Global Supply Chain Management: Insights From Samsung Electronics
Background
The objective of this study is to review and understand how Samsung Electronics became of the leaders in consumer electronics as a result of its supply chain management, and how it bypasses local hindrances and continues production. Samsung’s methodologies, tactics, analysis, relationships with partners and business decisions, and understanding of risks and strategy mitigation are explored. Samsung’s continues efforts into evolving and changing as per the needs of consumers and employees, along with investment in technology, logistics, management and data are some of the factors that have been focused on.
Samsung Electronics, a subsidiary of Samsung Conglomerate, was found in 1969 and is based in South Korea. Accounting for 70% of the conglomerate’s revenue, Samsung Electronics is the largest consumer electronics maker, electronic chip maker and Information Company. Samsung’s clients also include their direct competition in various markets, namely Nokia, Apple and HTC, as they provide others with displays, electronic chips, batteries and memory, while successfully becoming the largest producer of cellphones, and having its famous Galaxy line of devices be in the spotlight as some of the best devices available in the market every year. With a revenue of $211.8 billion USD, as of 2017, and a market cap of $325.9 billion, as of 2018, Samsung’s ability of adapt, evolve and innovate at the same time has made them unprecedented leaders of the industry.(Mu-Hyun 2018)
Samsung’s supply chain management and strategies, are in fact, some of the finest in the market, which actually helped them get to the position they are in. The company’s finer collaborations and credentials on the marketing end, along with control of each key component of the device and assembly chain on the actual hardware end makes it independent of other companies. Samsung’s responsiveness, integration and control over each moving bit in the global supply chain management, with employees having access to all information in real time, and the company’s adoption of the six sigma has only shown to benefit them in better ways, often masking their weakest attributes in the form of software development and support. Samsung’s understanding of separate market specific strategies in terms of both device type and region has been a crucial part in their growth. This however, hasn’t translated to their attempts at rivaling others on the software end, even with acquisitions and mergers not creating competent competition (Experiencing the Cloud 2014).
According to (Hazen, Boone, Ezell and Jones-Farmer 2014), in order to understand Samsung’s continuous success with its global supply chain, a look at Samsung’s data, policies and various industry insiders have been referred to in this piece. Data from Samsung themselves over their plan, and competing companies studies as well as other research have been looked into. This particular piece explored Samsung’s various means for an efficient and smooth working system internationally, and tries to understand how the company itself gets around hurdles on an international market. Reports objectively pointing out how Samsung manages the system have been used to come to subjective interpretation of how that might incentivize their partners. This study looks into what Samsung is doing right and how it plans to change further. As the world’s largest supplier of consumer electronics, and the largest information and technology Company, Samsung has created a collection of new and pre-existing principles it has adapted to be more efficient and meet their needs effectively. A close to heart system of manufacturing and management, Samsung has managed to eliminate various problems with closer study of scenario and predictions. Samsung’s understanding of management, coordination, financial risk, and demand and consumer appetite have been looked into to present a clearer understanding of the tech-giant. This study will present the key points of their management model to better understand successful global operations and present key points to present them as a model in business and management.
Critical Analysis
Achieving Global Coordination
Literature Review
Samsung focuses on determining supply ability index, meeting deadlines and having an integrated global system, their adoption of six sigma approach has been a game changer for them. Samsung’s business team studied the method at General Electric (GE), Honeywell and DuPont. Understanding the specific needs of each department and catering to them by implementation of changes to the entire system, to carefully plan and deliver along with other aspects of the Supply Chain Operations Reference, to streamline manufacturing has been at the core of it all. Analyzing it all, Samsung has managed to improve upon the model itself to come up with DMAEV (define, measure, analyze, enable and verify). As the consumer electronics market changes very fast and very regularly, Samsung opted for the advanced planning and scheduling system for flexible production. Samsung also opted for a real time data management system accessible to all employees by one system at any time. This process leads to real-time information sharing, and faster response to changes. Samsung has made prediction of global reaction a key factor in their development and supply process. As per their SDS Cello Solution (Experiencing the Cloud 2014) looking at various aspects such as supplier, manufacturing, supply command center, sales, marketing retailer and consumer, the Sales and Marketing Management manage demand planning, collaborative planning, forecasting, replenishment, demand shaping, sales partner management, sales intelligence management and order promising. Advanced Planning and Scheduling covers master planning, production scheduling, sales and operations planning inventory optimization and profit optimization. Supplier relationship Management takes care of strategic sourcing, engineering procurement, procurement supply chain management and supplier’s performance management, and lastly, After-Sales Service Management covers after-sales forecast planning, after-sales inventory planning and after-sales order planning (Jacobs, Chase and Lummus, 2014). Their Global Supply Chain Management Plans line up products from development to all the way to logistics, sales and after-sales after manufacturing, with weekly decision making, global logistics, and production flexibility making sure they don’t fall back and consumer collaboration, retail management and global sales and operation ensuring flexibility.Samsung’s decisions to understand the specific market for each respective supplier in any country has allowed them to carefully delegate work as per the needs of the employee, with China and India handling assembly more while Vietnam handling manufacturing of components for the most parts, as Korean offices focus more on in house research for components and manufacturing in factories where other components are made and manufactured. These meets the needs of specific employees in foreign regions, while still considering other factors like lower costs, region, area available, set-up costs, as they use strategies to meet their own distribution needs and manage to fit organizational needs with the needs of the locals. Samsung follows a model known as OLI, which dictates that all their international factories are set in locations with low wages and by engage in direct foreign investment, and meeting their marketing needs all the same by such strategies. Instead of focusing on importing and exporting, this allows Samsung to keep both operational price low, hence seek more profit and comparable prices in foreign markets. Samsung has opted to improve with the help of measuring and monitoring and key performance indicators, leading to mapping process KPI using KPI decomposed by detailed processes; systemization to study behavioral changes and the previously mentioned, DMAEV (Experiencing the Cloud 2014).
Critical Analysis
Having close tabs on supply chain has been one of Samsung’s bigger reasons of success, however, it has not been instantaneous, and is a result of long time study and understanding of risks associated with supply chains. Samsung’s method for treatment has been to make sure they can operate from multiple places and not be tied down by one incident/error in one place. Samsung has over 300,000 employees in 80 countries, 40 distribution base in all continent apart from Antarctica, with multiple supply chain and factories, especially in Hungary, China, Malaysia and India. In the case of events such as “act of God”, act of terror, religious and cultural differences, riots and boycott, political issues, Samsung has moved to other supply chains to make sure they do not face any loss due to an inability to keep up with demand. Samsung is non-union, has little to no history of labour issues even at supplier level, has profit sharing schemes. Since mergers and acquisitions are also an issue that can disrupt Samsung’s supply chain, it consciously seeks to preserve the relation with partners (Experiencing the Cloud 2014).
Samsung expands in-house information and technology accessible to suppliers to avoid miscommunication and avoid possible instances of other company taking over suppliers by creating a more closed off and comfortable integration for the suppliers (Bozarth and Handfield 2019). Managing capacity is another problem they have to face. Supply always needs to be at a point where product can be delivered and not have excess left on shelves. Samsung has one such issue with Samsung Galaxy S4, where due to 3rd party delays, the US version was not being able to meet its demand. Capacity is a balance that needs investment, but at the same time can lead to loss and hence, is a strategic choice, although it’s hard to always hit the optimal level of inventory (Christopher 2016). Since multiple companies are also using the same supply chain, Samsung has to protect its IPs. Samsung invests heavily in its own R&D, vertically integrated manufacturing division (Arora, Arora and Sivakumar 2016), and does not outsource any bit of manufacturing to third party suppliers for its cellphones, electronic chips and consumer electronics. Due to how soon components of consumer electronics become obsolete, the company avoids stocking them. They hire several companies for non-core parts and the essential components are mostly restricted to one or two company, as a balance to protect their IP while making sure that the fall of one source doesn’t necessarily stop the production of devices entirely. Samsung also has set a production test to avoid major callbacks later on (although, they had to for some products) that might cost them more (Supply Chain Online 2016). However, Samsung’s entire set up is integrated very well, as in case of managing components, Samsung generally has multiple devices have the same components, and the differences are in external devices like power connectors. The main components are restricted in number in supply chains itself and Samsung and its partners share information to make sure the optimal amount of inventory is produced. Samsung understands the need to innovate, while keeping their reputation good among and despite its partners.
Supply Chain Risks
Since Samsung produces most of its products in-house, it still relies on expansion and catering to partners to keep the share they have in the market. Samsung has to make sure none of its partners go bankrupt, as that might genuinely disrupt their supply chain more than one factory shutting down due to technical or circumstantial issues. Samsung manages this by selling unprofitable ventures and having more overall insight on the workings of each division. Selling unprofitable ventures, though, is a hard task, and Samsung cannot invest in only one area, in case there is a market shift. Operating on international market also requires Samsung to understand how to operate with varying exchange rates, especially because all the profit will be redirected to the South Korea division. Samsung generally operates through distributors to cut down on the loss due to varying exchange rates. Capacity and inventory risk is also a major factor as Samsung has to figure out the amount of parts and products it needs, which is a part of the financial end. There is also some level of risk involved with the understanding of local preferences in consumer electronics, as a misunderstanding can lead to major loss and parts being stocked up indefinitely, to finally be redundant. Samsung also has Samsung Economic Research Institute (SERI) to globally analysis of the market in order to makes sure the company can minimize its loss in the face of a global recession, and understand where consumers want more value for their money and less premium devices. However, another risk that is a double edged sword is the usage of predictions. In the face of major difference between prediction and demand, the company could face major loss. Hence, they make sure to generalize components and not focus on one area alone. Inaccurate reading of forecast or an operational error might Forecast inaccuracies can also result from information distortion causing the bullwhip effect within the supply-chain, completely remove a company from the global market.
Samsung understands that cultural differences may shape their image in a negative light. Hence, to avoid it, they make sure that employees delegated to other countries understand the local history and culture well enough. Hence, they are given training under Samsung Human Resources Development Center, where employees are trained to deal with multi-cultural conflict and resolution (Mangan, Lalwani and Lalwani, 2016). This training is deemed mandatory for senior non-residential staff and executives. Beyond cultural differences, Samsung also understands the need to understand consumer demand in regions. More so about environment, Samsung has properly understood the importance of waste collection and compliance to international standards to market them properly (Choi and Hwang 2015). Using Price Waterhouse Coopers as auditors and a system from SAP for financial transaction only presents them in a good image in international market. As mentioned earlier, Samsung has to keep up with consumer and supplier demands in every local market. On the consumer end, it also means understanding the needs of the local market and using that to push adequate number of electronics, without a forecast error, or a recession (Boonjing, Chanvarasuth and Lertwongsatien 2015). Customer preference is vast, and Samsung works with diversifying its product line, and increased R&D. Samsung uses integrated customer-relationship-management to study the change in preference and work accordingly. Samsung shows key interests in local popular interests such as tennis and football, as per the region.
In order to continue the stride in being the world leader in consumer electronics, Samsung has to make sure they can use future technology as efficiently as they have been able to use the six sigma methodology. Samsung is reliant on technology as not only as a product but also a part of their management program, and falling back on either could be disastrous for the company. Sometimes, larger investments mean collaboration with other companies, instead of risking access to a new technology completely and having to come up with alternatives by spending more on research, when it could have been easily avoided. As Samsung continues to use it as a core value in its strategies, Samsung is also trying to make use of logistical data off sales and services to better understand their demands and consumer’s needs to keep inventory check and R&D in competitive areas. Samsung SDS, a subsidiary of Samsung Conglomerate and their logistical and information and technology arm has successfully developed a blockchain-based certification platform for banking use. Currently they are working to see if the technology could be used to track their massive number of global shipments in their supply chain. It is estimated to cut down shipping costs by 20 percent, as per SDS.“[Blockchain] cuts overheads and removes bottlenecks”, as per Cheong Tae-su, professor of industrial engineering at Korea University in Seoul (Kim 2018) It would reduce the time-gap between launch and shipment and make it easier to make decisions faster based on other companies and consumer needs. Samsung’s pre-existing model over flexible productions need to use big data and data analysis from the internet to understand the changing needs of consumers as the consumer-centric model of supply is cited as the future of supply chain management (Schönsleben, 2016). Understanding consumer needs and making devices is already something the company does, but the speed of reception and analysis has to be immensely increased. Samsung has already pioneered methods to make sure supply disruption doesn’t affect them much and there is hardly anything new to add to that.Analysis of data would allow procurement to combine data with trends for better results in predicting consumer needs (Brandenburg, Govindan, Sarkis and Seuring 2014). It is important to also collaborate with suppliers at all levels to collect relevant information for innovation and the technology be made accessible to partners. Samsung recognizes there is room for improvement in its supply chain management program and operation and keep on developing more unique takes on pre-existing methodology (Waters and Rinsler, 2014).
Conclusion
Samsung Electronics unprecedented success as a company is a direct result of their understanding of supply chain and its management. Its investment in a specific team to study and adopt the six sigma methodology and update upon it to better manage its partners and employees, profit sharing, incentives and treatment of partners have given them an edge in the market. Samsung’s victory as a supplier to its major competition, and its massive research to revenue budget is also a key factor. Understanding the needs of consumers, chains and delivering as such along with making sure all aspects of production and manufacturing are covered, it delivers on a smooth system with very flexible production and the power to react to competition, as well as adapt faster. With some of the industry’s best managing its finances and marketing, Samsung has managed to make an international mark with its collaborations and compliance to regulations. Samsung’s linear and simultaneous production helps them and go back and understand the errors, and making logistics and incredibly crucial part of the process lets them keep up with the needs of all. It’s adoption and chances to major management policies of other companies have wielded great results. The approach to make sure all foreign branches have competent people to understand cultural differences and have a steady system where the fall of one outlet doesn’t affect the entire production line. Smart choices like, having core components be produced in-house and not rely on third parties have made them more efficient, observing succes. The company’s readiness to change with times and invest in technology as well as its employees has wielded a great result of them. Currently working on ways to make the supply chain management more efficient, and technology, Samsung seems to be on the right path as a major player in global supply chain manager. The above present information is about Samsung being as a key player in the international market and a model for others to study and improve upon, as Samsung themselves try the same.
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