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samsung inventory management strategy

Category: Business Paper Type: Homework Reference: APA Words: 1500

EXECUTIVE SUMMARY
The objective of this report is to analysis the operation of Korean Electronics manufacturer “Samsung Electronics corporation” (SEC). SEC has ranked one of the top companies for practicing best Supply Chain Management which is analyzed by five dimension frameworks of Competitive Priorities.

An operation in SEC which influences Operations management is identified by company’s products measurement through various theories which are Six Sigma for quality checking, Advance Planning System to produce product timely and efficiently, DMAEV, ERP.

Samsung has unique features in Operation Management which has been categorized in Delivery, Sustainability and Logistics. In spite of being one of the top company Samsung has faced supply chain management issues while their operation which has been identified as Inventory issues of delaying product launch, lack of technology causing them to decrease competitive advantage to their main rival Apple, and Corporate social responsibility issues in Samsung’s subsidiaries and suppliers of child labour, bad work environment.

The solution of issues has been discussed in the report by applying good inventory systems, more R&D towards technology factor and evaluation of subsidiary and suppliers of their responsibilities towards employees and environment. In the end Samsung’s production process mapping technique has been discussed briefly by process mapping tool.

Report has been concluded as Samsung has to be more effective in R&D, distribution and quality of the product rather than focusing on low cost to gain more competitive advantage from rivalries.

INTRODUCTION
Operation management is a comprehensive method of a detailed management system within the company production process, which transforms inputs into outputs as a product for consumers. This process focus of various aspects like quality, timing, cost, technology, forecast, supply chain, resource management and etc. the company’s production should be effective and maximizing in profit. Supply chain management is the important part of the operations that brings the operation into a structured system by physical distribution and manufacturing operations, which gives competitive advantage to the company.

We will be focusing on the competitive priorities of the Samsung Electronics Corporation (SEC), their supply chain problem, operation management systems and analyzing external suppliers, distribution of Samsung.

COMPETITIVE PRIORTIES OF SAMSUNG
It has been identified that the competitive priorities falls into five basic dimensions: Cost, Quality, Time, Flexibility and Innovation.

Cost:
It can be defined as capacity of offering product or service at the lowest cost. In SEC started, their low products on bases of three environmental conditions currently are low national income, limited purchasing power and joint venture companies were not agreeing to divert their technology into high product (Yu, 1999). According to Samsung Co-Chief Executive J.K Shin consumers are moving from feature phone to Smartphone in low end countries. However, SEC main reason for leading low cost electronics is their negotiation with suppliers as low shipping and distribution cost due to geographically parallel. Most of the chips and components Samsung produce by its own which gives them better competitive advantage in the market.

Quality:
Samsung has top share in market in televisions and mobile phones sales and hardware parts. This is because of their high tech quality and effective production and durability. Samsung uses Six Sigma, which helps to structure the process of defining, measuring quality, analyzing, and improvement of products overall before handling to customers.

Flexibility:
It is a firm’s ability to responding and adaption of customer’s needs preferences or change of business trends in the market. SEC has been always focusing on their customer needs and wants, their products price range is from low high, which is for all kind of customers.

Samsung brings its software update for the high-end phones as well as for the low-end phones if suitable. Samsung has launched Note 10.1 in 2012 but it received a software update with new version of Android with new features along Samsung S5. However Samsung’s director have said that company considers users review and feedback into practice when delivering new software updates.

Delivery:
It is a competence of firm to distribute finish products timely or launching a product on time in the market. Samsung has a strong relationship with its suppliers which make them to produce and deliver products efficiently to the market (sustainability report, 2011). Christopher mims, (2002) suggest that Samsung has huge advantage in distribution. In 2013 Samsung launched galaxy s4 handset which has been available on 36percent more telecommunication carriers in more than 55 percent countries than apple iPhone 5. Samsung has their distribution channels worldwide which assembles and distribute products.

Innovativeness:
It is a most critical factor considered by the firm as they have to frequently make innovative changes to the existing product or new production. SEC has its own research institute named Samsung advanced institute of technology (SAIT) which make sure innovation competitiveness in market, it also identifies growth of products in future according to market trends. SEC have different R&D department of each products but it’s connected to SAIT. In the software platform technology Samsung is gaining advantage from its mobile phones, by running two applications at once by splitting screen.

SEC is the biggest memory chip producer making them to supply to most of their competitors. SEC has spent US$ 7-10 billion per annum in innovation and research in recent years.

Significance of Operation Management
The significance of any organization is dependent upon the nature of its operation and the relevant processes it carries out. The main element of any organization is to generate handsome profits through its production. The Samsung Company focuses on raising the product qualities while reducing the defects ion its products, which could only be possible through market research and customer feedback. For better or efficient infusion of operation management in its systems, Samsung implemented Six Sigma interfaces. The Six Sigma program is implemented for making improvement in product qualities and services rendered to customers. Quality being the primary focus of the company, it intends to raise its operational capabilities through this program.

Enhancement of Operational Capabilities by Six-Sigma Program:
The accomplishment of the company in terms of Six Sigma program reduces 50% defects in its products. The Six Sigma program has provided the Samsung Company net revenue of $2.2 Billion for the year 2001 totaling its profit to $24.4 Billion annually, makes it a top company in the world. Through these initiatives the company has raised its memory chip’s market by 29% globally and 37% in U.S only in terms of its annual sales. From these studies, we can say that the Samsung Company has attained a good repute (quality) in the market due to the implementation of Six Sigma Programs.

The implementation of Six Sigma program was an innovative program comes from the experiences of other firms who have adopted such programs and has helped the firm to compete in the market with quality products/services. The 25% of Samsung Company workforce has been allocated for the Research & Development (R & D) projects and 6% of total revenues are allocated for such projects. In terms of global presence, the company holds 33 centers in the world solely allocated for the purposes of R & D projects.

OPERATION MANAGEMENT INFLUENCE IN SAMSUNG
Operation management can be defined as a core functions for managing the production process of products. It includes, organizing, coordinating, planning and controlling of the output materials required for production company’s goods and services making it as an important element of organization.

Operation management plays an important role in business of Samsung Electronics Corporation as it is the world’s largest manufacturer of memory chips and LCD screens this causes SEC to cut down their production cost and being a world largest smart phone manufacturer in 2012 by overtaking Nokia. They also produce the components so productively that they even sell the components to their major rivals in the smart phone market such as Apple. Main reason of Samsung to lead in smart phone industry is its vertical integration combining with a multi-tiered price discrimination strategy. As managing operations tends Samsung to produce low cost products with maintaining high quality. Samsung also uses total quality management to evaluate their speed, time and quality of the product.

SEC has produces a system called “New management” it checks the quality oriented management in the business operations as well as for productions, it also involved in product life cycle. The outcomes of this management system was beneficial for SEC as it produces high quality and innovative production, hence providing high demands of consumer’s satisfaction and huge profit to SEC.

SEC also sends their employees to different part of world to attain MBA courses in universities to understand consumer’s perspectives. This makes them better in macro level of company. SEC has adopted six sigma methodologies for better quality movement in electronic production. APS system was also implemented for knowing recent changes in market. For minimizing the risk, they have established risk management system and risk mitigation strategies to low inventory level and unnecessary suppliers.

Assignment on Operations Management: A Case of Samsung Company By ABC Date EXECUTIVE SUMMARY The objective of this report is to analysis the operation of Korean Electronics manufacturer “Samsung Electronics corporation” (SEC). SEC has ranked one of the top companies for practicing best Supply Chain Management which is analyzed by five dimension frameworks of Competitive Priorities. An operation in SEC which influences Operations management is identified by company’s products measurement through various theories which are Six Sigma for quality checking, Advance Planning System to produce product timely and efficiently, DMAEV, ERP. Samsung has unique features in Operation Management which has been categorized in Delivery, Sustainability and Logistics. In spite of being one of the top company Samsung has faced supply chain management issues while their operation which has been identified as Inventory issues of delaying product launch, lack of technology causing them to decrease competitive advantage to their main rival Apple, and Corporate social responsibility issues in Samsung’s subsidiaries and suppliers of child labour, bad work environment. The solution of issues has been discussed in the report by applying good inventory systems, more R&D towards technology factor and evaluation of subsidiary and suppliers of their responsibilities towards employees and environment. In the end Samsung’s production process mapping technique has been discussed briefly by process mapping tool. Report has been concluded as Samsung has to be more effective in R&D, distribution and quality of the product rather than focusing on low cost to gain more competitive advantage from rivalries. INTRODUCTION Operation management is a comprehensive method of a detailed management system within the company production process, which transforms inputs into outputs as a product for consumers. This process focus of various aspects like quality, timing, cost, technology, forecast, supply chain, resource management and etc. the company’s production should be effective and maximizing in profit. Supply chain management is the important part of the operations that brings the operation into a structured system by physical distribution and manufacturing operations, which gives competitive advantage to the company. We will be focusing on the competitive priorities of the Samsung Electronics Corporation (SEC), their supply chain problem, operation management systems and analyzing external suppliers, distribution of Samsung. COMPETITIVE PRIORTIES OF SAMSUNG It has been identified that the competitive priorities falls into five basic dimensions: Cost, Quality, Time, Flexibility and Innovation. Cost: It can be defined as capacity of offering product or service at the lowest cost. In SEC started, their low products on bases of three environmental conditions currently are low national income, limited purchasing power and joint venture companies were not agreeing to divert their technology into high product (Yu, 1999). According to Samsung Co-Chief Executive J.K Shin consumers are moving from feature phone to Smartphone in low end countries. However, SEC main reason for leading low cost electronics is their negotiation with suppliers as low shipping and distribution cost due to geographically parallel. Most of the chips and components Samsung produce by its own which gives them better competitive advantage in the market. Quality: Samsung has top share in market in televisions and mobile phones sales and hardware parts. This is because of their high tech quality and effective production and durability. Samsung uses Six Sigma, which helps to structure the process of defining, measuring quality, analyzing, and improvement of products overall before handling to customers. Flexibility: It is a firm’s ability to responding and adaption of customer’s needs preferences or change of business trends in the market. SEC has been always focusing on their customer needs and wants, their products price range is from low high, which is for all kind of customers. Samsung brings its software update for the high-end phones as well as for the low-end phones if suitable. Samsung has launched Note 10.1 in 2012 but it received a software update with new version of Android with new features along Samsung S5. However Samsung’s director have said that company considers users review and feedback into practice when delivering new software updates. Delivery: It is a competence of firm to distribute finish products timely or launching a product on time in the market. Samsung has a strong relationship with its suppliers which make them to produce and deliver products efficiently to the market (sustainability report, 2011). Christopher mims, (2002) suggest that Samsung has huge advantage in distribution. In 2013 Samsung launched galaxy s4 handset which has been available on 36percent more telecommunication carriers in more than 55 percent countries than apple iPhone 5. Samsung has their distribution channels worldwide which assembles and distribute products. Innovativeness: It is a most critical factor considered by the firm as they have to frequently make innovative changes to the existing product or new production. SEC has its own research institute named Samsung advanced institute of technology (SAIT) which make sure innovation competitiveness in market, it also identifies growth of products in future according to market trends. SEC have different R&D department of each products but it’s connected to SAIT. In the software platform technology Samsung is gaining advantage from its mobile phones, by running two applications at once by splitting screen. SEC is the biggest memory chip producer making them to supply to most of their competitors. SEC has spent US$ 7-10 billion per annum in innovation and research in recent years. Significance of Operation Management The significance of any organization is dependent upon the nature of its operation and the relevant processes it carries out. The main element of any organization is to generate handsome profits through its production. The Samsung Company focuses on raising the product qualities while reducing the defects ion its products, which could only be possible through market research and customer feedback. For better or efficient infusion of operation management in its systems, Samsung implemented Six Sigma interfaces. The Six Sigma program is implemented for making improvement in product qualities and services rendered to customers. Quality being the primary focus of the company, it intends to raise its operational capabilities through this program. Enhancement of Operational Capabilities by Six-Sigma Program: The accomplishment of the company in terms of Six Sigma program reduces 50% defects in its products. The Six Sigma program has provided the Samsung Company net revenue of $2.2 Billion for the year 2001 totaling its profit to $24.4 Billion annually, makes it a top company in the world. Through these initiatives the company has raised its memory chip’s market by 29% globally and 37% in U.S only in terms of its annual sales. From these studies, we can say that the Samsung Company has attained a good repute (quality) in the market due to the implementation of Six Sigma Programs. The implementation of Six Sigma program was an innovative program comes from the experiences of other firms who have adopted such programs and has helped the firm to compete in the market with quality products/services. The 25% of Samsung Company workforce has been allocated for the Research & Development (R & D) projects and 6% of total revenues are allocated for such projects. In terms of global presence, the company holds 33 centers in the world solely allocated for the purposes of R & D projects. OPERATION MANAGEMENT INFLUENCE IN SAMSUNG Operation management can be defined as a core functions for managing the production process of products. It includes, organizing, coordinating, planning and controlling of the output materials required for production company’s goods and services making it as an important element of organization. Operation management plays an important role in business of Samsung Electronics Corporation as it is the world’s largest manufacturer of memory chips and LCD screens this causes SEC to cut down their production cost and being a world largest smart phone manufacturer in 2012 by overtaking Nokia. They also produce the components so productively that they even sell the components to their major rivals in the smart phone market such as Apple. Main reason of Samsung to lead in smart phone industry is its vertical integration combining with a multi-tiered price discrimination strategy. As managing operations tends Samsung to produce low cost products with maintaining high quality. Samsung also uses total quality management to evaluate their speed, time and quality of the product. SEC has produces a system called “New management” it checks the quality oriented management in the business operations as well as for productions, it also involved in product life cycle. The outcomes of this management system was beneficial for SEC as it produces high quality and innovative production, hence providing high demands of consumer’s satisfaction and huge profit to SEC. SEC also sends their employees to different part of world to attain MBA courses in universities to understand consumer’s perspectives. This makes them better in macro level of company. SEC has adopted six sigma methodologies for better quality movement in electronic production. APS system was also implemented for knowing recent changes in market. For minimizing the risk, they have established risk management system and risk mitigation strategies to low inventory level and unnecessary suppliers. SAMSUNG’S OPERATION FEATURES IN OPERATIONS MANAGEMENT Logistics: In Samsung, logistic department is handled in a unique way and best management system is used making them the one of the best company in the world. The inbound and outbound logistics are handled by Samsung subsidiary called “Samsung Electronics Logitech”. Their main task is to handle 8 domestic plants and deliver to 22 agents and 3,200 customers nationwide. They have reduces the stages to improve customer service. Furthermore, they handle international logistic by storage, transport, custom clearance etc. As Samsung has clients in 167 countries and it handles payments with outsourced organizations working through Enterprise Resource Planning (ERP) system controlled by Samsung SDS. Sustainability: Consumers are interested in the social and environmental impact of the entire supply chain of the company productions. Sustainable supply chain management (SSCM) can be defines as for long-term economic performance and their supply chain can be sustainable by considering organizations environmental, economic and social aspects. Samsung uses eco-friendly products in their products such as bio-plastic; they have also started go green policy for obtaining of their product components and materials. Samsung evaluate their supplier’s environmental and social situations of factories. Hence, Samsung electronics management policies focus on safety of corporate activities. Every year new safety management and target are decided and announced publicly. Samsung have also achieved award for “world’s safest workplace” by Guinness book of record. Distribution: Distribution in operation management is important factor. It is the main key process of company’s operations. Samsung Electronics they have single distributor in several cities through which they distribute their products to overall state, for example in India their main distributor is SSK based in Mumbai city. Samsung Strategic Distributers partners have huge investment in Samsung and they together sell the products. Hence, all products will be sold to one distributor then to retailers. ISSUES IN SAMSUNG OPERATIONS AND SUPPLY CHAIN MANAGEMENT Inventory: In 1995, it was remarkable for Samsung Electronics Corporation (SEC) for dynamic random access memory (DRAM), as the overall market demand is accelerating integrates with firm capacity and SEC was victim of its own success. In the year-end, market has been collapsed and the demand was diminished making the price lower and buyer’s power was strong. According to CSM survey’s finding states that Samsung cycle times were less due to this SEC’s customers are moving towards different manufacturers. SEC plans to give the project to Leachman and Associates. Therefore, Samsung they have used SLIM (short cycle time and low inventory in manufacturing) management system. Reducing inventories is of the quickest way to decrease working capital needs. It gives high performance measurements and newer economic value. it gave them benefit of forecasting accurate of sales in production line, lead times to customer were decelerating, overcoming the competitive disadvantage into advantage. It facilitates rapid feedback of engineering experiments results and customer’s response of product helps SEC to improve process designs. Technology: SEC is facing problems competing with their rivals in technology aspects. As Samsung, use same operating system as other android devices. in the market with same software mobile phone is selling for $500 but same configuration phone SEC is selling for $700. Competitive moats is really important for Samsung as it gives company to charge higher prices from consumers as it’s hard for other to replicate the operating system and maintain their market share. Apple is a good example of competitive moats practicing company. There is lack of innovation in operations of Samsung production line. To overcome this Samsung is discussing to develop their operating system (OS) called Tizen. Corporate Social Responsibility: In 2014, China Labor watch have released the companies who are practicing child labor in China, and HEG was one of them to practice child labour, it is a main supplier for Samsung materials Exploitation of child workers and other labor violations in supplier’s factories is problem for Samsung supply chain and sustainability. Samsung suppliers are running on low margins and they are tend to produce product in low cost causes the factories to practices unpaid overtime, low wages, less safety and training. In china, consumers were boycotting from Samsung products that ends up in loss for Samsung market share. Samsung has taken this consideration and warned their suppliers to avoid poor working conditions, underage labour and low wages practice. PROCESS MAPPING OF SAMSUNG’S OPERATIONS Process map can be defined as an important approach towards identifying the production line quality, customer satisfaction, productivity, waste management and reduction of risk. It gives organization to identify the problems within the production and abilities to adapt new changes. The process starts from headquarter of Samsung based in Korea then moving to technology and product planning which is the important aspect for the company as to identify new innovations, design, competitors and market ability of the product, Samsung does its R&D in Samsung advanced institute of Technology (SAIT).Third step is procurement where Samsung identify its suppliers in terms of quality, time and problem of external suppliers. Samsung has most of its procurement in intra firm which makes company rely on external suppliers less. The process move to manufacturing plant which involves inbound logistics of raw materials from Samsung inventory and most of the material is produced by Samsung itself and then they outsource some production. They use Six Sigma and DMAEV, APS to maintain the quality of the production and to be best in supply chain management. Samsung sell to competitor some raw materials before distribution the products falls into assembly line to maintain the time and distribute according to region, demands of distributors. Outbound logistics is handling by Samsung Electronics Logitech for international distributions. Then the product is in market and selling along after sales service is important aspect as well to retain the customers this includes involvement of HR team of Samsung. Conclusion Operations management is a fundamental part of any organization and core element. As mentioned in the above report of how Samsung gain its competitive priority into cost effective and their quality measurement by Six Sigma and giving the best management by training of employees in their own institute. Samsung is being innovative by doing lots of R&D for betterment of their products. They have less stress of suppliers as Samsung produced most of its components by itself for their main products and their DRAM an conductors are sold to most of their competitors making them best. Operation Management (OM) makes a bonding between all of the departments of the organization, which can be seen in the research done in the report. To identify this we have made a process map showing that all of the departments plays an important role in production. However, Samsung has to improve its product quality more and the software platform for their mobile phones, which have been issues for Samsung earlier. They should improve their logistics department, as there has been inventory problem that also affects the shareholders. Therefore, multinational organization should be more focusing towards the operations of the company according to the people, profit and environment. REFERENCES

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