Sharp's New Plant Reinvents Japan Manufacturing Model
OSAKA—Sharp Corp.'s new production complex in western Japan is massive by any measure: It cost $11 billion to build and covers enough land to occupy 32 baseball stadiums. But it carries a meaning as large as its physical size. It's a litmus test for the future of Japanese high-tech manufacturing.
The facility, considered the most expensive manufacturing site ever built in Japan, started churning out liquid-crystal display panels last month, and Sharp's new flagship televisions featuring the energy-efficient LCD panels go on sale in the U.S. next month. Sharp moved forward the factory's planned opening by six months, saying the new plant would help it be more competitive.
Sharp's new facility in Sakai city is considered the most expensive manufacturing site ever built in Japan.
"When you look to the next 10 or 20 years, the existing industrial model doesn't have a future," Toshihige Hamano, Sharp's executive vice president in charge of the Sakai facility, said in an interview. "We had to change the very concept of how to run a factory."
Located in Sakai city along Osaka prefecture's waterfront, the complex represents Japanese industry's biggest gamble in LCD panels to remain competitive with rivals from South Korea, Taiwan, and China.
The factory's size accommodates two main factors. One is the size of the glass used to make the LCDs. Sharp is using the industry's biggest, or "10th generation," sheets, which allow the company to produce 18 40-inch LCD panels from a single substrate—more than double the eight 40-inch panels per sheet it uses at its other LCD television panel-making factory.
The other factor: Sharp has decided to try and cut costs by moving suppliers on site, a kind of hyper-"just-in-time" delivery system.
The plant currently employs 2,000 people—roughly half from Sharp and half from its suppliers—although the work force will ultimately reach 5,000 as it adds production of solar panels as well.
It remains to be seen whether it makes sense for Sharp to keep seeking ever more-sophisticated production in Japan, or, as competitors have, to simply use less advanced production techniques at lower costs in places like China.
CLSA research analyst Atul Goyal warned in a report last month that the company is making a mistake by "chasing technology" with the new factory.
In the past, such efforts by Japanese electronics makers have resulted in costly capital investments, only to be confronted with limited appetite for cutting-edge technology and then eventually outflanked by a cheaper alternative.
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Even Sharp's Mr. Hamano acknowledged that the company only gave the green light to proceed during a boom period for LCD-panel demand, and that a similar choice might not be made in today's market.
Rival Samsung Electronics Co. has said it is looking into building a new LCD-panel factory using even bigger glass sheets than Sharp, while LG Display Co. has said it plans to build a new factory in China using current glass size.
Sharp announced the Sakai project two years ago when LCD demand was surging and the company had produced five straight years of record profit. When consumer spending ground to a halt in late 2008, Sharp didn't cut costs and curb production quickly enough. Saddled with excess inventory, Sharp posted the first annual loss in nearly 60 years in the fiscal year ended March 31, 2009.
The experience taught Sharp a painful lesson that its supply chain needed to be leaner and its production more efficient, especially if the factory was going to be in Japan, where the strong yen and expensive labor force put the company at a disadvantage to its Asian competitors.
Sharp aims to streamline the costly LCD-panel production process by moving 17 outside suppliers and service providers inside its factory walls to work as "one virtual company."
In the past, Sharp kept suppliers within driving distance. Now they are all within the same facility. Supplies are sent not by truck from a nearby factory but by automated trolleys snaking from one building to another.
The suppliers, which include Asahi Glass Co. and Dai Nippon Printing Co., built and paid for their own facilities and are renting the land from Sharp.
Despite their location inside the plant, Sharp says its suppliers are permitted to sell their products to other companies.
At Sakai, Sharp has also linked its computer systems with suppliers so an order to the factory alerts suppliers right away. In the past, Sharp would email or call suppliers and place orders, creating a longer lag time.
Sharp wouldn't disclose how much, if any, cost savings will result from manufacturing LCD panels at Sakai, but analysts estimate a 5% to 10% savings.
Corning Inc. the world's largest maker of LCD glass substrates, built a factory next to Sharp's Sakai plant. Corning says the arrangement reduced total order cycle time from an average of one to two weeks to a matter of hours. Corning also says the proximity reduced the damage risk in transporting massive glass sheets on trucks.
While Sharp is a long-standing customer, Corning said it was concerned initially that building a factory on site would mean that it was "hitching its wagon" to Sharp since it's the only customer for such large glass substrates. Ultimately, Corning decided to proceed based on its faith in Sharp's Sakai plans.
"There's nothing like it anywhere," said James Clappin, president of Corning Display Technologies.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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