In my last blog post, I discussed the implications Samsung would face in light of their Galaxy Note7 debacle. I argued that Samsung would have negative feedback on their brand’s reputation because of their decision to end production of the phone. Most of the criticism centered around Samsung’s supply chain management and responsiveness to their crisis. From this, I derived my next blog topic. I wanted to further research and understand the complexity of the 21st century supply chain. In our current global economy, it is crucial that firms are able to have control over their supply chains to be highly efficient and productive.
Linear Supply Chain:
Before our economy became globally interactive, executives and managers had easy access to their supply changes. Why? Because everything was in-house; From the factories to production line, manufacturers owned everything. The supply chain was linear. Companies could easily respond to changes in customers’ demands. Customers had very little accessibility to numerous outlets before the rise of e-commerce. With the linear supply chain, managers had complete clarity in their manufacturing schedule allowing them to respond to imbalances in supply and demand. See Figure 1 to understand the clarity that was available to managers. However, this all changed rapidly as technology and labor costs were impacted.
Dynamic Supply Chain:
In recent years, many companies have shifted their business overseas where labor cost are cheaper. Primarily, manufacturing and assembly lines have been outsourced while designs, marketing and sales team have stayed domestic. Obviously, this raises problems in the dynamic supply chain. In a multi-faceted and globally distributed chain, communication and relationships in different departments of a company can be poor. You can see from figure 2 that the Brand owner does not know every issue with their products. The green lines represent predictable and planned exchanges (forecasts, orders and engineering). While the red line is anything that is unanticipated (weather, oil prices, supply shortages etc.). Statistics that aren’t surprising are from the AMR research study; 92% of companies outsourced have already outsourced their production. So to a consumer this means that companies will not be able to respond to changes in supply and demand fast. This also means that managers have a harder time making decisions when something goes wrong Ex. Samsung’s Galaxy Note7 catching on fire. At the beginning of this blog, I stated that it is important for large corporations to understand the logistics of their dynamic supply chain to capitalize on existing operations and to increase revenue. So what are some effective processes managers must understand?
Step 1: Unify Enterprise Resource Planning
Enterprise resource planning is a defined as a business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources. For a business manager it is crucial that you understand the importance of ERP and the impact of integrating it into your supply chain. Essentially, ERP fights inefficiency in the SC such as waste and worker ineffectiveness by bringing clearer insight into various activities in the chain. Benefits include:
- Improved efficiency across multiple departments and organizations
- Improved customer service
- Automation of workflow, reducing overhead and operational expenses
- Lesser likelihood bottlenecks
- More flexible supply chain
Step 2: Trust and communication across different Branches
In Samsung’s case, there was a design flaw present in their Galaxy Note7. This should have been detected during the review and testing stage, but it managed to slip through. What is more alarming for Samsung is that they were unable to identify what component of their mobile devices caused the malfunction. This speaks directly to the supply chain and my second insight – trust and communication. Both of these terms are very elementary, but they serve a large purpose for international firms. When you have different parts and components being assembled in countries with cultural and language barriers, management must be able to act as a liaison between the different entities promoting communication and trust. It is necessary for a manager to have implemented the correct technology in the SC and develop proper relationships with all of their suppliers. When a corporation is able to establish universal communication and trust, the SC runs like a well-oiled machine. In Samsung’s, there are reports that the company rushed their product to the market to beat the iphone7. Sources say the different parts in their SC were not completely ready, but the company did not adequately respond to these complaints.
Step 3: Always have a plan to respond to failure
In a leadership role, whether that be academia, athletics or business it is always important to have a plan to win and a plan to respond to failure. This is important because when something goes wrong in the SC it is important that you respond rapidly. As a company this shows you have strong quality control in any situation thus helping your brand. For Samsung, the did not have an effective plan to respond to failure. The slowly recalled and refurbished phones while trying to identity the main issue. It was initially suspected to be the lithium battery component. For Samsung this was an issue. They purchased over 60 percent of the lithium batteries from a single supplier; Essentially putting all their eggs in one basket. For comparison, the industry average is no more than 40 percent. A potential reason for the slow responsive from Samsung is because they had to find new suppliers. This eventually lead to their decision to stop production. To me, it seems that Samsung didn’t have a great plan for failure and this will turn around and bite them where it hurts.
In conclusion, there are many different methodologies and implementation strategies to make your SC efficient in a global economy. I wanted to touch on a few that I felt were important and were lacking in the Samsung Galaxy note7 disaster. If Supply Chain management interests you, look into taking some Operations electives. Otherwise, thank you for ready my blog!