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Panasonic's digital transformation begins on the factory floor

Tie-up with US software company holds key to pursuit of recurring revenue

People look at Panasonic's Viera televisions: The Japanese electronics maker is working to achieve a makeover in its business model with the help of a U.S. software company.    © Reuters

OSAKA -- Japanese electronics maker Panasonic is trying to transform its business into one that derives a big chunk of revenue from subscription and other recurring revenue streams.

As part of this digital makeover drive, the company is investing $800 million in Blue Yonder, a major U.S. provider of supply-chain management software.

"Many business opportunities can be found in solving problems related to gemba," said Yasuyuki Higuchi, the senior managing executive officer who heads Panasonic's connected solutions business, referring to a Japanese word for the place where things are made, moved and sold. He spoke at a July 2 news conference on the company's plan to consolidate its image recognition operations.

Panasonic believes that it can use its production expertise to increase recurring revenue by offering services to help manufacturers and logistics companies improve their warehousing and other ground-level work.

Blue Yonder uses its artificial intelligence technology to find where improvements can be made in supply chains and show the extent of potential change. Its revenue model is designed to collect annual fees as well as rewards linked to increased earnings.

Panasonic has developed a system that helps warehouse workers sort items by projecting destination numbers on the top of packages.

Currently, Panasonic is preparing to launch a service that combines Blue Yonder's expertise and Panasonic's products, including automatic guided vehicles and image recognition systems. The service should be able to offer "various suggestions to improve workflow" by collecting data on the movement of products and people from sensors installed at shops and warehouses, according to Naoki Shiratori, a Blue Yonder Japan executive.

Panasonic has developed a logistics system in which overhead cameras identify boxes by reading their bar codes after which projectors beam their destinations on top of the packages so that workers can sort them by looking at the displayed numbers and symbols. It helps speed up work and prevent errors, a company official says.

Panasonic uses Blue Yonder's know-how in its own plant operations as well. With that help, Panasonic's Let's Note laptop division introduced a system to keep its stock of components at the level that best matches estimated demand.

"They really have good ideas," Hideaki Harada, a deputy head of the connected solutions business, said of Blue Yonder's suggestions for improvement.

Many manufacturers are trying to promote digital transformation by adopting recurring revenue models and reducing their reliance on product sales. Panasonic regards Siemens as one of its best models among such companies. The German company has sold its telecommunications equipment and home appliance businesses and bought companies specialized in factory automation. When they met three years ago, Panasonic President Kazuhiro Tsuga and Siemens President and CEO Joe Kaeser hit it off as both see reforming business portfolios as the key to success.

Panasonic's digital transformation is not limited to supply chains. It has developed a system to centrally manage home appliances and household equipment and appointed a former Google executive to take charge of business development, aiming to promote integration of hardware and software. But transformation "takes time," a Panasonic executive said.

Some investors remain unconvinced. "It's not clear what the company is trying to do," said a Panasonic shareholder in his 50s who attended the company's general shareholders meeting in Osaka last month. Panasonic's market capitalization now stands at a little above 2.3 trillion yen, about half of the most recent peak reached at the end of 2017. And it is only a fourth that of rival Sony, which has successfully established a recurring-revenue business driven by its online game streaming services.

Thus, a successful tie-up with Blue Yonder may hold the key to Panasonic's dream of reviving its former glory.

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