Samsung Supply Chain, Essay Example

Abstract

Supply chain management is the management and control of goods from the point of origin to the ultimate point of consumption.  This also includes all aspects of leading, monitoring and controlling the logistics, schedule, and cost of moving the goods along the supply chain.  The increased flexibility and logistical opportunities that come with globalization there is an increased focus on creating value, through supply chain management, while also eliminating wasteful operations within the processes.  Samsung demonstrates operational excellence within supply chain management and creates a competitive advantage through the best practice framework, continual process improvement and optimization models.  Samsung has a rooted foundation in the trading industry and has taken this focus and expertise and created a skillset that enables global commerce and product delivery.

Introduction

Business organizations are usually established with an aim of gaining dominance in the market so that they attain their set goals. The firms will strive to become globally known due to their high levels of performance in terms of their products and services. It is the pride of a company to conquer the world market and prosper in relation to the company’s vision and mission objectives. Strategic leadership is the main reason behind the success of global companies (Gully  823).  Samsung has taken their ability to develop and apply cutting edge technological advancements with best practice operations within their supply chains to create a value added network of logistics to their business model.  The focus on taking a traditional cost center and turning it into a tool to deliver high quality products while also increasing value through visibility, production, supplier interactions, financial dependencies and other key business intelligence allows Samsung to derive a benefit in their business.

Company Background

Samsung is divided into consumer electronics, IT & Mobile Communications and Device Solutions.  The Consumer Electronics Division includes Visual Display Business, Digital Appliance Business, Printing Solutions Business and the Health and Medical Equipment Business.  The secondary area of IT and Mobile Communications includes the business areas of Mobile Communications, Networks and Digital Imaging.  The third area, Device Solutions, includes Memory Business, System LSI business, and the LED Business.  Each of these has their integrated supply chains.  By integrating their supply chains each business function can leverage off of the buying power of the other units to increase their negotiating power as a whole. The ability to leverage across the organization that spans 79 countries and approximately 369,000 employees creates an unparalleled advantage if harnessed correctly.

Samsung has taken on a monumental task in their business philosophy.  Their dedicated strategic plan is to solve for tomorrow. As technological advancements increase in implementations and acceptance, the ability to progress on the cutting edge of technology lies in solving problems for tomorrow. Their high risk/ high reward structure lies within their core competencies. The risk of placing limited resources such as capital and employee effort for research and development for areas of advancement that do not have a current market need can be mitigated substantially by the core business operations that Samsung is continually improving upon.  The supply chain management of Samsung is based on planning and optimization.  Within the planning function supply, resource and planning capabilities are split into separate organizations in which each own a specific responsibility (Drach-Zahavy and Erez 668).  The Supply function encapsulates supplier management, procurement activities and the logistics for delivery to the plant locations.  The second area focuses on resource planning.  Resource planning includes port management, intra-organizational logistics, forecasts for part supply and part usage as well as the ability to understand the demand of the customer and how it translates into the manufacturing and supply chain management.  The tertiary pillar of the supply chain management operations within Samsung is the Demand Management function.  The customer collaboration extends to not only the end customer and ensuring the quality products reach the consumer but the customers include retail chain stores, service providers and other outlets.  The customer collaboration efforts allow for a synergistic leveraging between customer and Samsung to create an environment for success within the supply chain.  The opportunities to reduce cost, increase transit availability and improve efficiencies between organizations all occur due to a collaborative nature among partners.  The graph below is depicting the organizational supply chain breakdown based on the three pillars.

With the planning aspects working between the three pillars, the opportunity to hone the supply chain becomes relevant.  Samsung embeds the ability and drive to continually improve operations, tasks, procedures or any other aspect within the organization that can receive a benefit from improvement.  By aligning the business philosophy to achieve a superior supply chain management operation through the installation of best practices as a framework and then working to continually improve the capabilities allows Samsung to operate on the cutting edge of technology in many regards while also focusing on internal processes and procedures to achieve maximum capability, efficiency and effectiveness.

Managing Samsung’s supply chain is dynamic and complex.  The global diversification and distribution of customers and suppliers create a matrix of logistical transactions.  The ability to combine the resources within the organization provides another benefit to the organization. The communication between organizations as well as internally within each organization creates the opportunity for cost savings, regarding parts or raw material from suppliers, as well as cost avoidance, for logistics to include shipping, distributions centers, carrier costs, tariffs and customs.

Samsung’s business model focuses on delivering their key capabilities within the mobile phone, TVs, and memory while increasing their capabilities within their newly emerging markets such as appliances, printers, cameras and system LSI.  The focus on building a strong foundation for future achievement is one of the primary factors for Samsung’s continued growth. The strategic business vision includes establishment of a core business process with a directed focus on their primary business ventures. Once the foundation was established it was time to stabilize the operations and rein in ineffective business procedures while also increasing the internal business talent pool.  Once operations have stabilized the ability to develop and invest heavily in new technologies, ideas, capabilities and continued human capital growth became a driving force within the organization.  The focus of the organization is driven by the global strategy of the company.  Each product, initiative or program that is launched within the company must be in line with the global strategies.  Each initiative is selected based upon its alignment, benefits and potential for success.  The assignment of a project or initiative based upon the strategy creates a direct connection with leadership and achieves a level of project buy-in that facilitates project success.  The key project management methodologies for best practice project management are in direct correlation with how Samsung manages and executes their portfolio, program and project management activities.

Supply Chain Management Best Practices and Operational Strategies

Samsung focuses on key best practices to help facilitate the continual transformation of the supply chain. The transformation that Samsung is focused on is not directly related to creating more shipping lanes or determining how to package material but involves focusing on the larger picture and solving issues to become more productive while also avoiding cost hazards within the supply chain.  The best practices fall in line with the business model of solving tomorrow’s problems as well as their supply chain management organizational breakdown into core functions with an additional focus on optimization.

Voice of the Customer. The customer in Samsung’s case encompasses all of their stakeholders.  The customers can be the suppliers, owners, retail outlets, consumers or employees.  Receiving feedback and understanding the needs of the stakeholders is imperative to understanding where issues lie and how to address them with a solution.  With stakes and stakeholders the key concept revolves around the interest in a particular idea or entity.  The stake comes in many forms such as a vested interest in an outcome or key deliverables for a project which stemmed from a product, problem or opportunity.  The stake itself is the individual interest in the process or outcome.  The stakeholder is the person that holds that interest.  The interest lies within the process or objective creates a responsibility as a stakeholder.  The production of the firm has a clear and concise view of the business process.  The production must take the output of the suppliers, process the output to create the firms good and make sure it gets to the customers.  The production’s view is linear with three major functional areas including the supplier, the firm and ultimately the customer.

The managerial view within Samsung is a bit more complex.  The first reason is that the linear view of production now flows both ways from the supplier firm customers as well as in reverse from the customer firm supplier due to the necessary feedback from the key points of contact that occurs during the business process.  There are also outside factors that influence the managerial process.  This includes input from the ownership of the organization as well as the employees throughout the organization.

The stakeholder view is the most complex and includes the production and managerial views but also every outside factor such as the political, social, technological and economic environments. These outside factors influence the stake or interest the stakeholder has within the organization. The stakeholder view is critical because they encompass many different individuals with differing perspectives influenced a multitude of different external and internal factors.  Management of the stakeholders’ interest is vital to business operations/success.

Samsung has increased its ability to focus on the customer’s suggestions and needs while continually improving their ability to react, initially, and ultimately become proactive in approaching issues. This is done through the maturation process of their identification and assessment of their stakeholders. The first level is identification of the stakeholders and the third level is the actual engagement of the stakeholders in key business transactions. In order to transition from level 1 to level 3 there are key tasks that must be accomplished.  The movement is a progression that builds on the previous level.  In level 1, the organization is building the relationship with the stakeholders and takes assessment of their interests, needs and expectations.  In level 2 there is a process to build on the stakeholder assessment.  The development and implementation of the approach to take the information garnered from the stakeholders and utilize it in the business processes takes place.  The major task is to plan how to integrate the ideas and actions of the stakeholders into the business process.  Level 3, the highest level of stakeholder engagement, takes the planning phase and puts action toward the plan.  Full engagement of the stakeholders including communication and actions based upon the assessments and processes of the previous levels takes place.  One area includes the movement to increase shareholder democracy.  This is in response to the lack or perception of the lack of power the shareholders, owners, felt within the organization.  This action to increase the opportunity for influence within the organization spread through the election of board members by majority vote, classification of boards, and the ability for proxy access for voting.  I would like to see more improvement for the involvement of the management and owners of the organization.  This includes spanning the gap between the owners’ strategic vision with the operational activities of management.  By raising the accountability of owners, the board of directors and management the ability to meet the requirements of each level within the hierarchy becomes a possibility.

Six Sigma and Lean Management.  Quality is ingrained within the Samsung culture.  This entrenched focus to continually improve and provide quality products to the customer has led to the adoption of lean management and the Six Sigma methodology.  Many of the large manufacturing and assembly companies have created, enhanced and promoted total quality management, Six Sigma and lean management methodologies.

Lean management’s purpose is to limit or eliminate waste from the creation process that does not bring value to the customer.  The purpose is achieved through a set of tools whose sole purpose is to provide insight and direction to help those in the manufacturing process make better decisions to eliminate waste.  Lean management helps facilitate the use of the tools to create a repeatable and sustainable manufacturing process to remove wasteful activities such as holding too much inventory, rework of product and extraneous transportation costs are just some of the wastes companies experience in the process of managing a supply chain and are exacerbated by the lack of lean processes.  Lean supply chain management is not just a project to temporarily relieve the pain points experienced by a temporary issue.  Lean supply chain management is a way to run a business to the point in which lean thinking and lean actions are ingrained into the daily activities of every employee.  Lean is a way of life and not just a fly-by-night operation.  It takes time and commitment to implement and more importantly sustain in the manufacturing environment.  Lean management, when implemented successfully, will be ingrained into the culture of the organization from the leadership of the company down to the front lines of the business where the company touches the suppliers and customers.

The lean management tools are utilized to drive out the waste from the process at the root cause of the issues the company is facing.  The root cause is quality issues in the manufacturing process.  By addressing these issues on the line they can be eliminated.  By eliminating the issues at the source they will not come back as re-work which leads to more costs associated with the product.  The lean management methodology will need to become a cultural staple in the company’s manufacturing process.  By promoting and driving the lean culture, the leadership will create a sense of accountability and buy-in across the organization which will facilitate the positive results from a lean implementation.

Lean management and Six Sigma are often used to better the organizational efforts to increase productions, capability, efficiencies or effectiveness.  In this case, for Samsung’s business processes, the focus is on Supply Chain Management (SCM).  Both are similar in that they are structured frameworks to help solve issues and improve the performance of their respective organization.  Lean management is used to reduce waste and improve efficiency of a process while Six Sigma is utilized for the reduction in variances and improved performance.  For example with lean management the focus could be on processing times, improving safety, utilization of resources and process improvements.  These increases in efficiencies will not help prevent products from failing quality checks or missing other specifications on the requirements.  This is where Six Sigma would be used.  In essence, Six Sigma methodologies push the organization to make the product exactly the same without defects every single time.  It does not mean that the process is efficient but it does force defects from the operation.  Both could and should be used in a synergistic approach.  For example while working through the lean management tool set which uncovers inefficiencies, the root-cause could be caused by consistent rework or scrapping parts due to defects in which the Six Sigma methodology would come into play.  Lean management is a great place to reduce the waste in the processes before implementing a Six Sigma approach.

The goal of implementing a lean management methodology is to help eliminate the processes, actions or lack of actions that are causing waste throughout the process.  Lean management is a set of tools designed to help eliminate the multiple areas of waste and ultimately drive a manufacturing process that produces quality products to the consumer.  In order to implement a lean manufacturing methodology, it is imperative that the implementation team understands the process and purpose of what lean manufacturing entails.  The basis for the entire lean methodology is to limit or eliminate any action or functions from the manufacturing process that does not create value to the end customer.  Lean is a set of tools that can help provide the necessary means of reducing waste through the manufacturing process.  This set of tools focus on eliminating the different kinds of waste which are transportation, inventory, motion, waiting, overproduction, over processing and defects.  Of all of these wastes some are more apparent and receive more attention than others.  Implementing the lean management methodology includes designing of the lean process, training, awareness, communication, lean leadership, tool box preparedness, continuous improvement, cultural awareness, philosophical buy-in and team management.

“Lean management implementation is continuous process that requires a change in the way the company conducts their business” (Pettersen 2).  Samsung must identify a need within their processes or a need to reduce the waste to better utilize their limited resources.  While the focus here is on lean management methodologies a key to success is integrating lean management philosophy as a cultural attribute.  One of the major tasks of the team is to bring in leadership and ensure that the culture change is pushed from the top down to not only kick off the culture change but also create a sustainable environment for the lean culture.  Implementing lean management is often like opening a tool box and selecting the correct tool for the job.  Lean management is also in a continuous state of improvement so that it must also be understood that while there should be recognizable gains from each lean management activity to goal is to continuously improve and strive to draw down the wastes in the manufacturing process. There are two basic methods to implement lean management projects (Hanover 4). The first method is a tools based approach and the second is a flow based approach. Both implementations work through a repeatable process which results in an improved area that contains a repeatable and sustainable process improvement.

The tools based process works through a project management methodology while implementing various lean tools through the process. In this method the initial phase is to bring leadership in and voice their intentions of bringing in the lean vision for the company. Once that is established the project leader develops project as any other project would start up. The first difference in the project start up requires the project manager to solicit for a group of volunteers to form the lean implementation team.  From this point the team will need to be trained on the lean tools, view other areas that have implemented lean and ultimately choose a project that could be used in the organization. After the project is selected, the processes is evaluated, monitored and lean tools are utilized to make changes.  From these changes new standards are developed and adopted into the manufacturing process.  Once the process is standardized, the team can move to the next lean project following the same process.

The next method is the flow based approach. The ultimate goal of this lean management program is to remove as many quality problems from the process as possible and increase the ability and rate of flow from the beginning to the end of the process. Once the quality areas are recognized they can be improved with the lean tools.  Samsung utilizes this process to understand the process in which they flow material in the supply chain and opportunistically identify areas that could use improvement. The overall process of this system is to identify areas that are causing a slow down or stoppage and improve that flow.  This is done by monitoring the flow, identifying area for improvement, introducing standard work and locking down the improvements so that they are repeatable.  An issue with a project assigned drives change and the change leads to a culture transformation in the company.  While this could result in the desired expectations of leadership, climbing over the mountain of solving results of problems instead of root causes of the issues could raise flags for future lean projects.

The first step of the team is to help identify the problem (Vernvi 3).  Identifying the issues will allow for a focus on improving the efficiencies throughout the supply chain.  Each project eliminating waste from the process will improve the overall operations of the supply chain.  Every resource saved by eliminating waste can be put toward either continuous improvement projects or reinvested into the company for other growth opportunities.  These small and continuous improvements will lean out the production line and improve the overall product.  This methodology will reduce waste in the areas of transport, inventory, motion, waiting, overproduction, over processing and defects (Holweg 425).  Each of these areas of waste would contribute to the positive impacts on operations, reduced costs of inventory, reduced cost of ownership, improved efficiencies in transportation, increased utilization of facilities and ultimately a more efficient and effective supply chain as a whole.

ERP and Planning Systems. The supply chain management system includes a collaborative and integrated system of Enterprise Resource Planning tools which would allow users to create, manage and interpret data from multiple sources in a centralized location. The benefits of the ERP system include real-time data transfer from one source of data. This is due to the fact that the sourcing systems used to procure parts for the manufacturing teams are collocated in the same environment and survive in an environment where updates and changes are felt throughout the process.  The advantage of collaboration for Samsung’s supply chain allows a leveraging effect on the entire sourcing organization.  This allows for greater insight into prices, usage, timing, logistics, issues and forecasts for material flow and production capabilities.

The business model of Samsung revolves around supply chain management and a centralized focus on distribution of products to their consumers.  With many companies that sell products to consumers, it is the sales force that drives market strategy and determines the best tools to provide key data to their customers. This is due to the fact that the more sales that are generated the more production supply is needed to meet that demand. The unique situation is the dual marketing strategy of Samsung based upon their customer. Samsung also has the responsibility and executes to that capability to drive demand by providing world class appliances and to ensure the end consumer knows the reliability, features and other key performance specifications Samsung must provide a way for the end consumer to obtain that information.  With the changing marketing environment, consumers have the ability to shop from the luxury of their homes and gather key data prior to going to the actual brick-and-mortar locations to see the products in person.  Samsung embraces not only their internal view of product quality but also present that information externally through the use of ecommerce and the technological advances that the ERP system will offer.  The ERP system will provide the ability to synchronize the internal systems to ensure quality products to the consumer while also meeting their demand schedule and allowing the availability needed by end consumers to have the product on-demand and in the specifications they desire.

This ability to provide the highest quality and dependability as well as the look and finish desired by the consumer will drive overall demand.  With ecommerce the more information available to a consumer the better the consumer can be informed about their decision to buy.  This also drives the ability to derive value through the use of the relevant theory.  Samsung is not only taking advantage of this relevant theory attributes through quality and dependability but it is also utilizing the intangible gains of bringing manufacturing capability back to the United States through the potential efficiencies of the ERP system and processes.  With a system such as the ERP implementation, there are benefits that are derived from the implementation that include gains in proficiency and productivity which Samsung ultimately uses to shift risk and cost.

Standardize Processes and Parts. Standardized processes, parts and strategies allow for familiar execution plans, interchangeable operations and redundant systems to allow for potential risks.  Achieving the economy of scale is accomplished by reusing key components and allowing from standard work to flow across the business.  By allowing standard operating procedures across the business entities, Samsung can manage and control quality aspects while also instilling best practices across the spectrum of the organization.

One key aspect of Samsung’s success in standardizing operations include the utilization of the virtual supply chain.  A virtual supply chain is a supply chain that is taking advantage of the wealth of information and processing capabilities that the technological advances in computing, accessibility to information and process improvement opportunities. The virtual supply chain takes advantage of not only the physical network of the supply chain but also leverages the information layer of the supply chain. The virtual supply chain allows a greater granularity of command and control in an ever increasingly complicated global market.  The traditional linear supply chain would have a very difficult time managing multiple vendors across the globe while also forcing focus on quality, timeliness and integration (Hamel 3).  With a virtual supply chain the information is presented to all the parties involved ranging from the sourcing agents to the vendors and back to the customer. The virtual supply chain leverages information to create areas of opportunity to drive out cost and to focus on quality.  The main function of the virtual supply chain is to enable the vendors to provide the parts or products on time and within specification.  It does this by placing the interaction between the suppliers and the sourcing agents onto a web-based solution that allows key data points to be pulled from the system as opposed to being pushed from one end of the supply chain to the other.

The virtual supply offers a core supply chain system that is based on flexibility and scalability based on the needs of a complex logistical supply chain.  The focus on complexity and allowing the system to validate data while also presenting a clear picture the supplier is a bright spot regarding the advantages of virtual supply chains. The web-based model of virtual supply chains also allows for easy implementation and adoption among the parties involved in the supply chain. This implementation revolves around driving the requirements in the system, setting up the users and ensuring a web-based portal is available.  This real-time updates of requirements and demand also creates an environment for collaboration and concerted efforts to address issues and drive out cost from the entire supply chain.

The disadvantages are very similar to that of a linear supply chain that is trying to leverage global integration into the supply chain.  While a web-based portal that is available 24 hours a day for seven days a week does not provide the inherent ability for the supplier to be able to adequately utilize the system.  There are barriers in communication, time zones and culture that would need to be addressed prior to any implementation.  There is also a focus on training that would take resources from the business in the beginning but would be required to get the virtual supply chain operationalized.

Globalization and extending the focus on how and when parts or products are purchased is a main focus area for Samsung.  This is specifically true for businesses trying to enter new markets or trying to optimize their current relationship with the foreign vendors.  The virtual supply chain is providing the tools necessary to take those relationships to the next level and move from parts supplier relationship to a collaborative team effort to reduce cost, increase quality and provide the product to market when it is needed (Town 1).  The main point of collaboration may not be to necessarily drive all of the cost out of the logistics of the supply chain but there are also other ways the virtual supply chain is moving the market.  By allowing information to flow freely and to precisely describe the demand, due dates, shipping times, specifications and other key data the suppliers can lessen the time to market and allow products to create a competitive advantage by entering the market first and capturing that market share.

Risk Management.  Risk management incorporates the identification, assessment and prioritization of risks and takes those results and establishes a mitigation plan to limit or negated the effects of the risk.  The risk management process extends throughout the lifecycle of a project or circumstance and the root cause of those risks can stem from a multitude of sources.  Risk mitigation or the management of the risks can be handled in just as many varied ways.  The most common actions to reduce the risk exposure are to transfer the risk to another entity, avoid the risk altogether, reduce the probability of the occurrence or just accepting the risk (Alexander and Sheedy 198).  Depending on the goals and objectives of the implementation team there are different ways to handle the risk.  There is a basic construct on how to analyze a risk and thus understand which risk assessment method would be appropriate. The overall project is to implement an enhancement website that is ultimately replacing a legacy website that is no longer capable of meeting the requirements of the organization.  Through the project there are inherent risks associated with the project’s execution, transition and sustainment.  These risks will be outlined in a risk assessment matrix and a strategy for mitigating those risks will be defined.

Risk in project management is the perceived implications of an uncertain event impacting the project or the organization as a result of the project’s deliverables.  Within each of the risks there are varying degrees in which the impact, severity and likelihood will occur.  Each of these factors plays a role into the risk mitigation plan of the organization.  These risk mitigation actions incorporate the risk itself as well as the tolerance of the organization and the benefits of accepting certain risk models to achieve certain objectives (Cooper, Grey, Raymond, and Walker 92).  The risk adversity or risk acceptance of the organization is interdependent with the goals and objectives that the organization wants to achieve as well as the activities that are necessary to achieve those deliverables.

Key Supply Chain Issues and Road Map

As a company grows and expands their capabilities in any regard there comes inherent issues that require continual oversight and management.  The supply chain for Samsung is one of the largest in the world and expands through 79 countries and involves tens of thousands of interactions.  From the inception of a new product to placing it in the hands of the customer there are hundreds of thousands of key interactions, communications, calculations, interactions and decisions that must be made to ensure all of the requirements for the product meets the acceptance criteria.  The supply chain management of Samsung is a key differentiator and with that competitive advantage there is an increased focus by other companies to decrease that advantage.  The key contributors to the issues for Samsung’s supply chain management includes the capability to accurately forecast demand of the end product as well as the usage and demand for materials to create their products, the ability to continually improve their supply chain practices and processes and not remaining compliant in their capability as a superior business in supply chain management.  Samsung would line the path ahead with a retained focus on their core functions as discussed before, continually strive for improve efficiencies and utilize technology to engage consumers, analyze data and make informed business decisions within the supply chain.

Conclusion

Samsung has established itself through hard work and dedication to effectively and efficiently creating an environment for success within a collaborative supply chain management operation.  This includes providing those within the supply chain the appropriate tools to accomplish their objectives as well as placing a significant emphasis on core capabilities and business optimization.  These aspects are engrained throughout the organization across all functional areas.  The focus on standardized operations across business units, synergistic approaches to supply chain management and metrics for managing performance create the best possible scenario for success within the supply chain.  Samsung’s business philosophy for solving tomorrow’s problems places a direct emphasis on continual improvement.  This philosophy is a direct correlation between Samsung’s cutting edge supply chain and their successes in multiple product markets.

Works Cited

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Samsung. (2014). Smart Logistics. Retrieved from: http://www.sds.samsung.com/bizintro/service/logistics.jsp