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Creating competitive advantages through supply chain final

  1. 1. Creating Competitive Advantages through Resilient Supply Chain – Case Study: Samsung Electronics Kurnia Sofia Rosyada Department of Design, Manufacture and Engineering Management University of Strathclyde, Glasgow, United KingdomAbstractPurpose – The purpose of this paper is to understand the benefit of SCM practices in Samsung Electronics towardcreating competitive advantages and sustainable business to be resilient toward high-uncertainty marketenvironment.Design/methodology/approach – This paper adopts the case study methodology. It uses an in-depth case study ofSamsung Electronics, a global leading electronics industry, in particular investigating how the firms apply organizeits supply chain activities to create resilience toward highly volatile market and generate competitive advantagesagainst its peers.Findings – Samsung Electronics applied some of the best practices supply chain such as extended value chaintoward its suppliers, collaborative-customer process toward its product development creating resilience andcompetitive advantages. Competitive advantages include strategic positioning in the electronics industry valuechain, product innovation, and product/services differentiation.Originality/value – This paper provides holistic view of Samsung Electronics supply chain management andanalyze how SCM can create competitiveness and market resilience which critical for business survival. Thefindings from this study indicate that the supply chain no longer view as logistics and manufacturing managementbut rather as a value-chain.Keywords – Resilience supply chain, Samsung Electronics, SCM creates competitive advantagesPaper Type – Research paper1. IntroductionCompany survival in the ever-changing business environment is now became an issue of supply chain practicesagainst another (Fine, 1998). Organization began to realize that improving internal efficiencies is no longer enough,but their whole supply chain needs to be made competitive (Li et al., 2004). As competition intensified and marketsbecame global, one of the key challenges in managing the supply chain is the products delivery fulfillment to thecustomers (Sridharan and Laforge, 1990; Zhao et al., 2001). Much shorter product’s life cycles as exhibit byelectronics industry, as well as frequent changes in production plan can led to schedule nervousness (Peslak et al,2007; Krajewski et al, 2005) which without proper management will turn into supply chain disruptions. Supplychain disruptions and their associated financial and operational risks is surging to become single most pressingconcern for the top executives at Global 1000 firms (Green, 2004). Research related to this issues ranging fromsupply chain resilience (Sheffi and Rice, 2005), to supply chain vulnerability and company’s sustainability.Developing supply chain processes and management that expanded towards organization’s trading partner networkwill provide resiliency to deliver predictable results despite market volatility. This ability coupled with embeddinginnovation, internalize customer’s needs and proactively build customer feedback into supply chain design is the key1
  2. 2. of Samsung’s distinct supply chain practices. Ranked 10th in the recent Gartner’s Top 25 Global Supply ChainLeaders, Samsung Electronics supply chain management often cited as one of the best-in-class. The study of thispaper will focus on the application of supply chain management in Samsung Electronics which includes the latestevolution of SCM practices such as extended value chain through supplier partnership, customer relations andcustomer service management (Donlon, 1997; Tan et al., 2002; Tan et al., 1998). The objective of this paper is tounderstand the benefit of SCM practices in Samsung Electronics towards creating competitive advantages andsustainable business. Hence, the key research questions that we try to answer are: What are the supply chainpractices in Samsung Electronics and how does it impacted their competitive advantage. Is their current supply chainmanagement sufficient enough for addressing future challenges and support business sustainability? The answershould give us a better understanding of creating resilient supply chain management in high-tech industry.This paper proceeds as follow. In the next section, review of the relevant literature and conceptual framework forthis study will be presented. Then, the paper describes the data collection process and methodology, followed bycase analysis with detailed discussion of the supply chain management practices in Samsung Electronics. Finally,the paper discusses the findings and present suggestions for future research.2. Conceptual BackgroundA supply chain can be defined as an integrated process in which numerous various business entities such assuppliers, manufacturers, distributors and retailers work together in acquiring raw materials, converting those rawmaterials into specific products and deliver it to customers (Beamon, 1998). It is an effective network of firmsperforming activities in a particular product/service value chain (Stevenson, 2007). In the high-tech industry, whichcan be categorized as innovative product due to its short product life cycle, large variety of products, and highmarket uncertainty (Fisher, 1997), supply chain management is a critical area and significant factor for the successor survival of the electronics industry.2.1 Trends and Challenges in Supply Chain OperationsWe have witnessed several infamous trends of supply chain management in the past decades. In 1980s, just-in-timeproduction became popular, followed by supply chain collaboration and outsourcing logistic activities concept in1990. By 2000, internet application changed the supply chain practices according to David Simchi-Levi (Hopkins,2010). As competition intensified, so did the challenges of getting the product and service at the right time and theright place (Li et al., 2004). The design of supply chain management became more central to organizationaleffectiveness and efficiency in the future than ever before. In particular, there have been some significant challengesin the highly competitive world market that has made supply chain management (SCM) an essential prerequisite forstaying in the business. These challenges include:  Globalization that increase supply chain complexity and global sourcing, produces long and geographically diverse supply chain, exposed to numerous threats of disruptions and risks (Xia and Tang, 2011).  Intensified competition and price pressures coupled with high market uncertainty required companies to built its supply chain resilience towards volatility (Christopher and Peck, 2004).  Shortened and more complex product life cycle, required firm to redesign its product life cycle management with emphasize on introducing new products, managing product discontinuation and design manufacturability;  Regulations changes requires companies to consider amount of carbon emission produced in the supply chain, leads to organization focus on green supply chain and long term sustainability (Xia and Tang, 2011)The response towards the challenges above has led towards the following trends in supply chain amongst leading topcompanies.2
  3. 3.  Supply Chain Resilience The needs for supply chain resilience, which defined resilience as the ability of a system to return to its original state or move to a new, more desirable state after being disturbed. Implication in this definition include the notion of flexibility (Christopher and Peck, 2004), although speed, agility, efficiency, responsiveness and embedded innovation along supply chain remains critical. Companies such as Cisco, Dow Chemical are creating and expanding this resiliency towards their trading partners as well.  Value-chain network strategy More companies expanding their value chain, either through becoming more vertically integrated with the acquisition of their supplier, or through managing an extensively outsourced network of trading partners which applied by Microsoft and Cisco. Both aim for value chain network strategies that allow better control of the end-to-end value chain. Example of the extended collaboration have emerged in the Sales and Operations Planning (S&OP) that include both upstream and downstream value chain partners, in order to gain better visibility of the whole value chain.  Organization as a value chain Supply chain organization is not longer limited to either inbound materials management or logistic. Organizations redefining their supply chain responsibilities to move from traditional functional silos (plan, source, make and deliver) towards an “end-to-end value chain” perspective, often start from customer and moving back up through the suppliers base and new product launch. The role of supply managers is changing, with increased emphasize on supply market intelligence, collaboration, and operational integration with suppliers (Handfield et al, 2008).  Demand-driven excellence Adoption of demand-driven focus supply chain to influence and manage demand more efficiently. Companies are shifting from the pursuit of efficiency (cost minimization in production and distribution) to responsiveness, matching quantity and variety of products supplied to meet required demands (Kopczak and Johnson, 2003). The application of this principle required the ability to manage demand rather than just responds, a networked approach to global supply and embedded innovation in its supply chain operation.  Product life management Shortening product life cycle required company to adopt product life management (PLM) processes. The benefit of adopting PLM processes is to help companies design common product development processes involving collaboration with suppliers and contract manufacturers. Increased parts re-use, declined design cycle time and reduced time to market are amongst the benefit of applying PLM (Hofman et al., 2011)2.2 Choosing the Right Supply Chain Strategy to Address UncertaintyThe trends above emerged to address one or combination of the recent challenges. Although there are many newsupply chain concepts and framework designed to address the ever-changing market, successful companiesunderstand that the right supply chain strategy depends on the two factors. First, the strategy needs to be tailored tomeet specific needs of the customers but also the product should be managed according to its characteristics (Lee,2002). The “Uncertainty framework”, which Lee expand from Fisher’s framework, can be used to characterize aproduct when seeking to devise the right supply chain strategy, looking at both key uncertainties from demand and3
  4. 4. supply perspectives (Lee, 2002). Demand uncertainty is linked to the predictability of the demand for the products.Electronics goods as well as other high-tech products are examples of innovative products due to its short life cycles,high innovation and unpredictable demand. Other important uncertainties to determine the right supply chainstrategy is the supply side. Lee defined two type of supply process. A “stable” supply process characterized throughmature manufacturing process and technology, coupled with a well-established supply base. Usually, complexity ofmanufacture tends to be manageable. An “evolving” supply process is where the manufacturing process still underdevelopment, rapidly evolve, led towards limited supply base in terms of scale and experience. Often, themanufacturing process requires adjustments, and experiences unscheduled breakdowns (Lee, 2002).Despite the tendency for functional products to be more mature and stable supply process, it is not always the case.Example is the food products. Although it may exhibits a stable demand, but the supply of products may varyaccording to the weather condition. Similarly, innovative products such as fashion apparel, may has stable supplyprocess supported with a reliable supply base and mature manufacturing process. Figure 1 provide examples ofproduct with different demand and supply process. Lee argued that specific supply chain strategies required to betailored to each uncertainty characteristics, to provide competitive advantage for the companies. These strategies canbe classified into four types (Lee, 2002): Efficient supply chain, risk-hedging supply chains, responsive supplychains and agile supply chains. Agile supply chains, suits to semiconductor and high-tech industries, designed notonly to provide responsiveness and flexibility to meet customer needs, but also hedging the risk of supply shortagesand disruptions. It has “agile” characteristics as it capable to respond toward high-uncertainty customer demandswhile minimizing the back-end risks of supply glitches (Lee, 2002). Figure 1 Uncertainty Framework and its tailored supply chain strategy (Fisher, 1997; Lee, 2002)Companies with innovative products and continuously evolving supply processes are now moving towardsimplementing the “agile” supply chains. Agility according to Christopher and Towill is defined as “a business-widecapability that embraces organizational structures, information systems, logistics processes and in particular,mindset” (Christopher and Towill, 2000). A core characteristic of agile supply chain is flexibility. Naylor et al.,argues that agility means leveraging market knowledge and virtual corporation in capturing profitable opportunitiesin the volatile market (Naylor et al., 1991). An example of the implementation of agility is the adoption ofdecoupling point strategy where Xilink Inc., a semiconductor company specialized in IC (integrated circuit), formedvery close partnership with two foundries in Taiwan (United Microelectronics Corporation) and Japan (Seiko).Fabricated wafers are then stocked, creating a decoupling point as the banks. The final assembly and testing of thechips are conducted by other supply chain partners in Korea and Philippines as the demand for specific chips is4
  5. 5. known once customer orders received. This decoupling strategy enable Xilink to be responsive towards its hard topredict customer demand but also sharing the risk of wafer fabrication processes (Lee, 2002).2.3 Creating Resilience Supply ChainHowever, in the age where supply chains serving global-spanning operations, in a changing world with numerousunpredictable events such as natural disaster, fast technology evolution which led to supply disruption, being agile isnot enough. Company need to manage its supply chain vulnerability which defined as “an exposure to seriousdisturbance, arising from risks within the supply chain as well as external risks” (Christopher and Peck, 2004).Resilience supply chain is required as the company need to have notion of flexibility to return toward its originalstate or move towards desirable state after being disturbed. Resilience supply chain is created to manage risksidentified with supply chain, including internal risks such as process and control, as well as external risks involvingdemand, supply and environment factors (Christopher and Peck, 2004). To create a resilient supply chain, thefollowing frameworks proposed: Figure 2 Framework for creating resilient supply chain (Christopher and Peck, 2004; UPS and the Economist Intelligence Unit (EIU), 2008)2.3.1 Supply Chain Re-engineeringFirst, supply chain re-engineering required for considering resiliency into objective function of the optimizationprocess. The basic pre-requisite for improved supply chain resilience is the understanding of the network,connecting both downstream customer and upstream (suppliers) to identify the critical path and potential risks.Critical paths in the supply chain may exhibit one of the following characteristics: long lead times, single source ofsupply with no short-term alternatives, poor visibility (e.g. no information-sharing) across supply chain, high levelof risk identified. Choosing the correct supply base strategy is also critical, whether to pursue reduction in thenumber of suppliers, or single-sourcing, or few lead-suppliers strategy, depends on the risks assessment as well as5
  6. 6. alternate supplier availability. It is also strongly advised to identify whether suppliers also implement risk-assessment and monitoring. Supply chain design principles for improving resiliency should provide several optionsopen, able to reduce impact of disruption in the future, although it may not proven to be the most cost-efficientoptions in the short term. Re-examine the trade-offs consideration, with the risk-management principle as the base ofthe decision-making (Christopher and Peck, 2004).2.3.2 AgilityAbility of organizations to respond demand changes and supply disruptions in this modern industry no longer tied toindividual companies but much related toward networks. The agility determined by both upstream and downstreampartners of the firm. Two key characteristics of agility are “visibility” and “velocity”. Supply chain visibility enableorganization has a clear view of inventory, demand, and supply along its value chain. Visibility can only be achievedthrough collaborative planning with both its customers and suppliers, enabling capture of any alert regarding supplydisruptions. The challenge for building visibility is to create seamless integration view across functions of supplychain (Christopher and Peck, 2004). Another key component of agility is velocity, which referred to end-to-endpipeline time. However, for creating agility, the acceleration or rapidness of supply chain react to changes indemand are also critical. Both velocity and acceleration can be achieved through streamlined processes, lead-timereduction and eliminating non-value added activities. Enablers are leveraging supplier capability to respond deliveryrequest quickly, and able to cope with quick changes in volume and portfolio requirements, together with theinformation-sharing and inventory management practices (Christopher and Peck, 2004).2.3.3 Supply Chain Risk Management CultureIncreasing risks due to high-uncertainty market is expected and required culture of risk-management embeddedwithin organization. Supply chain risks present major threats toward business continuity and required top-downleadership to drive the risk-management culture change in the organization (Christopher and Peck, 2004). It is alsoargued that supply chain risk assessment should be considered during the decision making process. For example,supply chain vulnerability such as component scarceness and lead times for manufacturing and distribution need tobe considered when deciding to near-shoring one of the production site. To manage the risk, performancemonitoring is essential. Coupled with both internal and external benchmarking of supply chain breakdowns canprovide key lessons for the organization and help identify potential risks (UPS and EIU, 2008).2.3.4 Supply Chain CollaborationsSupply chain collaboration enables the participating companies to create competitive advantage, achieved throughcost reductions, increase in revenue as well as flexibility to respond toward market uncertainties (Horvath, 2001;Spekman et al., 1998; Lee, 1997). Supply chain collaboration requires efforts from all parties to ensure theattainment of potential benefit (Barrat and Oliveira, 2001). As companies move toward closer arrangements withtheir partners, they became involved in the evolving process of collaboration (Mentzer et al., 2000). On his proposedframework of supply chain optimization consisting of four stages of progress (sourcing and logistics, internalexcellence, network construction, and industry leadership), Poirier (1999) reflect the collaborative efforts betweenparties in value chain on its two last stages. Similarly, on Polese’s supply chain maturity model reflectingorganization’s operational capability, collaboration is the critical component to reach stage three (externalintegration) and stage four (cross-enterprise collaboration). According to Simatupang and Sridharan (2004) thecollaboration involved three dimensions: information sharing, decision synchronization and incentive alignmentwith two additional elements: performance system and streamlined business processes. The collaboration involvessharing knowledge of business process flow as well as trading partner’s planning and execution system, followed bythe agreed collaboration mechanism and its aims. The execution result then monitored and analyze for identifyingimprovements.6
  7. 7. Information sharingSupply chain collaboration begun with information sharing which has objective to capture timely and relevantinformation, enabling decision makers to plan and control its supply chain operation (Simatupang and Sridharan,2004). Data shared includes demand forecast, level of inventory and its related costs, schedule for delivery, andpoints of sale (Lee and Whang, 2000) and provide more clear demand view. Moreover, supply chain collaborationleads to specified market focus, improved corporation for fulfilling sales and demand, as well as minimize risksrelated to demand uncertainty, resulted in the better performance of the chain’s participants (Lee et al., 1997;Whipple et al., 2002).Decision synchronizationDecision synchronization refer to joint-decision making in both planning and operational contexts. The planningcontext includes long-term planning decision and measures such as promotion, customer service level, forecastingand selecting targeted customer. Meanwhile, operational context relates to order generation and delivery process,including shipping schedule and product replenishment. Decision synchronization aiming to focus all the chainmembers to work toward a common goal of serving end customer, often to reduce delivery time and contributes toconsistent product availability (Ramdas and Spekman, 2000; Bowersox et al., 2000).Incentive alignmentIncentive alignment refers to the fair sharing of costs, risk, and benefits amongst the supply chain member tomaintain the commitment of each party to the collaborative efforts. Benefits include both financial gains - such asincreased revenue - and performance improvement such as declined inventory costs (Kaplan and Narayanan, 2001;Corbett et al., 1999). Attractive incentives can motivate the supply chain members to take decision let to the supplychain profitability (Simatupang and Sridharan, 2002). Information sharing Decision Synchronization Incentive alignment •Promotional event •Joint plan of product •Joint frequent shopper •Demand forecast assortment program •Price changes •Joint promotional events •Shared savings due to •Inventory holding costs •Joint development of reduction in inventory demand forecast costs •On-hand inventory levels •Pricing policy consultation •Guaranteed delivery for a •Inventory policy •Joint decision on peak demand •Supply distruptions inventory •Allowance for product’s •Order status and tracking defects requirements, optimal •Delivery schedules order quantity and •Subsidies for retail price availability markdowns •Joint resolution on order •Agreement on order exceptions changes Figure 3 Example of Collaborations in Information Sharing, Decision Synchronization, and Incentive Alignment (Simatupang and Sridharan, 2004)Strong supply chain collaboration often associated with a mature supply management, characterized by thefollowing:  Supply market research and intelligence  Supplier integration7
  8. 8.  Cross-enterprise integration  Supply management influenceThe detail of each capability is summarized below: •The ability to develop key insights of supply market characteristics: technology, price Supply market and cost, M&A, capacity requirements, quality and delivery performance and external intelligence environment scanning (Arend and Wisner, 2005; Carr et al., 2000; Chen et al., 2004; Handfield, 2006) •Alignment with internal stakeholder Supply management •Formulating strategic sourcing objectives with senior management and enterprise-level influence strategies (Cousins et al.,2006; Monczka et al.,2000) •Ability to collaborate with partners, involving them into product development and Supplier integration design, order management and fulfillment process, all enabled through timely communication of requirements and continuous improvement (Walter et al., 2006) •The ability of the sourcing function to actively engage functional decision Cross-enterprise making, through carefully tracking stakeholder requirements in both product and integration process design (Handfield et al.,2009) Figure 4 Supply Management Practices (Handfield et al., 2009)2.4 Supply Chain Excellence practicesApart from creating resilient supply chain, today, companies must be flexible in applying full array of levers at theirdisposal, including pricing, sales incentives, promotion and other marketing tools, to stimulate demand for theirmost profitable products, as underlined by demand-driven principle. Demand-driven principles is the system oftechnologies and processes which responds to the real time demand signals across its supply network of customer,suppliers and employees. This model has three overlapping areas of responsibility:  Supply management – manufacturing, logistics, supply planning and sourcing  Demand management – marketing, sales, demand planning and services  Product management – R&D, engineering and product developmentWhen these processes work together, the business can respond quickly and efficiently to opportunities arise.Implementing demand-driven supply chain often required following:  Enhanced demand forecasting tools based on historical sales data  Integration of demand management and forecasting tools with existing supply chain and logistics system, to enable visibility across the whole value chain  Comprehensive plan created through collaboration between sales, marketing and supply chain operations  Developed a collaborative sales and operations planning (S&OP), which extends from customer end to the procurement and logistics, to allow customer insight inform all aspects of the business  Aim for profitability as the main objective2.5 Competitive Advantage8
  9. 9. Creating supply chain excellence will provide the organization with competitive advantages. Competitive advantageis the ability of organization to differentiate itself from the competitors (McGinnis and Vallopra, 1999). Price,quality, delivery and flexibility are amongst the example of important competitive capabilities. Koufteros et al.,described five dimensions of competitive advantages, including: competitive and premium pricing, dependabledelivery, product innovation, time to market, and customer quality (Li et al., 2006). Other competitive advantagesinclude cost-leadership and talent.3. Research MethodologyThe paper presents an in-depth case study of Samsung Electronics, the global leading electronics company whichranked 2nd as the World’s Most Admired Electronics Company (Fortune, 2010). Samsung Electronics often becamea benchmark for key competitors in the industry, given its progressive strategy of extended value chain networktoward both suppliers and customers, as well as its embedded innovation along the value chain, and outstandingfinancial and technical performance. The study follows guidelines for case research in operations managementdrawn from the literature and company’s public data. The theoretical foundation of resilient supply chain and trendsof supply chain in the top leading companies is established early on and will be contrasted with the supply chainpractices in Samsung. Competitive advantages resulted from the implementation of their supply chain practices willbe identified and analyzed to understand company’s resilience toward highly volatile electronics industry. The datagathering followed and relied on analysis of secondary data including company records such as annual reports, pressreleases, as well as published literature regarding SCM in Samsung.4. Case Analysis and Key FindingsSamsung Electronics, established in 1969 as a TV company, grew to be one of the most prominent electronicscompanies in the world. Ranked second as the world’s most admired electronics company, and 32th as world’s mostadmired company by Fortune in FY2010, the firm booked KRW 154.63 trillion of revenue, more than doubled itsrecord on 2007 at KRW 63.18 trillion. The company recorded a KRW 17.3 trillion operating profit, increased by58% from 2009 performance, and has 190,500 employees worldwide. According to Interbrand, the company brandvalue increased from US$ 5.2 billion in 2000 (ranked 43rd in the world survey), to US$ 19.5 billion (ranked 19th) in2010. During this time, company has maintained profitability and revenue ahead of its peers – Figure 9(Samsung,2011). Figure 5 Samsung Electronics Revenue and EBITDA margin comparison against its peers (Samsung, 2011; Google Finance)Samsung Electronics transformed its supply chain to be one of the company’s competitive advantages throughimplementation of extended-value chain network integration, customer-collaboration process in the product9
  10. 10. development stage, all tailored toward creating a resilient supply chain. Overview of the supply chain managementin Samsung exhibits the following characteristics which fit well with the framework proposed (figure 4):  Continuously improving its agility through increase value-chain visibility and velocity achieved through implementation of supply chain management support system (e.g. Planning and scheduling system), reduce delivery time through strategically locate its production site (e.g. in Poland for catering EU market demand), and streamlined processes and lead time reduction using SCM Six Sigma.  Progressive supply chain re-engineering through customer-collaboration process in the product development and supply chain design.  Mutual-growth supply chain collaboration with its suppliers to enhance their trading partner resilience and core competency for responding toward volatile market.  Embedded risk-management culture in the supply chain as one of the key strategy for 2012 as mentioned by Choi Gee-Sung, Samsung CEO as quoted by Korean Times, 2011. Sense of urgency will continue coloring the Samsung’s operations to react quickly and identify any potential disruptions on its operation.Samsung Electronics Details BenefitSupply Chain FocusTrading partner  Value-chain network integration (vertically  Strategically placed Samsung as bothnetworks (Extended integrated with suppliers) OEM and major component suppliers invalue chain to the electronic industry value chainupstream end)  Secure supply access  Win-win partnership programs  Mutual growth with key partners create o CSR supports, HR development better resilience and agility towards o Innovation and technology sharing changes in the market o Financial and infrastructure assistance  Suppliers Management System  Achieve economy of scale, cost-savings, o Secure outstanding suppliers and secure profits o Conduct fair evaluations o Concentrate volume to suppliers with a competitive edge o Provide predictable informationCustomer-  Customer-satisfaction (CS) certification  Customer collaboration process ledcollaboration process program – embedded customer’s input in the towards holistic design product(Extended value-chain early product development stage  Improve and speed up productto downstream end)  Involve customer in the products preview and development process – less time to market, development through “Prosumer” communities more products offering o Example: AnyCall Dreamers for  Connecting new product development with mobile phone communities – viral supply chain strategy – better product products review, user test, marketing offering and supply chain execution ideas, pool of improvement and product recommendation ideas  “Quick Delivery 119 Team” – smart and fast  Retain customer loyalty delivery of purchased products  Customer after-sales service innovation  Provide in-depth and accurate information on customer’s needs o Service center outlet expansion –  Product innovation ideas gathering available in 3100 cities by 2008  Retain and attract customer base and o Progress control system – track loyalty customer’s service from reception for repair o Service Component Demand Forecast system (2009) o Repair Ceiling Schemes – innovative repair fee ceiling based on product’s age  Customer Relationship Management systemDemand-Driven  SCM Sales Forecast System  Reduce inventory levelMaturity  Sales and Operations Planning (S&OP)  Provide greater visibility of value-chain  Demand-Modeling  Improve product life-cycle management10
  11. 11. through better understanding of customer demand  Improve promotional planning and meet customer expectationsOrganization as a  In 2010-2011, Samsung undergoes  Improve operational efficiencyvalue chain organizational restructuring for its end-user  Accommodate emerging market’s growth products and global operations potential o Recent M&A of Samsung LED  Technology core-sharing and seamless o Merging of digital air solution to vertical integration digital appliances and telecommunication system into visual display business o Consolidation of raw material procurements, development of key components and overseas business unit o Central and Eastern European structure established  Partner Collaboration Center placed directly  Top-down driven implementation of under CEO with VP as the head of the center – supply chain implying the importance of extended network  Optimize partnership collaboration value chain strategy towards Samsung’s business  Organization culture with sense of urgency,  Change-management culture quality-focus, low bureaucracy and allowing  Continuous improvements innovations driven bottom-upSupply Chain  Adexa’s Enterprise Global Planning System  Provide realistic planning and improveManagement Systems (2004): Supply Chain Planning, Factory order fulfillmentSoftware Planning and Scheduling, Collaborative  Demand forecast tools help reduce excess Demand Planning inventory, generate cost-savings and  Advanced Planning and Scheduling System provide better quality data for decision-  Integrated Sales Document Management making System (Adobe)  Enable intelligent collaboration  Product Data Management  Maximize asset utilizations  Global Real Time Management Information  Greater plan visibility and flexible view of System productsGreen Movement –  Supply Chain Environmental Management  Creating sustainability supply chain toSustainability supply program meet tighter government and environmentchain o Eco-partner Certification regulation o Eco-design assessment – incorporated in eco-friendly product development o Eco-label for marketingProduct Lifecycle  Standardize parts in different products model  Slashed out time to roll out productsManagement globally  Alternative supply available from other region in cases of shortagesSCM Six Sigma  Implement six sigma to improve Samsung  Provide talent required for SCM Electronics SCM  Provide more systematic and discipline o Identify supply chain process SCM application improvements – most notably in the  Demand stabilization inventory visibility, demand  Improve inventory visibility led toward stabilization and better use of cost-reduction information network o Six Sigma Academy Figure 6 Samsung Electronic Supply Chain Practices (Samsung, 2011; Yang et al., 2007; Gartner Top 25 Supply Chain Companies, 2011)In this section, we will discuss the key supply chain practices in Samsung Electronics and how it drives thecompetitive advantage for the company.11
  12. 12. Trading Partner NetworksSamsung Electronics weathering ups its value chain to include their partners and suppliers on their mutual growth-program, improving their core competency through providing CSR support, HR development, cost and productinnovation as well as financial and infrastructure assistance (e.g. ERP). Samsung realized that in the globalizedmarket, competition field no longer exist between individual firm, but rather, among the network. Therefore,developing its partners became an important strategy on their supply chain management, as the seamlesscollaboration will led towards better visibility across its value chain and resilience toward highly unpredictablemarket. Moreover, recently Samsung provide opportunity to SMEs that hold core technology to pursue joint-development projects, generating innovation ideas and aligned product development. Wynstra argued that integratesuppliers in the new product development process can be a competitive advantage (Wynstra et al., 2001). It willprovide a much holistic designed products and advance innovation process, supporting Samsung maintained itsleadership in technology.While other electronics manufacturers such as Apple, Vizio, Sony and Panasonic are moving towards outsourcesmost components, Samsung is notable for its vertical integration with suppliers. Most recent, is their acquisition ofSamsung LED (Bloomberg, 2011). The vertical manufacturing sourcing strategy to keep all in-house is the key forSamsung to establish itself as both OEM and major component suppliers. Apart from being the main supplier ofdigital TV market, Samsung also a dominant supplier in flash memory devices and chips for smart-phone, withApple as one of their biggest customer. In the long term, as more Japanese electronics giant (i.e. Hitachi) decides tojoin forces of vendor-managed sourcing strategy, this can bring Samsung Electronics to a more strategic presence.Their major strategy of vertical integration brings not only core-sharing of technology and expertise, but also bettercontrol of supply uncertainty. It also provides economies of scale as they produced not only for within SamsungElectronics, but also for the whole industry players. However, one disadvantage could be the decreased flexibility.Customer-collaboration processSamsung measure its supply chain as the way customer experience it. It developed capability to incorporatecustomer needs into the product design stage and proactively build customer’s recommendation into their supplychain operations. This can be seen through the current customer-service innovation program that SamsungElectronics launched, such as quick delivery system, progress control system, and even Service Component DemandForecast. Those initiatives provide competitive advantages such as holistic and appealing design products as wellas product differentiation through its after-sales services. Moreover, by embedded customer’s perspectives early on,Samsung able to create attractive product offering, speed up product development process – hence less time tomarket, and improve its supply chain execution. On the longer term, the tailored supply chain will result in thecustomer loyalty. Due to its progressive customer-collaboration process, it should not come to our surprise thatSamsung is one of the electronics giant who able to launch many products simultaneously and according to YoonBoo Keun (executive VP in-charge of TV and Display business), they can launch products twice more often than itspeers (Bloomberg, 2011).Demand-driven maturitySamsung Electronics has often been cited as the best-in-class in applying Sales and Operations Planning (S&OP).S&OP in Samsung is a critical operation component, providing visibility of the supply chain for its top management,supported with massive amount of data allowing decision maker choose quickly and efficiently after analyzing thecomplex tradeoffs it has (Gartner report, 2011). Similar to P&G and Kimberley-clark, Samsung focus its S&OP forcreating strategic trade-offs decision. Inventory is seen as the buffer for demand-volatility rather than target for cost-savings. The system provide Samsung Electronics with better stock-inventory control and enable quick managementdecision, something that is critical in this ever-changing market.Organization as a Value ChainSamsung Electronics leverages its organizational structure to drive the supply chain implementation, such aspartnership collaboration by putting it directly report to CEO. In addition, the merger and acquisition of its major12
  13. 13. supplier aims to accommodate operational efficiency and enabling core-technology sharing as well as seamlessvertical integration. In addition, its sense of urgency and risk-managing culture enabled the company to alwaysaware of the market changes, responds to it quickly and at the same time, nurtures the innovation-led culture on theiremployees. Organization no longer acts as a hurdle but rather, as a value chain, creating resilience andresponsiveness on adapting toward market uncertainties. This is contrast with the Sony Corporation, of which theirconsensus-style decision making is criticized slowing the urgent decision-making, led towards lagging performancein the industry.Near Shoring StrategyAligned with its goal to be a market leader in the EU market, Samsung Electronics implement near-shoring strategyto Eastern Europe, moved away from sourcing its production in China and SEA, often perceived as low-costmanufacturing regions. Similar strategy applied for its LCD production, being produced in Mexico to cater itscustomers in North America. The savings are noted up to four-week reduction in order lead times, beside reductionin distribution costs, bringing competitive advantages of time-to-market and cost-efficiency.Product Lifecycle Management (PLM)Designing products which share common operation, or materials not only reduce risks of write-offs but also speedup time-to-market for launching products globally. For instance, Samsung used same circuit boards for both LCDTV 32-inch (sold in EU) and 60-inch plasma TV. This effort reduced the minimum roll-out time from sixteen weeksin 2005 to just four weeks in one-year time.Supply Chain Management Systems SupportPrior to using Adexa’s Enterprise Global Planning System, Samsung Network Division faced challenges in reducingits COGS, and pressure to increase both asset utilization and market share. The issues arose include lengthyforecasting cycles, supply shortages, bottlenecks and rush order delivery. For electrical industry, characterized withincreasingly stringent product life cycles, most manufacturers need accurate and timely information on assistingtheir design, planning and production process, while also reducing excess capacities and non-value added cost (Lynnet al.,1996; Blanchard, 2008). Therefore, synchronizing the scheduling and planning tasks of supply chain is criticalto achieve high performance (Kadipasaoglu and Sridharan, 1997; Pujawan and Kingsman, 2000). Software systemsupport used in supply chain enabled Samsung Electronics to enable intelligent collaboration, provide bettervisibility, realistic planning, improve order fulfillment as well as enabling reduction in inventory. Especially in theelectronics industry where price falls on breakneck pace, often electronics channel giant such as Best Buy andCircuit City charged manufacturers for gap compensation due to old and new price differences in their storeinventory.Supply Chain Management-Six SigmaSamsung Electronics implement combined approach of six-sigma principles towards its supply chain management,developing methodology that enhanced its current global operations. The six-sigma applications is expected tocreate a systematic and methodical supply-chain management, while at the same time developing the necessary HRtalent to applied it on Samsung’s operations and providing better quantitative data which will be useful for decision-making process. The final approach is DMAEV – Define, Measure, Analyze, Enable and Verify. The six-sigmaapplication on its SCM able to identify three key issues: inventory visibility, demand stabilization and web-userinterface design for inventory management (Yang et al., 2007). This approach is built to overcome challenges ofsustaining results of successful project after completion, which often called as “Closed-loop”, one of the importantissue in SCM and particularly for manufacturing planning and control system (Vollmann et al.,1997; Yang et al.,2007). Six-sigma fulfill this needs through its “control” stage, or in this case “verify” stage.Conclusions and Future Research13
  14. 14. Analyzing supply chain management in Samsung Electronics, author concluded that their SCM implementationcontributes to the following competitive advantages:  Reduce time-to-market – Customer collaborative approach coupled with engaging supplier earlier on the product development stage enable Samsung launch its product in a timely manner, addressing challenge of short product life cycle in electronics industry  Cost leadership – Inventory cost reduction and elimination of non-value added activities through Samsung’s combined approach of SCM Six-sigma, coupled with strong software supports to manage the entire value chain  Product and services differentiation – The collaborative customer approach on the design stage as well as the company’s innovative services enabled Samsung distinct its brand as a premium brand, creating customer loyalty  Innovation – Innovation creation in the company leverages both suppliers and customers, through extending their value-chain to both downstream and upstream  Strategic market positioning - as both OEM and major supplier in the electronics industry value chain  Talent – Six-sigma black-belt certified employees are the critical enablers of continuously evolving supply chain management in Samsung. They led the top-down approach for resilient and sustainable supply chainOne question remained. Is current supply chain practice in Samsung sufficient to address future challenges andhighly volatile market changes? Author recommends the following:  Continue application of collaborative approach SCM Six Sigma as it helps company identify potential improvements and address critical issues  Explore state-of-the-art supply chain practices in the industry to improve Samsung Electronics supply chain such as: o “Customer Value Chain Management” organization in Cisco which brought together sourcing, production, logistics, customer service, quality and new product launch under hard-line reporting function o Apple’s strategic sourcing, vendor negotiation and distribution networks o Dell’s segmentation of value chain  Improve its risk management capabilities and resilience through creating stronger risk-awareness culture, strengthening their preemptive response system and improving their risk management system  Continue embedded innovation along its supply chain and create distinct positioning against its peersThis paper studies the impact of resilient supply chain practices in Samsung Electronics towards creatingcompetitive advantages against its peers. Further study across industries using the same methodology may helpidentify whether supply chain practices drive different competitive advantages. Contrasting Samsung Electronicswith its peers also can provide insights of key success factors of supply chain excellence and how it helps companycreate outstanding financial and operational performance. Other interesting future study is to explore the concept ofsupply chain quality management and comparison of vendor-managed supply chain which now adopted by mostelectronic giants against vertical-integration concept implemented by Samsung Electronics.References Blanchard, B. (2008), System Engineering and Management, Wiley-Interscience, Singapore Chopra, S. and Meindl, P. (2001), Supply Chain Management, Strategy, Planning and Operation, Prentice-Hall, Upper Saddle River, NJ. Fisher, M.L. (1997), “What is the right supply chain for your product?”, Harvard Business Review, Vol. 75 No. 2, pp. 105-16.14
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