Samsung Electronics - Case Study Example

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The industry had a growth rate of 16% between 1960 and 2000. The industry is divided into three categories of memories: dynamic random memory (DRAM), static RAM (SRAM), and flash. In…
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Samsung Electronics Case Study
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The memory industry has been one of the most successful industries during the last 50 years. The industry had a growth rate of 16% between 1960 and 2000. The industry is divided into three categories of memories: dynamic random memory (DRAM), static RAM (SRAM), and flash. In 2003 the memory industry was worth $33.7 billion with the DRAM accounting for half the sales. One of the weaknesses of DRAM technology is that loses data when the power turned off. A company that has been very successful in the memory industry is Samsung Corporation. The purpose of this paper is to describe the variables or factors that affect performance in the memory industry.
The memory industry is characterized by having few powerful suppliers. The consumers are extremely price conscious thus profit margins are low. In order to be able to get lower prices from suppliers companies have to buy in bulk. Suppliers give high volume buyers a 5% purchase discount. Memory represents about 4-12% of the cost of an OEM computer. The OEM computer industry is the primary buyers of DRAM. The OEM computer industry is fragmented and no single OEM manufacturer holds more than a 20% market share. Quality is a critical success factor for companies in the memory industry. Product quality allows companies to achieve customer retention (Kotler, 2002). Defective memory is high risk for a computer manufacturer because it could destroy product value. OEM companies are willing to pay an extra 1% price premium for reliable suppliers.
Samsung which is a successful player in the memory industry developed new types of cutting edge memory chips that enable them to differentiate themselves from the competition. The use of innovation enabled the company to have a great product variety and penetrate niche markets within the industry were they could charge higher prices. In 2003 Samsung offered 1200 types of DRAM products. This gave the company an advantage because by 2005 the prices of the older memory technology started to depreciate in price. When this occur the best approach for companies that did not have the new innovative products like Samsung was to utilize a strategy to gain market share. Chinese manufacturers utilized the strategic approach of increasing market share.
Another critical success factor in the industry is having organizational experience and tacit knowledge to master the design and production process. Testing chips for reliability during the production process was imperative. Successful companies designed process improvements to allow more circuits to fit on smaller sizes while ensuring uniformity in the manufacturing process. They utilized the approach of generating as many individual chips in one production step while minimizing defective chips. Lean manufacturing requires a commitment to remove steps and activities that do not add value to the product (Heizer & Render, 1996).
Players in this industry enjoyed the benefit of the lack of existence of substitute products. Companies realized that the future of the industry will be based on nanotechnology. Investing in research and development is important to ensure the longevity of companies in the industry. The industry is cyclical thus there are downward cycles. When there is downward cycle it is important for companies to minimize capital investment. Hwang’s law stated that semiconductor density was doubling every 12 months. Successful companies have to shorten their time to market.
Henzer, J., Render, B. (1996). Production & Operation Management (4th ed.). New Jersey: Prentice Hall.
Kotler, P. (2003). Marketing Management (11th ed.). New Jersey: Prentice Hall. Read More
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