7 Supply Chain Transformations at SAMSUNG

Today Samsung Electronics has proven to be one of the most successful global brands to follow. Moreover, Samsung Supply Chain has demonstrated the operations management excellence that leads them to the supply chain hall of fame. In this article, we will explain to you how they do it.

Background
"Samsung" in the Korean language means "3 stars" or "tri stars". At first, they had a strong root in the trading business. Later, they took the diversification strategy and entered the electronic industry by producing the black-and-white TV set. Anyway, the rise of Samsung started when Lee Kun-Hee succeeded his father as the second chairman of the company. During the 1990s, he noticed that many Japanese companies who were the leaders in the analog technology hesitated to adopt digital technology. Then he gradually created transformations that later change the face of the entire industry.

How do they build superb supply chain management capabilities? We investigate further and find 3 related articles as below,

- The Paradox of Samsung's Rise on Harvard Business Review
- Supply chain management six sigma: a management innovation methodology at the Samsung Group on Supply Chain Management: The International Journal
- An Analysis of Sources of Risk in the Consumer Electronics Industry on Journal of the Operational Research Society

Then we analyze these case studies and extract information related to supply chain management which is summarized below,


1. Listen to Voice of Customer
At the macro level, Samsung tries to understand the behavior of consumers in a particular country by sending staffs to attend MBA programs at the local universities. These "Country Specialists" also establish a connection with many business leaders and potential business partners. At the micro-level, they gather customer service preferences and incorporate them into the product design through a method called "Quality Function Deployment".

2. Adopt Six Sigma Methodology
Based on "quality movement" in the electronics industry, Samsung believes they can improve the internal operations drastically using Six Sigma. Then they study various Six Sigma and lean manufacturing project from GE, Dupont, and Honeywell. Later, they create the methodology based on the GE approach called "DMAEV" (define, measure, analyze, enable and verify).

3. Utilize the APS system
Since the electronics market changes quickly, they need to be able to create a flexible procurement/production/distribution plan. So they implement APS system which brings remarkable success.

4. Setup Cross-Functional Team
In order to bring the internal departments closer, they use the system called "Voice of Business". What they do is to gather the internal requirements and establish an action plan based on a team decision.

5. Streamline Performance Evaluation System
The classic problem of many organizations in Asia is the seniority-based performance evaluation system. Samsung thinks they won't be able to attract the best and the brightest to help them grow if there is no performance-based system in place. Then they gradually integrate the merit-based system and allow high performers to have the fast track career path.

6. Standardize Processes and Parts
To achieve the economy of scale, Samsung standardizes processes and parts and the majority of the components are produced in Korea. This also enables them to manage product quality more effectively due to the ease of control.

7. Establish a Risk Management System
They realize that risks are the fact of life. So they implement a very comprehensive risk management system and their risk mitigation strategies are low inventory level, flexible capacity, and redundant suppliers.

Conclusion
The secret sauce behind Samsung's supply chain success is definitely "Best Practice Analysis". They study how other world's leading companies manage the international business and choose to adopt these best practices gradually.

References
- Khanna, T., Song, J., & Lee, K. (2011). The paradox of Samsung's rise.

- Mo Yang, H., Seok Choi, B., Jin Park, H., Soo Suh, M., & Chae, B. (2007). Supply chain management six sigma: a management innovation methodology at the Samsung Group. Supply Chain Management: An International Journal, 12(2), 88-95.

- Sodhi, M. S., & Lee, S. (2007). An analysis of sources of risk in the consumer electronics industry. Journal of the Operational Research Society, 58(11), 1430-1439.

Last review and update: September 16, 2019
All contents are written by Ben Benjabutr unless marked as [Guest Commentary]

About the Author and Editor:
Ben Benjabutr is the author and editor of SupplyChainOpz. He holds an M.Sc. in Logistics Management with 10+ years of experience in supply chain management. You can connect with Ben via Twitter, and Quora or drop him a line via e-mail.