Samsung Operations and Value Creation - Case Study Example

Samsung Operations and Value Creation Name Tutor Unit Code Table of Contents Introduction 2 Value Attributes 4 Product Design 6 Procurement 7 Manufacturing 8 Capacity Planning and Inventory Management 9 Quality Management and Process Improvement 9 Environmental and Ethical Implications 11 Environmental Impact 11 Ethical Impact 13 Conclusion 14 References 15 Introduction Lee Byung-Chul founded Samsung in 1938 as a trading company. The company has since then grew in leaps and bounds to become a respected multinational conglomerate. Today, Samsung Group comprises 83 firms incorporated in Korea. While some of these firms are closely related, some are individually listed on the Seoul stock exchange. The firms that are joined together in a compound structure. Each key firm has associates in Korea and abroad. Samsung Group has a total of about 1000 commercial units around the world (Samsung, 2015). This report studies solely the operations and value chain of Samsung Electronics. Samsung opted to enter the electronics trade in the 1960s. Today, Samsung Electronics is among the leading electronic companies in the world. The company’s sales in 2013 increased by 14 per cent over 2012. Samsung Group employs over 190,000 people directly and through subcontracts employs close to 900,000 around the world. The company’s headquarters are in South Korea. Samsung Electronics is also growing fast in foreign territories through increasing Research and Development (R&D), manufacturing, and sales. Its total gross value of domestic and overseas business is estimated to be around C$200 billion. For example, the company has close to 30 business associates in China alone. The company’s success has mainly been linked to the production of mobile telephones and smartphones (under the Galaxy line), Dynamic Random Access Memory (DRAM) chips, and liquid-crystal display (LCD/LED) screens that have so far returned handsomely (Samsung, 2015). The company principally engages in the manufacture of consumer electronic products. Its business operations are divided into three categories: (1) consumer electronics (CE) that covers visual displays (T.V), digital appliances (fridges), printing solutions (printers) and health and medical equipment; (2) information technology & mobile communications (IM) that covers mobile communications, networks and digital imaging (cameras), and; (3) device solutions (DS) that covers memory business, system large scale integrated circuits (LSI) and liquid electronic display (LED) business (Samsung, 2015). Figure 1 below indicates a summary of the company’s macro-organisational structure: Figure 1: Samsung Management Structure by Products and Design Source: Samsung (2015b) Value Attributes Customers are the reason behind a company’s business thrives. Generally, there are two key separate divisions of customers based on the need and quantity of purchases; individual customers and organizational/industrial customers. Traditionally, individual customers are considered not as much of rational and are spontaneous in their decision making process whereas organizations are thought to be professional and follow a tight budget, cost and profit considerations. However, today it is recognized that buyers bring in their emotions in making purchase decisions (Kotler & Armstrong, 2006). In consumer electronics industry, buyers embody a vast multiplicity of tastes, preferences and material comfort. Samsung Electronics provides goods that cater for nearly all customers considerations in the modern day. For instance, the company produces low-end mobile phones (often under $50) for the market in developing countries, while in the developed world (mainly the United States and Europe); they mainly produce more sophisticated products such as mobile phones incorporating cameras, GPS navigation, and Internet browsing, among other features. Furthermore, the company offers value added features, such as android operating system in mobile phones, and after-sale services that inform most individual buyer purchase decisions (Ghemawat, 2001). On the contrary, industrial customers have a preference for value services that relate to their business and the manufacturer’s capacity to provide a communications solution. Samsung Electronics offers all these products that include LED business solutions, computers, and printing solutions, among others. Samsung Electronics value creation is centred largely on the Oracle value chain for IT businesses. Figure 2 below indicates the processes that will be discussed in this report. Figure 2: Samsung Electronics Value Chain Source: Author (2015) Product Design Samsung Electronics produces various types of state-of-the-art merchandises in different segments, Samsung Electronics considers the designing process as a key undertakings in the value creation chain. Modern products change quickly, and therefore call for prompt conception of designs so as to remain competitive in the international markets. It is for this reason that Samsung Electronics considers basic research, product development and design primary activities. Since the late 1990s, Samsung Electronics has little by little occupied turned out to be a leader under the stiffly competitive memory chip design business. It has also come to be recognised globally in LCD/LED technology as well as the current expansions in mobile telephones and smartphones. The company is breaking new boundaries in integrated technology and product design. It is this knack that has attracted Apple (a stiff rival) to buy Samsung Electronics components as the best for the best for its I- product line, but not essentially the cheapest in the market (Samsung, 2015). Samsung Electronics has product design centres in: (1) Tokyo, Japan, (2) Seoul, Korea, (3) San Francisco, United States of America, (4) London, Europe and United Kingdom, (5) Milan, Italy, (6) Shanghai, China, and (7) Los Angeles, United States of America. Research and Development and design of mobile phones and smartphones may well take place in several centres. The Solution division in Korea focuses on productions for outdoor clients - like Apple, and for its in-house patrons. In 2012 Samsung Electronics opened a new media centre eyeing content and applications in Silicon Valley and a new software centre in Korea (Samsung, 2015). Procurement Value creation from the procurement process is realised through different ways. Samsung Electronics has created opportunities for both domestic and international procurement. Opportunities for international procurement give Samsung Electronics a competitive edge in working with respectable suppliers worldwide. The company has established well managed functions to deal with partners and suppliers through: (1) Supportive IT infrastructure to develop the competencies of its associates, (2) Creating Samsung technology tracking alliances, and (3) Forming effective project innovation practises (Samsung, 2015). Nonetheless, procurement within Samsung Electronics is quite differentiated from procurement in companies in the industry, such as Dell or Apple. The company produces lots of what it requires and therefore has an intra-firm nature. Therefore, external suppliers and would-be suppliers would find it hard given that their product(s) possibly will overlap two or more divisions that share a component (subcontracted internally from Samsung and/or from a different supplier). Samsung Electronics procurement process with suppliers from outside seeks to imitate the intra-firm arrangement. Samsung Electronics seeks to form a household of credited suppliers and a lot pushes openings just to this family. As soon as an outside suppliers gets into the family, new prospects are open. Out of this family, supplying to Samsung Electronics is hard (Samsung, 2015). Figure 3: External Relations Partners and Supplies (Procurement) Source: Samsung (2015c) Samsung Electronics has a cooperation policy with external suppliers that supports a win-win approach centred on cooperation for mutual gain. Certain programs arrange for collaboration through financing plant upgrading and localisation. This promotes productivity through site development, posting specialised manpower to strengthen efficiency and provide enterprise resource planning (ERP) consulting (Samsung, 2015). Manufacturing Samsung Electronics has spread out the manufacturing of all components around the World. The company has factories mainly situated in Korea, Vietnam, China, India and Indonesia. Some of the factories produce specific products. For example, the factory in India produces software applications and Samsung Austin Semiconductor produces semiconductors. Each manufacturing division is in charge of its own factories and assembling plants. Major places of assembling mobile phones are Korea, Vietnam and China (Samsung, 2015). Capacity Planning and Inventory Management Samsung has an internal logistics company, Samsung Electronics Logitech, which has enabled it to form a well-monitored distribution system. Samsung Electronics Logitech is responsible for logistics of Samsung Electronics products for local, global, and buyer-to-buyer (B2B) cooperation. It has been able to attract 600 partners international partners and 3200 local Partners. Samsung Electronics Logitech negotiates payment collection for Samsung Electronics export products by dispensing the documents stated on the letter of credit and taking them to the banks after stocking the export products. It also handles insurance claims where applicable by directly linking with Samsung Insurance Company. Samsung Electronics Logitech manages warehousing operations. The company has core distribution centres situated in Suzhou and Tianjin since they are the key features of the company’s world-wide supply chain. It handles thousands of electronics products every year. The shipping process comprises three main parts: Shipping Method, Shipping notification, and Shipping charges (Samsung, 2015). Quality Management and Process Improvement Samsung Electronics makes every effort to realise first-rate and reliable product quality at reasonable prices and at the right time to guarantee customer satisfaction. The company also seeks to “deliver uniform quality products to customers by stabilising the manufacturing process based on the specifications” (Samsung, 2015). So as to accomplish this goal Samsung Electronics, through its partner Samsung Engineering, continuously improves efficiency by monitoring the variation in manufacturing and assembly. Continuous improvement is effected through a closed loop method that involves selecting and monitoring key parameters, assessing the measurement system, process capacity enhancement, and reaction plan. The main purpose of the continuous improvement process (CIP) undertakings is to minimise the variation around set targets. Figure 4: CIP Implementation Source: Samsung (2015) The company conducts Customer Satisfaction Index (CSI) surveys on a regular basis to address customer grievances, evaluate client satisfaction and ascertain areas for improvement. The results also inform continuously improvement. Samsung Engineering uses Six Sigma as an instrument for innovation, productivity and quality to perfect its central tactic to process, product and personnel development (Samsung, 2015). Environmental and Ethical Implications Environmental Impact Samsung Electronics claims to “believe it is their responsibility to do business in a way that enriches our planet” (Samsung, 2015). With customer satisfaction in mind, the company develops environmentally-friendly products that are novel and of high quality. SEC is dedicated to cut down F-gas emissions resulting from their manufacturing undertakings by improving the filter systems and efficiency. For example, from 2008 to 2012 the company reduced this indicator by 40 per cent. Furthermore, the company is continually at work and has a strategy in place to increase the energy efficiency of their products and be venturing into the production of solar power, LED lights and electric cars under its new environmental rules. However, generally GHG emissions went up in the past few years because of increased production activities. In 2011 Greenpeace ranked Samsung 7 out of 15 in Greenpeace’s Guide to Greener Electronics. The guide “ranks 15 leading mobile phone, TV and PC manufacturers on policies and practices to reduce their impact on the climate, produce greener products, and make their operations more sustainable” (Greenpeace, 2011). The company still continues to work on reducing the impact of their growth on the environment. Since 2009, Samsung has been employing a system for reducing carbon emissions in as many areas as it can, including logistics, manufacturing, global partners and travelling. They have as well been at work on minimising the power usage of their products, increasing of the use of eco-friendly materials, and eradicating the use of toxic materials. The company recently set up an Eco-Rating system for all its products to ensure that Samsung’s products such as semiconductors, LCD/LED and mobile telephony meet the terms of the global environmental guidelines. The company intends that this becomes more important and seeks support from other companies in this area (Samsung, 2015). Besides, the company cooperates with government and non-governmental organisations to improve on matters concerning environment. The company also supports its global suppliers to help them come to be more resourceful and eco-friendly. For example, Samsung Electronics America has established a recycling program to help users dispose their old electronic gadgets in the most environmentally friendly way (Samsung, 2015). So far, the company has cooperated in recycling undertakings with the a few US companies: CRT Processing LLC, located in Wisconsin SIMS Group Limited, located in Chicago Eco International LLC, located in New York JFRC, LLC, located in Minnesota Global Electric Electronic Processing (GEEP), located in Barrie, Ontario, and Edmonton, Alberta. In order to find the opportunity in this part of the value chain, partnering applicants are required to follow the Samsung Waste Electrical and Electronic Equipment (WEEE) Management Policy (Samsung, 2015). The policy requires the partners: To have a high operating level using modern environmentally friendly technologies that are also economical. To abide by the relevant national, state and local regulations and to record their compliance with legal and regulatory requirements relating to all activities undertaken on site. Their partner’s activities also have to be recorded. To properly manage End-of-life Electronics through recyclers who are devoted to the e-Stewards practise. Retailers should inform any known or alleged abuses of Samsung requirements. Any concerns that involve security, environmental, health and safety and must be reported to the Samsung vendor without delay. Ethical Impact Samsung Electronics collaborates with the government and non-governmental organisations to make improve on employee well-being and safety. The company conducts an audit on the manner in which their supplying partners act to employees regarding their health and safety, undue working hours, fair treatment, child labour and discrimination. Samsung Electronics has created a flexible work schedule called ‘Work Smart’, which helps the employees to capitalise on their work performance. Besides, the company supports innovative ideas that are likely to develop new businesses by permitting the author to work on their project for up to one year (Samsung, 2015). Samsung Electronics also helps communities and the society in general by doling out employment opportunities and supporting disadvantaged people. The company uses a uniquely planned recruitment programme for the incapacitated. To show concern for the good health and education of children and youth, Samsung Electronics set up ‘Samsung Hope for Children’ programme (Samsung, 2015). Mullins (2007) points to a group affected by corporate social responsibility actions that is a lot neglected – competitors. Samsung Electronics pledgees to respect other companies’ intellectual property, such as copyrights, patents and trademarks (Samsung, 2015). Also, the company’s suppliers have to pass yearly audits that check whether they conform to guidelines regarding labour and human rights, workers’ health and safety, handling hazardous substances, child labour, and environment matters, among others (Samsung, 2015). Hannagan, Bennett et al (2005) claim that for there to be a candid will for increasing ethical behaviour, it is crucial that the employees have the right attitude and are devoted to improvement. Conclusion Samsung Electronics has spread its activities globally. To enable en effective operations of this activities, the company has built partnerships mainly with companies within Samsung Group and with external partners. The company has integrated robust value creation within the value chain. It also conducts its operations in an eco-friendly way and observes ethical standards. The company has a strategy to continue offering quality products through continuous improvement and by cutting down on greenhouse gas emissions amid increasing production activities (Samsung, 2015). References Ghemawat, P. (2001). Strategy and the business landscape. Upper Saddle, NJ: Prentice Hall. Greenpeace. 2011. Guide to Greener Electronics. . Hannagan, T., Bennett, R. et al. 2005. Management: Concepts & Practices, 4th ed, Harlow: Pearson Education Limited. Kotler, P. and Armstrong, G. 2006. Principles of marketing. 11th ed. Pearson education, New Jersey, United States. Mullins, L. J. 2007. Management and Organizational Behaviour, 8th edition, Harlow: Pearson Education Limited. Samsung. 2015. About us, Samsung. 2015. Annual Report 2013. . Samsung. 2015. Global Procurement. . Samsung. 2015. Global Code of Conduct, [Online], Available: . Samsung. 2015. Quality Assurance, Samsung. 2015. Sustainability Reports 2013. . Read More