Operations Strategy Of Samsung Group - Essay Example

Table of Contents Introduction 2 Background: Order winners and order qualifiers 3 Framework developed by Hill…………………………………………………………………………………..…………….4 Analysing Samsung Group (Samsung Electronics) using Hill’s framework……………………………………………………………………………………..…5 Proposed improvements for the order winners and order qualifiers and the potential implications…………………………………………………………………...…………………..8 Conclusion………………………………...…………………………………………………….10 References……………………………………………………………………………………….11 Introduction Samsung Group is one of the biggest names in the business fraternity all over the world. With diversified business interests, the company that started way back in 1938 has slowly but steadily grown into a truly multinational organization that is present in almost every other country. Among the chief business interests Samsung Group has, the foremost would be Samsung Electronics, the flagship company of the entire group. Their other business interests include skyscraper and plant construction, semiconductors, petrochemicals, finance, medicine, fashion, advanced technology, hotels etc (Samsung website, 2012). The flagship company of Samsung Group, Samsung Electronics is the world leader in digital media products as well as high tech electronics items (Samsung website, 2012). In the fiscal year ended in 2011, the group has recorded net sales worth $250 billion and net income worth over $21 billion (Samsung website, 2012). A mighty business empire, Samsung Group is indeed a global business entity worth reckoning. As part of their current businesses, major focus is on the electronics business. Also, biopharmaceuticals is yet another area that the company thinks has the potential to become one of their main lines of business. Of course, as far as the other businesses are concerned, they have already made their mark felt. Their construction business, for example, has been awarded prestigious contracts all over the world for the highest sky scrapers such as Burj Khalifa in Dubai, Petronas twin towers in Malaysia etc (www.dailytech.com, 2012; www.etawau.com, 2012). Background: Order winners and Order qualifiers Hill (2000) is of the opinion that there are quite a few criteria that are needed to sell the products or services in the market. These are usually divided into two groups: order winners and order qualifiers. Order qualifiers for a product or service are the characteristics needed for that particular product or service to make way into the market place or for that matter to be considered or even shortlisted by a potential customer. Order winners are those characteristics of a product or service that win the bid or customer’s purchase. To remain on a customer’s shortlist, a company has to qualify and re-qualify all through the customer decision making process. Failure to compete at any of these stages would render the firm unable to compete in the rat race. Order winners and qualifiers are both market specific as well as time specific and thus would vary from market to market and also change from time to time. Bozarth and Handfield (2006) have opined that order winners are those performance dimensions that differentiate a company’s products and services from its competitors’. Firms win the customer’s business by providing superior levels of performance on order winners. On the other hand, order qualifiers, as stated by Bozarth and Handfield (2006) are performance dimensions on which customers expect a minimum level of performance. Superior level of performance on an order is not likely to give the company any competitive advantage. Skinner (1969) has been of the opinion that the competitive criteria for a manufacturing strategy may include the following: Cost: Development and production of a product at a low cost Quality: Manufacturing of products with high standards performance and conformance with high quality Delivery speed: Meeting of delivery schedules set by the management Delivery dependability: Responding promptly as well as efficiently to orders from incoming customers Flexibility: The ability to modify designs as per the needs of customer and react to changes in product and product mix of the firm Innovation: Production of better as well as more effective products or ideas The competitive criteria along with certain decision areas stand for the manufacturing strategy. Skinner identified the following as the key decision areas: Plant and equipment Production planning as well as control Labour as well as staffing Product design as well as engineering Organisation as well as management Skinner (1969) has further been of the opinion that when decisions are taken in the afore mentioned areas, they entail obvious trade-offs between the competitive criteria. Framework developed by Hill Hill (2000) has come up with a model that has taken into consideration Skinner’s previous work on the trade-off principle as well as many ideas from earlier works in the same area. Furthermore, the steps in the model are not sequential, however there is considerable repetition in the steps that are followed (Hill, 2000). He (Hill, 2000) has opined the following: 1. Step 1: Define corporate objectives 2. Step 2: Define marketing strategies to meet those objectives 3. Step 3: Assess how different products or services win orders in the face of competition 4. Step 4: Establish the most appropriate mode to manufacture these sets of products – referred to as the process choice 5. Step 5: Come up with the manufacturing infrastructure needed to support the production process Analysing Samsung Group (Samsung Electronics) using Hill’s Framework The corporate objectives of Samsung Group with special reference to Samsung Electronics are simply to bring the best digital experience in the light of high end technology as well as products that may be availed of at competitive rates and focuses on what they call “beyond tomorrow” thereby referring to their futuristic orientation (Samsung website, 2012). This provides the basic platform for Samsung electronics to prepare a clear strategic direction for the management of the firm as well as project a substantial level of strategic awareness required to attain success in a competitive business environment. Samsung being a global player has come up with a supply chain model that is closely related to their corporate objectives mentioned above and includes the establishment of a model that suits their purposes best as well as brings them closer to their suppliers and target markets. Samsung is one of those few players in the global electronics business fraternity that has been able to successfully launch a complete range of electronic consumer durables and also become global market leaders in quite a few categories (Samsung Annual Report, 2011). There are a number of order qualifiers and order winners which may be mentioned to have been responsible for the company’s success in the global markets as well as for its establishment of a loyal, global customer base. These order winners as well as order qualifiers for Samsung electronics in the realm of supply chain are outlined in the table below: Criteria Description Order winner or qualifier for Apple Inc. Sourcing The way the company manages to make way to its suppliers and bring in ingredients to be processed for manufacturing the final product. Order qualifier Manufacturing Level of effectiveness of a product to meet specifications. Order qualifier Logistics The way in which the product in process or the manufactured product moves from the producer to the supplier. Order winner Plant location Setting up plants at locations that make up for the firm’s cost efficiency as well as enhance the firm’s reach to the raw material market, labour pool, other resources as well as target markets where the finished product is to be marketed or sold. Order winner Distribution channels The ways in which the finished product reaches the target markets to be sold Order winner As for the reasons why these various heads under supply chain have been detailed as order qualifiers or order winners are as follows: Sourcing – Order qualifier – Samsung electronics has brought in the philosophy of shared growth with their suppliers. Thus, their suppliers are no longer restricted to market biggies but also have small as well as medium size firms (Samsung website, 2012). Also, this has ushered in a host of new suppliers. Their strategy to partner research and development initiatives with their small and medium suppliers by providing them financial assistance can also be told to contribute to this status of effective outsourcing strategies. Manufacturing – Order qualifier – Samsung electronics outsources most of its manufacturing to other companies having large and competitive facilities. This makes their processes efficient and thorough monitoring is done throughout the process. Moreover, they have plants as well as research and development facilities not only in Korea but also in USA. Other plants in Asia and Europe are also equally efficient and produce products effectively. Thus sourcing and manufacturing lead them to effective supply chain strategies. Samsung Electronics has started using SLIM techniques for production so as to reduce their manufacturing cycle time from 80 days to 30 days (Leachman, Kang and Lin, 2002). These techniques along with large batch size of production have resulted in competitive criteria for Samsung, as per Skinner’s framework mentioned above. Logistics – Order winner – Samsung excels in its logistical facilities since they source and manufacture globally and still manages to make its entire product range available in all its target market. This obviously results in better sales and thus qualifies as order winner for the firm. Plant location – Order winner – Samsung champions in this as well. Given their chief markets in Asia and US, they have strategically located their plant locations in Korea, China, US etc in order to minimise supply chain hassles as well as be near their target markets along with solving labour problems as well. Distribution Channels – Order winner – This is one of the most effective areas of Samsung. Their products are available globally and these cater to various market segments. This lends distinct competitive advantage to Samsung and stands as an order winner for the firm. Proposed improvements for the order winners and order qualifiers and the potential implications Sourcing – Samsung may think of not only partnering but also try to vertically integrate and if possible buy stakes in their sourcing firms. This would help them source their products better and also bring in more exclusivity in their products. Also, Samsung may try to bring up sourcing firms in areas where their manufacturing units are. This would help to create a host of local sourcing firms rather than having to source from one part of the world to another. Since they have established extensive R&D facilities all over the world in Korea, India, China, Russia and USA, it can also think of sourcing locally to make this point stronger (Samsung annual report, 2011). Manufacturing – Samsung may think of introducing more lean production techniques as well as fasten the supply chains by enhancing their level of just in time. Though lean techniques have already been introduced, Samsung may think of implementing the Kaizen system of continuous development in the processes. Also, they may think of making their assembly line shorter and if possible introduce more automation for faster production as well as more standardized operations. Logistics – Samsung may think of introducing their own logistics systems in key markets in order to make their logistics systems faster apart from increasing the number of logistics providers they currently have. This would make their products reach target markets even faster. This apart, Samsung may think of sourcing closer to their manufacturing plants so as to reduce logistics. Also, they may open up plants near their key markets to further synchronise the entire production process and further reduce logistics. Plant location – Samsung may think of increasing their number of plants in order to reduce supply chain hassles as well as manufacture products closer to their target markets. This would also make the supply chain less cumbersome. Also, plant location may be thought of as a decentralizing action that would generate core competency for them. Furthermore, they may think of factors such as easy and cheap labour, raw materials etc for further setting up new plant locations. They may focus on India for their new plant given their huge market in India, comparatively cheap labour and technological knowhow. Distribution channels – Though Samsung already has an excellent distribution channel, it is imperative that it may be bettered. This may be done through a larger number of partnerships with websites, retailers, distributors etc. Also, they may think of increasing their exclusive outlets throughout the world. Moreover, they may focus more on online distribution channels. Conclusion Though Samsung has an excellent supply chain mechanism in place, it still has areas that the firm may further develop. As far as the analysis of its supply chain is concerned, it has been found out that this is one of those areas wherein Samsung electronics truly excels. Most of its supply chain functions are sheer order winners for them. Distribution channel, plant location and logistics seem to be some of their core competencies. However, it is also imperative that however good a system may be, it is still liable to improvement and Samsung is on this track only in its quest to remain competitive and sell well. Thus, so far as their sourcing and manufacturing is concerned, Samsung may think of even more competitive policies. Among the most suitable ones for them, they may further try to make their manufacturing systems leaner and this seems achievable because of two reasons. Firstly, since they do not make their products to order, so, they can forecast demand and likewise use their supply chain in a better way to make manufacturing systems leaner. Also, they may further standardise their sourcing systems and also recruit more sourcing points to create more core competencies. References www.samsung.com, 2012, viewed on 27 November, http://www.samsung.com/in/aboutsamsung/corporateprofile/ourperformance/samsungprofile.html www.etawau.com, 2012, viewed on 27 November, http://www.etawau.com/Geography/KualaLumpur/KLCC/Petronas_Towers.htm www.dailytech.com, 2012, viewed on 27 November, http://www.dailytech.com/Worlds+Tallest+Building+A+HalfMileTall+Skyscraper+Opens+in+the+Middle+East/article17282.htm Samsung Group, 2011, ‘Samsung Annual Report’, viewed on 27 November 2012, http://www.samsung.com/in/aboutsamsung/corporateprofile/ourperformance/samsungprofile.html Skinner, W 1969, ‘Manufacturing – missing link in corporate strategy’, Harvard Business Review, May-June, pp. 136-45 Hill, T 2000, ‘Operations management; strategic context and managerial analysis’, October, McMillan, pp. 37-57 Samsung mutual growth, 2012, ‘Mutual Growth’, viewed on 29 November 2012, http://www.samsung.com/us/aboutsamsung/sustainability/suppliers/download/Samsung_sr_2012_Mutual_growth.pdf Leachman, R; Kang, J & Lin, V 2002, ‘SLIM: Short cycle time and low inventory in manufacturing at Samsung Electronics’, Interfaces, Jan-Feb, 32(1), 61-77 Bozarth, C and Handfield, R 2006, ‘Introduction to Operations and Supply Chain Management’, New Delhi: Pearson Read More