Fujitsu PC Corp. has built an airbridge between Japan and the United States. The company has perfected a rapid-replenishment distribution model that allows it to take computer orders in the United States, build the products in Japan, and then ship them across the Pacific to customers in the United States. And all of that takes just five to seven days.

The U.S. subsidiary of Tokyo-based Fujitsu Limited fills 98 percent of its orders for computer notebooks, pen tablets, and tablet PCs with this configure-to-order manufacturing and direct-ship model. Despite a supply chain that stretches across an ocean, this innovative approach has allowed Fujitsu to ship 150,000 units a year while decreasing inventory in the United States by 88 percent. The result: the personal computer segment has become one of Fujitsu's most profitable lines of business.

Fujitsu entered the North American computer market in 1996, establishing a U.S. subsidiary in Santa Clara, Calif. Back then, recalls Vice President of Operations Kevin P. Wrenn, his company often lost money on the sale of each unit. "The old model of forecast, build it, and try to sell it meant that we never had the right [product] mix," he says. "It was not a competitive model. Product pricing changes every week, and if you have the wrong stuff and it takes two weeks to get the right stuff, you've lost your profit."

The frequent introduction of new products also pushed the company to better align inventory with customer demand. "We can't afford to have inventory on an old product when we launch a new one, because a new product comes roughly at the same price as an old one," Wrenn says. "There's not a lot of margin."

To boost product turns and curb inventory, Fujitsu three years ago opted for a direct-ship model, manufacturing most of its products in Japan and then shipping them directly to customers in the United States. The company laid the foundation for this novel approach by investing some $6 million in a front-end Web interface to process orders from consumers and businesses as well as orders placed through the Santa Clara office. Retailers such as BestBuy use electronic data interchange (EDI) to transmit their orders, which then are fed into the online ordering system.

Once the Web site has captured an order, the order-management engine determines a delivery date based on parts availability at Fujitsu's factory in Shimane, Japan. It sends an e-mail alert to the customer confirming the order and a ship date, and transmits order information to the factory. There, workers build computers to individual specifications. If a customer wants more memory in a laptop computer, for example, the factory will install a higher-grade chip in that unit.

Although the actual product configuration varies by customer, Fujitsu does use a limited set of standard components such as hard drives, computer processing units, memory chips, and a common motherboard in each unit. "It helps you streamline your factory to have a standard number of core products being configured and shipped," Wrenn says.

From the factory, the assembled computers are taken to Fujitsu's Logistics Center, about five minutes from the plant. There, workers label the boxes and load them on a truck for delivery to Kansai International ("KIX") Airport in Osaka, six hours away. The company uses its private fleet, Fujitsu Logistics, to deliver those shipments.

Rapid Transit Time

At the airport, United Parcel Service (UPS) takes control of the shipments. UPS affixes its own labels for tracking purposes to each package. It then consolidates the individual pieces into bulk shipments and places them aboard cross-Pacific flights that originate in Taiwan and stop at Osaka en route to the United States.

UPS handles customs clearance for Fujitsu in Anchorage, Alaska, the flight's next stop. After the bulk shipment clears U.S. Customs, it's broken down into individual pieces. Depending on their final destinations, the boxes go on UPS flights to sortation centers in Ontario, Calif., or Louisville, Ky. From there, they are sent to UPS locations across the country for final delivery to businesses or consumers.

Although the order-to-delivery cycle can take up to seven days, most orders are built and delivered within five days. Hence, a product that is ordered on a Monday would be delivered on Friday, or the following Monday at the latest. Daily flights are one reason such fast transit is possible in a build-to-order environment. But Fujitsu also takes advantage of time-zone differences. Because the trans-Pacific flights cross the international date line, a shipment that departs Japan on a Wednesday will arrive in the United States the same day.

For customers that want to receive their orders sooner, the Santa Clara operation keeps about 200 units of some popular models on hand. "On any order up to 2 p.m. the day that the customer says, 'I want it tomorrow,' we'll ship it out of here," Wrenn says.

Next year, even that inventory may be kept in Japan. "There's no value in bringing it here," Wrenn says. "It costs $15 or $20 to move a unit [to the United States], and then I have to handle it here and pick it. If I keep that as cross-dock material by the airport, I can run the same process I do today and have them drop and ship it."

To help speed the import process, Fujitsu PC will soon launch a Web site where the customs broker can access the company's Harmonized Tariff System information, which is needed for filing customs entries. As a result, Fujitsu will no longer have to send that data for each shipment to the broker. Wrenn also plans to send customs-clearance information with the original orders to Japan so it can be printed right on the commercial invoice.

Fujitsu PC's rapid-replenishment model has trimmed stock, revved up inventory turns, and boosted sales. Wrenn says that since the switch to an on-demand production and delivery system, the value of inventory on hand in the United States has dropped from $25 million to just $3 million. Inventory in Japan, meanwhile, has been reduced by about 25 percent.

Fujitsu's customers have been able to reduce their inventory, too. Wrenn notes that in the past, they had to wait two to three weeks for a delivery. "The hidden benefit is that our customers no longer have to stock inventory because they believe if they give Fujitsu PC an order, they'll get delivery in 5 to 7 days," he says. That reliability means retail store customers now can cover demand with just one week's worth of stock at stores and another week's worth in their distribution centers.

Thanks to the direct-ship model, Fujitsu has cut overhead costs by more than $1 million dollars a year. Fast delivery of configured-to-order products, moreover, has boosted sales in this highly competitive market. Not only did Fujitsu's computer business grow 15 percent faster than its core business did last year, but that segment has also proved to be extremely profitable. "Today, with this approach, we're making money on every unit shipped," Wrenn says.

The build-and-direct-ship system has been so successful, in fact, that it now influences other operations within the company. "Our whole product-launch process now revolves around direct-ship rapid replenishment," says Wrenn. "This is our engine that drives delivery of products to customers, and everything else aligns right behind it."

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