Canon: Supply Chain Production and Information Decisions

2013 International Logistics

Topic 3: There is a basic pattern to the practice of supply chain management. Each supply chain has its own unique set of market demands and operating challenges. Companies in any supply chain must make decisions individually and collectively regarding their actions in five major areas: production, inventory, location transportation and information. The sum of these decisions will define the capabilities and effectiveness of a company’s supply chain. Choose a company of your own choice; identify how the selected company understands its supply chain’s capabilities and limitations. Your response must focus on at least two major areas mentioned above.

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

Supply-Chain Decisions

DescriptionExamples of Activities (Beamon, 1998; Hugos, 2011; Islam et al., 2012)

Production decisions

Decisions relating to the planning, design and management of the entire manufacturing process including the capacity and ability of the company to produce (Beamon, 1998; Hugos, 2011).

Production planning and control,Unit size,Handling systems

Inventory decisions

Decisions relating to the design and management of storage processes, policies and procedures of inventories across the supply chain (Beamon, 1998).

What to stock,Where to stock,How much to stock

Transportation decisions

Decisions determining transportation modes and how products and inventories are retrieved, transported and distributed from the warehouse to retailers (Beamon, 1998; Hugos, 2011).

InfrastructureTransport mode options,Modal transfer points,Load planning,Routing and scheduling

Location decisions

Decisions relating to the selection of sites where facilities and warehouses are to be established (Melo et al., 2009; Hugos, 2011).

Location,NumberSize,TypeCargo handling

1Atiqah Ismail & Amal AmbadeMSc Operations and Supply Chain Management


Table 1: Continued

Supply-Chain Decisions

DescriptionExamples of Activities (Beamon, 1998; Hugos, 2011; Islam et al., 2012)

Information decisions

Decisions relating to the management of information systems that underpins the effectiveness of the four previous factors. Appropriate, timely and accurate information should provide effective supply-chain decisions on what and how much to produce, inventory and facility locations, and the most efficient distribution methods (Hugos, 2011).

Information systems,Control and forecasting.

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.

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 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.



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.


Canon: Supply Chain Production and Information Decisions

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