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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 Kingdom Abstract Purpose The purpose of this paper is to understand the benefit of SCM practices in Samsung Electronics toward creating competitive advantages and sustainable business to be resilient toward high-uncertainty market environment. Design/methodology/approach This paper adopts the case study methodology. It uses an in-depth case study of Samsung Electronics, a global leading electronics industry, in particular investigating how the firms apply organize its supply chain activities to create resilience toward highly volatile market and generate competitive advantages against its peers. Findings Samsung Electronics applied some of the best practices supply chain such as extended value chain toward its suppliers, collaborative-customer process toward its product development creating resilience and competitive advantages. Competitive advantages include strategic positioning in the electronics industry value chain, product innovation, and product/services differentiation. Originality/value This paper provides holistic view of Samsung Electronics supply chain management and analyze how SCM can create competitiveness and market resilience which critical for business survival. The findings from this study indicate that the supply chain no longer view as logistics and manufacturing management but rather as a value-chain. Keywords Resilience supply chain, Samsung Electronics, SCM creates competitive advantages Paper Type Research paper 1. Introduction Company survival in the ever-changing business environment is now became an issue of supply chain practices against 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 markets became global, one of the key challenges in managing the supply chain is the products delivery fulfillment to the customers (Sridharan and Laforge, 1990; Zhao et al., 2001). Much shorter product’s life cycles as exhibit by electronics 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. Supply chain disruptions and their associated financial and operational risks is surging to become single most pressing concern for the top executives at Global 1000 firms (Green, 2004). Research related to this issues ranging from supply 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 network will provide resiliency to deliver predictable results despite market volatility. This ability coupled with embedding innovation, internalize customer’s needs and proactively build customer feedback into supply chain design is the key

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Page 1: Creating competitive advantages through supply chain final

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 Kingdom

Abstract

Purpose – The purpose of this paper is to understand the benefit of SCM practices in Samsung Electronics toward

creating competitive advantages and sustainable business to be resilient toward high-uncertainty market

environment.

Design/methodology/approach – This paper adopts the case study methodology. It uses an in-depth case study of

Samsung Electronics, a global leading electronics industry, in particular investigating how the firms apply organize

its supply chain activities to create resilience toward highly volatile market and generate competitive advantages

against its peers.

Findings – Samsung Electronics applied some of the best practices supply chain such as extended value chain

toward its suppliers, collaborative-customer process toward its product development creating resilience and

competitive advantages. Competitive advantages include strategic positioning in the electronics industry value chain, product innovation, and product/services differentiation.

Originality/value – This paper provides holistic view of Samsung Electronics supply chain management and

analyze how SCM can create competitiveness and market resilience which critical for business survival. The

findings from this study indicate that the supply chain no longer view as logistics and manufacturing management

but rather as a value-chain.

Keywords – Resilience supply chain, Samsung Electronics, SCM creates competitive advantages

Paper Type – Research paper

1. Introduction

Company survival in the ever-changing business environment is now became an issue of supply chain practices

against 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 markets

became global, one of the key challenges in managing the supply chain is the products delivery fulfillment to the

customers (Sridharan and Laforge, 1990; Zhao et al., 2001). Much shorter product’s life cycles as exhibit by

electronics 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. Supply

chain disruptions and their associated financial and operational risks is surging to become single most pressing

concern for the top executives at Global 1000 firms (Green, 2004). Research related to this issues ranging from

supply 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 network

will provide resiliency to deliver predictable results despite market volatility. This ability coupled with embedding

innovation, internalize customer’s needs and proactively build customer feedback into supply chain design is the key

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of Samsung’s distinct supply chain practices. Ranked 10th in the recent Gartner’s Top 25 Global Supply Chain

Leaders, Samsung Electronics supply chain management often cited as one of the best-in-class. The study of this

paper will focus on the application of supply chain management in Samsung Electronics which includes the latest

evolution of SCM practices such as extended value chain through supplier partnership, customer relations and

customer service management (Donlon, 1997; Tan et al., 2002; Tan et al., 1998). The objective of this paper is to

understand the benefit of SCM practices in Samsung Electronics towards creating competitive advantages and

sustainable business. Hence, the key research questions that we try to answer are: What are the supply chain

practices in Samsung Electronics and how does it impacted their competitive advantage. Is their current supply chain

management sufficient enough for addressing future challenges and support business sustainability? The answer

should 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 for

this study will be presented. Then, the paper describes the data collection process and methodology, followed by

case 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 Background

A supply chain can be defined as an integrated process in which numerous various business entities such as

suppliers, manufacturers, distributors and retailers work together in acquiring raw materials, converting those raw

materials into specific products and deliver it to customers (Beamon, 1998). It is an effective network of firms

performing activities in a particular product/service value chain (Stevenson, 2007). In the high-tech industry, which

can be categorized as innovative product due to its short product life cycle, large variety of products, and high

market uncertainty (Fisher, 1997), supply chain management is a critical area and significant factor for the success

or survival of the electronics industry.

2.1 Trends and Challenges in Supply Chain Operations

We have witnessed several infamous trends of supply chain management in the past decades. In 1980s, just-in-time

production became popular, followed by supply chain collaboration and outsourcing logistic activities concept in

1990. 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 the

right place (Li et al., 2004). The design of supply chain management became more central to organizational

effectiveness and efficiency in the future than ever before. In particular, there have been some significant challenges

in the highly competitive world market that has made supply chain management (SCM) an essential prerequisite for

staying 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 top

companies.

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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 Uncertainty

The trends above emerged to address one or combination of the recent challenges. Although there are many new

supply chain concepts and framework designed to address the ever-changing market, successful companies

understand that the right supply chain strategy depends on the two factors. First, the strategy needs to be tailored to

meet 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 a

product when seeking to devise the right supply chain strategy, looking at both key uncertainties from demand and

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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 chain

strategy is the supply side. Lee defined two type of supply process. A “stable” supply process characterized through

mature manufacturing process and technology, coupled with a well-established supply base. Usually, complexity of

manufacture tends to be manageable. An “evolving” supply process is where the manufacturing process still under

development, rapidly evolve, led towards limited supply base in terms of scale and experience. Often, the

manufacturing 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 vary

according to the weather condition. Similarly, innovative products such as fashion apparel, may has stable supply

process supported with a reliable supply base and mature manufacturing process. Figure 1 provide examples of

product with different demand and supply process. Lee argued that specific supply chain strategies required to be

tailored to each uncertainty characteristics, to provide competitive advantage for the companies. These strategies can

be classified into four types (Lee, 2002): Efficient supply chain, risk-hedging supply chains, responsive supply

chains and agile supply chains. Agile supply chains, suits to semiconductor and high-tech industries, designed not

only to provide responsiveness and flexibility to meet customer needs, but also hedging the risk of supply shortages

and disruptions. It has “agile” characteristics as it capable to respond toward high-uncertainty customer demands

while 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 towards

implementing the “agile” supply chains. Agility according to Christopher and Towill is defined as “a business-wide

capability 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 opportunities

in the volatile market (Naylor et al., 1991). An example of the implementation of agility is the adoption of

decoupling point strategy where Xilink Inc., a semiconductor company specialized in IC (integrated circuit), formed

very 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 the

chips are conducted by other supply chain partners in Korea and Philippines as the demand for specific chips is

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known once customer orders received. This decoupling strategy enable Xilink to be responsive towards its hard to

predict customer demand but also sharing the risk of wafer fabrication processes (Lee, 2002).

2.3 Creating Resilience Supply Chain

However, in the age where supply chains serving global-spanning operations, in a changing world with numerous

unpredictable events such as natural disaster, fast technology evolution which led to supply disruption, being agile is

not enough. Company need to manage its supply chain vulnerability which defined as “an exposure to serious

disturbance, 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 original

state or move towards desirable state after being disturbed. Resilience supply chain is created to manage risks

identified with supply chain, including internal risks such as process and control, as well as external risks involving

demand, supply and environment factors (Christopher and Peck, 2004). To create a resilient supply chain, the

following 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-engineering

First, supply chain re-engineering required for considering resiliency into objective function of the optimization

process. 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 of

supply with no short-term alternatives, poor visibility (e.g. no information-sharing) across supply chain, high level

of risk identified. Choosing the correct supply base strategy is also critical, whether to pursue reduction in the

number of suppliers, or single-sourcing, or few lead-suppliers strategy, depends on the risks assessment as well as

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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 options

open, able to reduce impact of disruption in the future, although it may not proven to be the most cost-efficient

options in the short term. Re-examine the trade-offs consideration, with the risk-management principle as the base of

the decision-making (Christopher and Peck, 2004).

2.3.2 Agility

Ability of organizations to respond demand changes and supply disruptions in this modern industry no longer tied to

individual companies but much related toward networks. The agility determined by both upstream and downstream

partners of the firm. Two key characteristics of agility are “visibility” and “velocity”. Supply chain visibility enable

organization has a clear view of inventory, demand, and supply along its value chain. Visibility can only be achieved

through collaborative planning with both its customers and suppliers, enabling capture of any alert regarding supply

disruptions. The challenge for building visibility is to create seamless integration view across functions of supply

chain (Christopher and Peck, 2004). Another key component of agility is velocity, which referred to end-to-end

pipeline time. However, for creating agility, the acceleration or rapidness of supply chain react to changes in

demand are also critical. Both velocity and acceleration can be achieved through streamlined processes, lead-time

reduction and eliminating non-value added activities. Enablers are leveraging supplier capability to respond delivery

request quickly, and able to cope with quick changes in volume and portfolio requirements, together with the

information-sharing and inventory management practices (Christopher and Peck, 2004).

2.3.3 Supply Chain Risk Management Culture

Increasing risks due to high-uncertainty market is expected and required culture of risk-management embedded

within organization. Supply chain risks present major threats toward business continuity and required top-down

leadership to drive the risk-management culture change in the organization (Christopher and Peck, 2004). It is also

argued 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 to

be considered when deciding to near-shoring one of the production site. To manage the risk, performance

monitoring is essential. Coupled with both internal and external benchmarking of supply chain breakdowns can

provide key lessons for the organization and help identify potential risks (UPS and EIU, 2008).

2.3.4 Supply Chain Collaborations

Supply chain collaboration enables the participating companies to create competitive advantage, achieved through

cost 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 the

attainment of potential benefit (Barrat and Oliveira, 2001). As companies move toward closer arrangements with

their partners, they became involved in the evolving process of collaboration (Mentzer et al., 2000). On his proposed

framework of supply chain optimization consisting of four stages of progress (sourcing and logistics, internal

excellence, network construction, and industry leadership), Poirier (1999) reflect the collaborative efforts between

parties in value chain on its two last stages. Similarly, on Polese’s supply chain maturity model reflecting

organization’s operational capability, collaboration is the critical component to reach stage three (external

integration) and stage four (cross-enterprise collaboration). According to Simatupang and Sridharan (2004) the

collaboration involved three dimensions: information sharing, decision synchronization and incentive alignment

with two additional elements: performance system and streamlined business processes. The collaboration involves

sharing knowledge of business process flow as well as trading partner’s planning and execution system, followed by

the agreed collaboration mechanism and its aims. The execution result then monitored and analyze for identifying

improvements.

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Information sharing

Supply chain collaboration begun with information sharing which has objective to capture timely and relevant

information, 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, and

points of sale (Lee and Whang, 2000) and provide more clear demand view. Moreover, supply chain collaboration

leads to specified market focus, improved corporation for fulfilling sales and demand, as well as minimize risks

related to demand uncertainty, resulted in the better performance of the chain’s participants (Lee et al., 1997;

Whipple et al., 2002).

Decision synchronization

Decision synchronization refer to joint-decision making in both planning and operational contexts. The planning

context includes long-term planning decision and measures such as promotion, customer service level, forecasting

and 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 chain

members to work toward a common goal of serving end customer, often to reduce delivery time and contributes to

consistent product availability (Ramdas and Spekman, 2000; Bowersox et al., 2000).

Incentive alignment

Incentive alignment refers to the fair sharing of costs, risk, and benefits amongst the supply chain member to

maintain the commitment of each party to the collaborative efforts. Benefits include both financial gains - such as

increased 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 supply

chain profitability (Simatupang and Sridharan, 2002).

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 the

following:

Supply market research and intelligence

Supplier integration

Information sharing

•Promotional event

•Demand forecast

•Price changes

•Inventory holding costs

•On-hand inventory levels

•Inventory policy

•Supply distruptions

•Order status and tracking

•Delivery schedules

Decision Synchronization

•Joint plan of product assortment

•Joint promotional events

•Joint development of demand forecast

•Pricing policy consultation

•Joint decision on inventory requirements, optimal order quantity and availability

•Joint resolution on order exceptions

Incentive alignment

•Joint frequent shopper program

•Shared savings due to reduction in inventory costs

•Guaranteed delivery for a peak demand

•Allowance for product’s defects

•Subsidies for retail price markdowns

•Agreement on order changes

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Cross-enterprise integration

Supply management influence

The detail of each capability is summarized below:

Figure 4 Supply Management Practices (Handfield et al., 2009)

2.4 Supply Chain Excellence practices

Apart from creating resilient supply chain, today, companies must be flexible in applying full array of levers at their

disposal, including pricing, sales incentives, promotion and other marketing tools, to stimulate demand for their

most profitable products, as underlined by demand-driven principle. Demand-driven principles is the system of

technologies 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 development

When 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 objective

2.5 Competitive Advantage

•The ability to develop key insights of supply market characteristics: technology, price and cost, M&A, capacity requirements, quality and delivery performance and external environment scanning (Arend and Wisner, 2005; Carr et al., 2000; Chen et al., 2004; Handfield, 2006)

Supply market intelligence

•Alignment with internal stakeholder

•Formulating strategic sourcing objectives with senior management and enterprise-level strategies (Cousins et al.,2006; Monczka et al.,2000)

Supply management influence

•Ability to collaborate with partners, involving them into product development and design, order management and fulfillment process, all enabled through timely communication of requirements and continuous improvement (Walter et al., 2006)

Supplier integration

•The ability of the sourcing function to actively engage functional decision making, through carefully tracking stakeholder requirements in both product and process design (Handfield et al.,2009)

Cross-enterprise integration

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Creating supply chain excellence will provide the organization with competitive advantages. Competitive advantage

is 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, dependable

delivery, product innovation, time to market, and customer quality (Li et al., 2006). Other competitive advantages

include cost-leadership and talent.

3. Research Methodology

The paper presents an in-depth case study of Samsung Electronics, the global leading electronics company which

ranked 2nd as the World’s Most Admired Electronics Company (Fortune, 2010). Samsung Electronics often became

a benchmark for key competitors in the industry, given its progressive strategy of extended value chain network

toward both suppliers and customers, as well as its embedded innovation along the value chain, and outstanding

financial and technical performance. The study follows guidelines for case research in operations management

drawn from the literature and company’s public data. The theoretical foundation of resilient supply chain and trends

of supply chain in the top leading companies is established early on and will be contrasted with the supply chain

practices in Samsung. Competitive advantages resulted from the implementation of their supply chain practices will

be identified and analyzed to understand company’s resilience toward highly volatile electronics industry. The data

gathering followed and relied on analysis of secondary data including company records such as annual reports, press

releases, as well as published literature regarding SCM in Samsung.

4. Case Analysis and Key Findings

Samsung Electronics, established in 1969 as a TV company, grew to be one of the most prominent electronics

companies in the world. Ranked second as the world’s most admired electronics company, and 32th as world’s most

admired company by Fortune in FY2010, the firm booked KRW 154.63 trillion of revenue, more than doubled its

record on 2007 at KRW 63.18 trillion. The company recorded a KRW 17.3 trillion operating profit, increased by

58% from 2009 performance, and has 190,500 employees worldwide. According to Interbrand, the company brand

value increased from US$ 5.2 billion in 2000 (ranked 43rd in the world survey), to US$ 19.5 billion (ranked 19th) in

2010. 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 through

implementation of extended-value chain network integration, customer-collaboration process in the product

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development stage, all tailored toward creating a resilient supply chain. Overview of the supply chain management

in 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

Supply Chain Focus

Details Benefit

Trading partner

networks (Extended

value chain to

upstream end)

Value-chain network integration (vertically

integrated with suppliers)

Win-win partnership programs

o CSR supports, HR development

o Innovation and technology sharing

o Financial and infrastructure

assistance

Suppliers Management System

o Secure outstanding suppliers

o Conduct fair evaluations

o Concentrate volume to suppliers

with a competitive edge

o Provide predictable information

Strategically placed Samsung as both

OEM and major component suppliers in

the electronic industry value chain

Secure supply access

Mutual growth with key partners create

better resilience and agility towards

changes in the market

Achieve economy of scale, cost-savings,

and secure profits

Customer-

collaboration process

(Extended value-chain

to downstream end)

Customer-satisfaction (CS) certification

program – embedded customer’s input in the

early product development stage

Involve customer in the products preview and

development through “Prosumer” communities

o Example: AnyCall Dreamers for

mobile phone communities – viral

products review, user test, marketing

ideas, pool of improvement and

product recommendation ideas

“Quick Delivery 119 Team” – smart and fast

delivery of purchased products

Customer after-sales service innovation

o Service center outlet expansion –

available in 3100 cities by 2008

o Progress control system – track

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 system

Customer collaboration process led

towards holistic design product

Improve and speed up product

development process – less time to market,

more products offering

Connecting new product development with

supply chain strategy – better product

offering and supply chain execution

Retain customer loyalty

Provide in-depth and accurate information

on customer’s needs

Product innovation ideas gathering

Retain and attract customer base and

loyalty

Demand-Driven

Maturity

SCM Sales Forecast System

Sales and Operations Planning (S&OP)

Demand-Modeling

Reduce inventory level

Provide greater visibility of value-chain

Improve product life-cycle management

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11

through better understanding of customer

demand

Improve promotional planning and meet

customer expectations

Organization as a

value chain

In 2010-2011, Samsung undergoes

organizational restructuring for its end-user

products and global operations

o Recent M&A of Samsung LED

o Merging of digital air solution to

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

under CEO with VP as the head of the center –

implying the importance of extended network

value chain strategy towards Samsung’s

business

Organization culture with sense of urgency,

quality-focus, low bureaucracy and allowing

innovations driven bottom-up

Improve operational efficiency

Accommodate emerging market’s growth

potential

Technology core-sharing and seamless

vertical integration

Top-down driven implementation of

supply chain

Optimize partnership collaboration

Change-management culture

Continuous improvements

Supply Chain

Management Systems

Software

Adexa’s Enterprise Global Planning System

(2004): Supply Chain Planning, Factory

Planning and Scheduling, Collaborative

Demand Planning

Advanced Planning and Scheduling System

Integrated Sales Document Management

System (Adobe)

Product Data Management

Global Real Time Management Information

System

Provide realistic planning and improve

order fulfillment

Demand forecast tools help reduce excess

inventory, generate cost-savings and

provide better quality data for decision-

making

Enable intelligent collaboration

Maximize asset utilizations

Greater plan visibility and flexible view of

products

Green Movement –

Sustainability supply

chain

Supply Chain Environmental Management

program

o Eco-partner Certification

o Eco-design assessment –

incorporated in eco-friendly product

development

o Eco-label for marketing

Creating sustainability supply chain to

meet tighter government and environment

regulation

Product Lifecycle

Management

Standardize parts in different products model Slashed out time to roll out products

globally

Alternative supply available from other

region in cases of shortages

SCM Six Sigma Implement six sigma to improve Samsung

Electronics SCM

o Identify supply chain process

improvements – most notably in the

inventory visibility, demand

stabilization and better use of

information network

o Six Sigma Academy

Provide talent required for SCM

Provide more systematic and discipline

SCM application

Demand stabilization

Improve inventory visibility led toward

cost-reduction

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 the

competitive advantage for the company.

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Trading Partner Networks

Samsung 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 product

innovation as well as financial and infrastructure assistance (e.g. ERP). Samsung realized that in the globalized

market, 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 seamless

collaboration will led towards better visibility across its value chain and resilience toward highly unpredictable

market. 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 integrate

suppliers in the new product development process can be a competitive advantage (Wynstra et al., 2001). It will

provide a much holistic designed products and advance innovation process, supporting Samsung maintained its

leadership in technology.

While other electronics manufacturers such as Apple, Vizio, Sony and Panasonic are moving towards outsources

most components, Samsung is notable for its vertical integration with suppliers. Most recent, is their acquisition of

Samsung LED (Bloomberg, 2011). The vertical manufacturing sourcing strategy to keep all in-house is the key for

Samsung to establish itself as both OEM and major component suppliers. Apart from being the main supplier of

digital TV market, Samsung also a dominant supplier in flash memory devices and chips for smart-phone, with

Apple as one of their biggest customer. In the long term, as more Japanese electronics giant (i.e. Hitachi) decides to

join 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 better

control of supply uncertainty. It also provides economies of scale as they produced not only for within Samsung

Electronics, but also for the whole industry players. However, one disadvantage could be the decreased flexibility.

Customer-collaboration process

Samsung measure its supply chain as the way customer experience it. It developed capability to incorporate

customer needs into the product design stage and proactively build customer’s recommendation into their supply

chain operations. This can be seen through the current customer-service innovation program that Samsung

Electronics launched, such as quick delivery system, progress control system, and even Service Component Demand

Forecast. Those initiatives provide competitive advantages such as holistic and appealing design products as well

as 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 to

market, and improve its supply chain execution. On the longer term, the tailored supply chain will result in the

customer loyalty. Due to its progressive customer-collaboration process, it should not come to our surprise that

Samsung is one of the electronics giant who able to launch many products simultaneously and according to Yoon

Boo Keun (executive VP in-charge of TV and Display business), they can launch products twice more often than its

peers (Bloomberg, 2011).

Demand-driven maturity

Samsung 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 the

complex tradeoffs it has (Gartner report, 2011). Similar to P&G and Kimberley-clark, Samsung focus its S&OP for

creating 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 management

decision, something that is critical in this ever-changing market.

Organization as a Value Chain

Samsung Electronics leverages its organizational structure to drive the supply chain implementation, such as

partnership collaboration by putting it directly report to CEO. In addition, the merger and acquisition of its major

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supplier aims to accommodate operational efficiency and enabling core-technology sharing as well as seamless

vertical integration. In addition, its sense of urgency and risk-managing culture enabled the company to always

aware of the market changes, responds to it quickly and at the same time, nurtures the innovation-led culture on their

employees. Organization no longer acts as a hurdle but rather, as a value chain, creating resilience and

responsiveness on adapting toward market uncertainties. This is contrast with the Sony Corporation, of which their

consensus-style decision making is criticized slowing the urgent decision-making, led towards lagging performance

in the industry.

Near Shoring Strategy

Aligned with its goal to be a market leader in the EU market, Samsung Electronics implement near-shoring strategy

to Eastern Europe, moved away from sourcing its production in China and SEA, often perceived as low-cost

manufacturing regions. Similar strategy applied for its LCD production, being produced in Mexico to cater its

customers in North America. The savings are noted up to four-week reduction in order lead times, beside reduction

in 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 speed

up time-to-market for launching products globally. For instance, Samsung used same circuit boards for both LCD

TV 32-inch (sold in EU) and 60-inch plasma TV. This effort reduced the minimum roll-out time from sixteen weeks

in 2005 to just four weeks in one-year time.

Supply Chain Management Systems Support

Prior to using Adexa’s Enterprise Global Planning System, Samsung Network Division faced challenges in reducing

its COGS, and pressure to increase both asset utilization and market share. The issues arose include lengthy

forecasting cycles, supply shortages, bottlenecks and rush order delivery. For electrical industry, characterized with

increasingly stringent product life cycles, most manufacturers need accurate and timely information on assisting

their design, planning and production process, while also reducing excess capacities and non-value added cost (Lynn

et al.,1996; Blanchard, 2008). Therefore, synchronizing the scheduling and planning tasks of supply chain is critical

to achieve high performance (Kadipasaoglu and Sridharan, 1997; Pujawan and Kingsman, 2000). Software system

support used in supply chain enabled Samsung Electronics to enable intelligent collaboration, provide better

visibility, realistic planning, improve order fulfillment as well as enabling reduction in inventory. Especially in the

electronics industry where price falls on breakneck pace, often electronics channel giant such as Best Buy and

Circuit City charged manufacturers for gap compensation due to old and new price differences in their store

inventory.

Supply Chain Management-Six Sigma

Samsung 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 to

create a systematic and methodical supply-chain management, while at the same time developing the necessary HR

talent 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-sigma

application on its SCM able to identify three key issues: inventory visibility, demand stabilization and web-user

interface design for inventory management (Yang et al., 2007). This approach is built to overcome challenges of

sustaining results of successful project after completion, which often called as “Closed-loop”, one of the important

issue 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 Research

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Analyzing supply chain management in Samsung Electronics, author concluded that their SCM implementation

contributes 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 chain

One question remained. Is current supply chain practice in Samsung sufficient to address future challenges and

highly 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 peers

This paper studies the impact of resilient supply chain practices in Samsung Electronics towards creating

competitive advantages against its peers. Further study across industries using the same methodology may help

identify whether supply chain practices drive different competitive advantages. Contrasting Samsung Electronics

with its peers also can provide insights of key success factors of supply chain excellence and how it helps company

create outstanding financial and operational performance. Other interesting future study is to explore the concept of

supply chain quality management and comparison of vendor-managed supply chain which now adopted by most

electronic giants against vertical-integration concept implemented by Samsung Electronics.

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