Money Matters, Simplified.
Sony to halve suppliers by 2011
by Jamie Anderson - May 21, 2009 - comments
Tokyo based Sony said that it will halve its suppliers by 2011 in order to trim procurement costs
Tokyo, May 21: With an objective of cutting its procurement cost by 20 percent, Sony Corp (TYO: 6758; NYSE: SNE) plans to halve the number of its suppliers in the next couple of years.
The Japanese electronics giant intends to save a minimum of 500 billion yen ($5.3 billion) in procurement costs through this move. Additionally, the Tokyo, Japan based conglomerate will cut fixed costs by more than 300 billion yen ($3.2 billion).
Cost cutting measure
The year 2011 will see only 1,200 parts and materials suppliers of Sony, instead of the current strength of 2,500 suppliers. As a result of this, the company shall increase the volume purchased from each outfit and shall be in a better position to bargain and command discounts.
Sony, the manufacturer of video games, camcorders, flat-panel TVs, movies and music, sank into the red for the first time in 14 years when it reported a 98.9 billion yen loss for the fiscal year ended March 2009.
Sources familiar with the matter said that Sony will also amalgamate its procurement under a new department created last month to achieve economies of scale. The cost of supplies and components such as semiconductors have a huge bearing on the price of final output and hence on the profitability.
The move is being mooted as a measure to curb the price of inputs, given the fact that there has been an overall drop in prices in electronics products. Company spokeswoman, Mami Imada, said, “The prices of digital home appliances have been declining by 15 percent to 20 percent every year lately. Unless we cut costs, we cannot hope to survive the price competition."
Litmus test for Stringer
Sony has been restructuring its businesses under the leadership of its first foreign chief executive officer, Howard Stringer.
After assuming the additional role of president in February, Stringer has upped the ante to reshape Sony. He has roped in a new team of four Japanese executives under him who will look after the various businesses.
The company has already announced that it would cut 8,000 permanent jobs globally. Additionally, it would do away with another 8,000 temporary workers.
Stringer said, "We are fundamentally transforming Sony into a more innovative, integrated and agile global company.”