CEO Fujio Mitarai and Canon Host US Media Tour

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CEO Fujio Mitarai and Canon Host US Media Tour

WhatTheyThink joined several other editors and analysts at Canon’s Tokyo headquarters to learn more about the company and hear from Chairman & CEO Fujio Mitarai on their strategy to navigate the recent market uncertainty and continue to grow the business founded by Mitarai’s uncle in 1937.

AppleMark Mitarai has been CEO since 1995 and is known for having led Canon from a dozen individually operated divisions – many at a financial loss – to four main divisions that focused on profitability over sales.  Today Canon is comprised of 3 “Business Fields”:  Office, Consumer, Industry/Other.  The office segment makes up some 53% of Canon’s business and is the division that comprises their digital color production systems along with office MFPs.

Chairman Mitarai’s management style has been coined the “Mitarai way” and includes an aggressive focus – some would say obsession – on the bottom line.  Many see his 23 years in the United States where he eventually became President of Canon USA as the impetus for his combining a western focus on profits along with traditional Japanese values.  Mitarai is also a very hands-on executive in a business culture that often sees CEOs as more symbolic leaders.

His series of 5 year plans each had distinct goals for the company.  From 1996-2000 the main objective was to reform production and improve financial positioning.  This saw the focus on profit over sales as well as a move to cell production over typical assembly line approaches.

2001-2006 saw a focus on HR and a change in wage systems from seniority based to skills based.  Europe became a focus on the marketing front and many consolidation moves were made in that area as well.  A move to fully digitize the product line was also pursued in earnest.

Mitarai’s phase 3 (2007-2011) was impacted by the global financial crisis of 2008 seeing sales, profit, and net income all decline after a record setting 2007.  A rebound in 2010 was followed by another dip in 2011.  In March of 2012 it was announced that Mitarai would return to the presidency to replace Tsuneji Uchida and lead the company through 2015 as Europe’s debt crisis continued to create uncertainty.  Europe comprised a majority 31.3% of Canon sales in 2011 and remains an important market for the company.  If you follow soccer and the Euro Cup you’ll see this market focus in the form of big sponsorship.  I failed to ask Mitarai if he had a favorite team in the cup, but he was probably too focused on Japan working to qualify for the 2014 World Cup!

Phase 4 plans call for 5-7% increases in net sales through 2016, when the company hopes to have identified someone to take over the day to day operations of the company from Chairman Mitarai.  One of the goals for this period and for the next 10 years, Mitarai said, was to build their medical offerings into a major pillar of Canon’s business.

Consolidated net sales in 2011 were ¥3,557 billion ($45.6 billion), which was down from 2010 but above 2009 and, again, company executives expect this to improve year-over-year by some 6%.

Canon has always been a company led by technology and innovation and their continued investments in R&D show a commitment to innovation.  They are consistently in the top 5 US Patent recipients and were #3 behind only IBM and Samsung in 2011.  They invested 8.7% of net sales to R&D in 2011, which was higher than competitors.

Canon under Mitarai’s leadership has 6 key strategies going forward:

1.  Achieve #1 position in all core businesses

2.  Develop new business through global diversification

3.  Establish world-leading production system

4.  Reinforce global sales capabilities

5.  Build the foundations of an environmentally advanced corporation

6.  Impart a corporate culture and HR befitting a truly excellent global company

We also heard from Group Executive of the L Printer Products group Yoshinori Ikeda, who gave an overview of the large format printer business.  The company aims to be the #1 imaging provider – part of the 6 key strategies outlined by Mitarai.  Currently Ikeda acknowledges some work to be done to bolster the Canon brand in this area, he pointed out the recent Océ acquisition gives the company a very broad product lineup that none of their competitors like HP and Epson have.  The key distinction here is black and white CAD (missing at HP and Epson), and color CAD (missing at Epson).

The Canon/Océ integration is still underway but Ikeda did note that Océ has a very solid and loyal customer base so it will take time to fully integrate the two brands and for now they will continue to operate as separate product offerings.  One of the key reasons for the acquisition was to acquire high speed inkjet technologies and the integration of those technologies into Canon products is already happening.

We also got a glimpse of some new technologies and products that will be announced soon in a product demo, but many of these things were not yet announced so you’ll have to stay tuned to WhatTheyThink for their announcements.  Some of these are related to color advancements, while others follow the objective Chairman Mitarai outlined in his goal to make products “work together” better.  All very exciting stuff.

We also got a chance to see a production facility in China.  I’ll cover this in more detail in part two on Monday.

http://whattheythink.com/articles/58815-tour-canons-suzhou-facility/
A Tour of Canon’s Suzhou facility
In addition to the Tokyo headquarters visit I wrote about Friday, analysts and editors were also invited to Shanghai before leaving Asia to attend a plant tour of Canon’s Suzhou facility.  The facility is located in the Jiangsu province, an hour and a half bus ride west of Shanghai.  The plant was established in 2001 at a cost of $67 million and is capitally affiliated with Canon Inc (66.5%), Canon Finetech Inc ( 23.5%), and Canon China Co Ltd (10%).  They produce office copy machines, MFPs, and page handling devices (input and finishing).  The plant shipped its first MFP in 2002 and is responsible for worldwide production of the imageRUNNER Advance line.  The plant passed the 1 million shipped milestone just 5 years later in 2007.  In 2011, Canon Suzhou Inc was responsible for $1.4 billion in sales and is the largest production site of its kind in the world.

The facility is overseen by Chairman & CEO of Canon Suzhou Inc Katayama Kazunori.  He spoke to us briefly and answered questions before we were led by him and others from his team on a tour of the production facility.  Kazunori shared with us that the facility employs over 8,500 and the average age of its workers is 21.5.  This was the first of two figures I found to be stunning.  The relatively low average age stems from the fact that the majority of the employee base is involved in production-related activities and the plant has an annual turnover rate of 20-30% which brings in new – and presumably younger – workers on a regular basis.  Still, the plant retains the majority of its employees and gives them opportunities to advance.  Pay is also quite a bit higher than the Chinese minimum wage law.

Kazunori indicated several reasons for Canon choosing to locate an advanced production facility in this area of China.  The first was the region’s wealth of other manufacturing which enabled them to be near parts suppliers.  There are 10,000 parts makers in this area of China.  The second was a wealth of labor resources that are both technologically savvy and highly capable.  The region has many with scientific and academic backgrounds and there are many colleges in the area as well.

The plant is located on a property that will also allow Canon to expand this facility should the need arise.

The biggest challenge Kazunori has encountered running a manufacturing plant in China today is rising labor costs.  Canon is countering this phenomenon that is being driven primarily by the emergence of an affluent middle class in China by focusing on efficiency in production and reducing the number of people required at each stage of the manufacturing process.  Canon is also using more automation, as evidenced by several AGVs (automatic guided vehicles) spotted on the plant floor.

Having finished our briefing we donned shoe covers and headed out to the production area.  We weren’t allowed to photograph in this area and it would have been difficult to capture the feel of it in two dimensions anyway.  The place is big.  Really big.  One thing I noticed right away was that employees all have a different color hats based on their role and experience.  Earlier I wrote about Canon Chairman & CEO Fujio Miterai moving production from an assembly line into cell production.  The hats and roles are a result of this move.  Pink hats are for newer employees while blue hats are for those more experienced.  Yellow hats are for employees checking quality assurance at every step of the process.  Canon’s philosophy is that quality should be part of a cell team and not a separate check after the fact.  This ensures quality throughout the entire production process.  Many traditional manufacturing facilities separate production from quality, but Canon has integrated them into the cell production system.

The other benefit that comes from having a mix of new and experienced employees on the same cell team is less pressure on training needed to counter recurring turnover.  Based on a quick observation of hat color, most teams had a good mix of experienced employees who help to train new workers.

One of Canon’s larger goals is to have its production system become a model for the industry.  Toyota was able to attain this in the automotive world, having had many auto producers study the Toyota Production System (TPS) for years now.  I got the sense that Canon wants to reach this same level of production competence and emulation.

Though many parts are sourced from outside suppliers, Canon also has a parts manufacturing facility on-site.  A reason given for this was to locate service parts operations closer to the manufacturing facility for instant feedback about any problems with specific components.  Another reason was to reduce inventory needed to run production.  The facility operates on JIT, or Just In Time, a production strategy that improves efficiency by having parts show up for manufacturing when they are needed to avoid storage and handling costs.  Suppliers are required in many cases to have parts at the plant every 2 hours.  This was the second figure I found stunning.  That is a very small window for JIT in a manufacturing environment.  If you assume a 10 hour production day parts arrive from each supplier 5 times in a single day.  This type of coordination with off-site and on-site suppliers provides for a very high level of production efficiency.

The facility was, unfortunately, impacted by the recent earthquake in Japan in 2011.  Some components – drums and toner – are supplied by Canon Inc in Japan.  March and April production was just 50% of the plant target.  They recovered by running at 150% of capacity (1,500 units/day) during September and October to replenish inventories.

The Suzhou plant was very impressive, not only for its scale but for its production system and management of human resources.  Getting a chance to see how Canon is manufacturing its products along with the time spent with company leadership in Tokyo was very instructive and reason to look for good things to come from Canon for some time.

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July 3, 2012 at 8:52 AM