Samsung: supply chain-driven leadership

Founded in 1938, South Korean conglomerate Samsung has seen its revenue explode in recent years, with profits hitting record levels of more than $4 billion in the first quarter of 2012 on the strength of the company’s smartphone products.

The electronics giant spent most of 2011 in a neck-and-neck race with Apple for the top prize in smartphone sales before ending the year on top.

Now Samsung is shifting its focus from consumer electronics to solar panels, light-emitting-diode (LED) lighting, biotech drugs and medical devices. The company has announced plans to supply medical equipment and drugs to poor countries, while moving industrialized nations toward power created without carbon emissions.

Firms worldwide will be gauging Samsung’s shift and likely will keep a close eye on the company’s supply chain component, widely reported to be one of its biggest competitive advantages.

Samsung’s Supply Chain Philosophy

Samsung initiated a collaborative plan to foster growth and stability among its key suppliers. According to Samsung’s corporate sustainability report, the company is shifting its “Mutual Growth” program to smaller firms lower on its green supply chain. The CEO is directly responsible for implementing seven key collaborative programs:

  1. Win-win fund for partner companies
  2. Timely reflection of raw material price changes in parts purchasing prices
  3. Temporary registration scheme to promote e-transactions
  4. Support for indirect suppliers
  5. Joint technology development center
  6. Fostering “global best companies”
  7. Support for recruiting activities of small and medium enterprises

In addition, Samsung offers support to its partner companies in human resources, innovation, communication and corporate social responsibility. This approach to supply chain management has resulted in a strong and loyal network of partners. Samsung also has implemented a number of other methods to ensure sustainability in its supply chain 

Successful Supply Chain Management

For Samsung, successful supply chain management (SCM) means tapping into the power of its global footprint. The company’s SCM utilizes suppliers in the developing world and highly industrialized areas. This diversity helps buffer Samsung from economic, natural or political disruptions in the supply chain and also creates a wider customer base.

Another idea Samsung has leveraged is that of being a “fast follower.” The company watches the market for new business ventures, purchasing small, leading-edge companies. Samsung becomes familiar with new technologies through these acquisitions, which deliver expertise, talent and customers. Once it finds an area primed for growth, it pours in cash, ramps up production and becomes a key customer for its suppliers, fostering positive relationships that give it a competitive advantage.

CPFR Method: How Samsung Implemented It

Collaborative Planning, Forecasting and Replenishment (CPFR) focuses on improving supply chain management by combining the intelligence of a variety of partners in satisfying customer demand. CPFR uses a set of template-based standards for supply chain management and partner collaboration. Among the corporations to have used CPFR are Wal-Mart, Procter & Gamble and Samsung. 

In 2004, Samsung signed a CPFR agreement with electronics retailer Best Buy for the North American market. The initiative improved efficiency by cutting costs for merchandising, inventory, logistics and transportation. In 2009, the two firms expanded the agreement to the Chinese market, agreeing to enhance each other’s supply chains by supporting and assisting in joint practices, including:

  • Monitoring market demands
  • Sharing customer feedback
  • Working together to reduce operating costs

Six Sigma at Samsung

With a global supply chain as complex as Samsung’s, advanced approaches to planning, scheduling and operations are necessary for stability and success. Since 2004, an innovative program combining supply chain management and Six Sigma has been a key driver of both.

Samsung first researched how Six Sigma was being used at companies like General Electric, Honeywell and DuPont. Methods of matching customer requirements to products and services, while applying lean methodologies to manufacturing, were seen as particularly valuable.

In the end, Samsung determined about 75% of its Six Sigma projects would involve redesigning processes and 25% would focus on process improvement. It then tailored Six Sigma’s methodology to better support Samsung’s supply chain management projects.

In addition, Samsung’s team also created design principles to guide the SCM Six Sigma projects throughout each stage:

  • Global Optimum – speaks to a global, rather than local alignment of improvement ideas
  • Process KPI Mapping – defines objectives and monitors the process towards management improvement plan goals
  • Systemization – a critical component of SCM Six Sigma at Samsung
  • Five Design Parameters – used to characterize the changes that need to be managed.

Samsung’s Success Based on Sound SCM

By beginning with a collaborative philosophy and adopting smart supply chain management processes, such as “fast follower,” CPFR and specialized Six Sigma, Samsung has maintained its position as a world leader in consumer electronics.

As the company moves into a diversified business model, it is expected to continue utilizing those methods to remain competitive and profitable, while fostering similar benefits for its suppliers, retailers and other supply chain partners.

This guest post was provided by Dean Vella who writes about supply chain managementand sustainability for University Alliance and submitted on behalf of University of San Francisco.


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