

Canon’s reverse activities are centralised with a focus on profitability which they attribute to
an efficient RL programme (Global logistics and Supply chain strategies, 2008). In other words,
the corporation is focused on keeping costs as low as possible which is another typical corner
stone of a RSC as stated by Guide and Van Wassenhove (2002).

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Inspection and Disposition

Canon Ecology Industry’s plant performs inspection and recycling of cartridges automatically
(Canon, 2013). It is a way of adding speed and efficiency to the process which is crucial for
electronics industry (Guide and Van Wassenhove, 2009; Rogers and Tibben-Lembke, 2001).
Automatic plant addresses technical disassembly issues (discussed by Guide and Van
Wassenhove, 2009; Guide et al., 2000).

Reconditioning (Remanufacturing)

Companies have a set of options to return goods into the market: repair, reuse, recycling or
remanufacturing (Ayres et al., 1997). Canon expands the activities aimed at reduction of waste
and resource usage through extensive reuse of returned products (Canon, 2013a). To address
the problems of value recovery (Guide and Van Wassenhove, 2002), technical remanufacturing
issues (Guide and Van Wassenhove, 2009) and disassembly challenges (Guide et al., 2000)
Canon developed its own remanufacturing techniques. For instance, the company deploys
technologies of deep cleaning of exterior parts of photocopiers to achieve 84% rate of reused
parts which in turn decreased CO2 emissions attributed to manufacturing by 80% (Canon,
2013a).

Canon designs its products with remanufacturing and recycling in mind. In 1998, the
corporation issued The Environmentally-Conscious Design Guidance to promote product
planning, development and design that facilitates minimisation of wastes and resource
utilization. The guidance is partly consonant with the EU’s Waste Electrical and Electronic
Equipment (WEEE) Directive that was issued only in 2005 (Canon, 2013). Essentially, by
employing a proactive approach to remanufacturing standards Canon adapts to emerging legal
issues in advance, addresses the issues of corporate policies (Rogers and Tibben-Lembke, 2001)
and satisfies the environmental requirements discussed by Guide and Van Wassenhove (2002).

To conclude, the focal company is successfully using the concepts of RSC and environmental
concern as a means of marketing, image and brand building (Dekker et al., 2004). Since Canon
puts extreme efforts into RSC, it is possible that the company’s strategic goal is to achieve
economies of scale for products and materials that do not deteriorate quickly in value.

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Topic 3
A supply-chain consists of a network of organisations. Supply chain theory and practice have
realised that supply-chains compete as one unit, rather than as single companies (Handfield,
2002; in Done, 2011; Erturgut, 2012). Thus, it is important for a company to understand the
capabilities and limitations of its supply-chain.

Companies in any supply chain must make decisions individually and collectively in five major
areas outlined in Table 1 (Hugos, 2011).

Table 1: Key supply chain decisions

Examples of Activities
Supply-Chain
Description (Beamon, 1998; Hugos,
Decisions
2011; Islam et al., 2012)
Decisions relating to the planning, Production planning and
design and management of the entire control,
Production manufacturing process including the Unit size,
decisions capacity and ability of the company Handling systems
to produce (Beamon, 1998; Hugos,
2011).
Decisions relating to the design and What to stock,
management of storage processes, Where to stock,
Inventory How much to stock
policies and procedures of inventories
decisions
across the supply chain (Beamon,
1998).
Decisions determining transportation Infrastructure
modes and how products and Transport mode options,
Transportation inventories are retrieved, transported Modal transfer points,
decisions and distributed from the warehouse to Load planning,
retailers (Beamon, 1998; Hugos, Routing and scheduling
2011).
Decisions relating to the selection of Location,
sites where facilities and warehouses Number
Location decisions are to be established (Melo et al., Size,
2009; Hugos, 2011). Type
Cargo handling

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Table 1: Continued

Examples of Activities
Supply-Chain
Description (Beamon, 1998; Hugos,
Decisions
2011; Islam et al., 2012)
Decisions relating to the management Information systems,
of information systems that underpins Control and forecasting.
the effectiveness of the four previous
factors. Appropriate, timely and
Information accurate information should provide
decisions effective supply-chain decisions on
what and how much to produce,
inventory and facility locations, and
the most efficient distribution
methods (Hugos, 2011).

Understanding Supply-Chain Capabilities

Understanding a company’s own supply chain capabilities (i.e. strengths and limitations) will
enable itself to determine its operational and supply chain strategies by leveraging its own
capabilities and differences with those of other supply chain members.

It is very difficult to simultaneously deliver high-level performance in all areas of operations

(Hill, 2009). Thus, in dealing with the five major areas of supply-chain decisions, each supply-
chain member will maximise its performances and their capabilities in areas that are of greatest
strategic value for the firm through a combination of outsourcing, partnering, and in-house
expertise (Hugos, 2011).

Accordingly, by using an example of Canon, the following will identify how the company
understands the capabilities and limitations of its supply-chain by analysing two of the five
elements in understanding supply chain capabilities. Due to reasons of parsimony, production
and information decisions are chosen as the two subjects of discussion.

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Production Decisions

Canon’s production decisions are mainly driven by its dual aim of cost-reduction and product
innovation (Canon, 2013e). Canon’s production decisions include make-or-buy decisions,
fully-automated production, outsourcing of non-core components and production-facility
locations (Fawcett et al., 2007; Canon, 2013d; d). Canon has full ownership and control over
its production activities involving in-house production of proprietary key components and
devices, functional parts, circuit boards, moulds and manufacturing equipments used to create
camera parts (Canon, 2013e). The following outlines how Canon’s production decisions are
shaped based on its supply chain capabilities and constraints:

Understanding the Nature of High-tech Industry and Competitive Environment

A manufacturer’s capability to constantly innovate is critical in the competitive digital camera

manufacturing (DCM) market as products are constantly evolving and emerging (Tseng et al.,
2009; BBC, 2006; Tesseras 2011). This forces Canon to operate at low cost to accommodate
constant research and development (R&D) in imaging technology (Canon USA, 2012; Tesseras,
2011). Therefore, the need for constant innovation plays a major factor in production decision
relating to make-or-buy decisions in the DCM market in terms of time and cost limitations.
These limitations contribute to the complementary need for rapid market delivery of high-value
products at low-cost.

 Make-or-buy decisions: Realising Core Competency and Production Capacity

The competitive need to constantly innovate while minimising cost may have influenced
Canon’s make-or-buy decisions. Canon’s recognition of its core competency in digital optical
and imaging technologies underlies its production capacity decisions for in-house production
and innovation of critical technology and components (Canon, 2013c; d). Accordingly, Canon
focuses on the production of high-value critical components and R&D activities while
outsourcing other low-value components (Canon, 2013e). For example, as Canon focuses on
its core competency in the production of high-value critical components (e.g. lenses and image
sensors), it outsources the manufacturing of low-value accessories (e.g. rubber hand-grip) to

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its supply-chain partners with expertise in the production of those components (Canon, 2013d;
Canon USA, 2012a).

Canon’s ability to synchronise these different manufacturing capabilities of supply-chain

partners with its own has resulted in a sustainable competitive advantage and supply chain
effectiveness (Hayes and Pisano, 1994; Fawcett et al., 2007).

Moreover, Canon’s in-house competency to manufacture, develop, and innovate digital

imaging technologies has enabled itself to achieve rapid and low-cost production of high
quality product through self-designed, fully-automated production and investments in cost-
saving technology such as computer-aided engineering which enables ‘prototype-less
technology’ (Canon UK, 2012; Canon, 2013d). Thus, allowing greater control over its value
chain and production operations at minimum cost.

Information Decisions

Similar to production decisions, understanding the nature of high-tech industry and competitive
environment shapes and influences Canon’s information decisions. As mentioned previously,
low-cost production and operation and speed to market are important competitive requirement
to survive in the capital- and technology-intensive industry. Thus, efficiency needs to be
assured through accurate and timely information, thereby eliminating wastes (e.g.
overproduction, poor design, and new-product run-up) (Taylor and Brunt, 2001). Therefore,
the need for accurate and timely information influences Canon’s information decisions.

Understanding the Structure and Nature of Supply Chain: Global Supply Chain

Canon is a global company, with operations and supply chain extended over the world (Canon
UK, 2013). Understanding the supply-network structure, flows, operations and dynamics
enables early identification of potential complexity associated with global supply chain such
as lack of ownership arising from outsourcing, and inertia due to general lack of responsiveness
(Juttner et al., 2003). Global supply chains are often exposed to inertia, where it is difficult to
control suppliers’ flexibility and ability to adapt to changing environments (Juttner et al., 2003).
Accordingly, the following further discusses how the need for accurate and timely information
influences Canon’s information decisions.
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 Information Sharing and Exchange Decisions

Information sharing requires firms to exchange strategic supply chain information and not only
transactional data, such as materials or product orders (Prajogo and Olhager, 2012). Canon has
implemented Integrated Information System (IIS) through systems like Electronic Data
Interchange System (EDIS). EDIS is designed for Canon’s suppliers, in which quotation or
order data can be transferred between Canon and suppliers (Canon, 2013f). To facilitate this,
Canon also engages in the development of supply-chain partners’ information sharing system
(The Times 100, 2013).

IIS plays a central role in Canon’s supply chain management in the following aspects; first, it
allows firms to increase the volume and complexity of information which needs to be
communicated with the inter-trading partners. Second, it allows firms to provide real-time
supply-chain information (Prajogo and Olhager, 2012). Increased access to real-time
information enables Canon to synchronise its inventory level, delivery status, and production
planning and scheduling which enables firms to manage and control its supply chain activities.
Third, it also facilitates the alignment of forecasting and scheduling of operations between
Canon and its supply chain partners, allowing better inter-firms coordination.

Exchange of information has revolutionized most of Canon’s operation leading to a greater

visibility of technology and resources. Thus, benefiting Canon through quality assurance (i.e.
conformance to specification by Canon to its partners, in terms of consistency of services
provided by its agents globally), synchronized distribution system, and timeliness to market
(through reliable production planning, ordering and distribution systems).

However, Canon needs to carefully consider which information to disclose and exchange
among its supply chain partners. For instance, possible patent conflicts may arise from specific
buyer-supplier investments and information-sharing in supply-chain integration or alliances
when intellectual properties and technologies are shared among key suppliers or customers
within the supply chain.

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