Samsung: A Masterclass in Supply Chain Management?
It’s Samsung’s strategy (not just its phones) that sets it apart
What is it about the mobile phone market that keeps us so enthralled? You can pretty much guarantee that the release of quarterly figures from the main market players will automatically spark commentary and speculation – not just in the business pages but across the general news media too. One reason for all the interest is of course the sheer size of the global smartphone market (estimated to be worth in the region of $150bn by 2014). There’s another more primitive reason for our interest in this particular sector: quite simply, we love “shiny stuff”. We like to own it and we like to talk about it. It’s hard to imagine, for example, a washing machine being unveiled in a manner anywhere near as flamboyant as the launch event that accompanied the recent unveiling of the Samsung Galaxy S4. However, once you get behind all the fluff and hype, the real reasons behind Samsung’s dominance – as well as its business model – make pretty interesting stories in themselves.
So what’s the state of the smartphone market?
Reams of column inches have been dedicated to the Apple business model. The fact is though; it’s Samsung rather than Apple that sits at the head of the table so far as market breakdown is concerned. According to Samsung’s official figures, Q1 mobile sales revenue was $28.6 billion with operating profits of $5.9 billion. The International Data Corporation (IDC) suggests that Samsung’s current market share is 32.7% compared to 17.3% for Apple (although it’s worth bearing in mind that Samsung have far more actual models on the market – particularly in the lower- and mid-price ranges). The next largest player is LG on just 4.8%. Essentially it’s a two horse race – for the time being at least.
How did Samsung get to the top of the heap?
Don’t mention this to a dedicated tech fan, but all top-end smartphones are pretty similar. Mobiles such as the Sony Xperia Z, the Nokia 920, the Google Nexus 4 and the HTC One are all pretty formidable pieces of kit. The question is why is there such clear blue water between the two front-runners and the rest of the pack? Why isn’t Sony with its omnipresence across a whole range of markets doing better? Why hasn’t Nokia capitalised on its clear dominance of a decade or so ago? The clue is in Samsung’s business model and supply chain management. Here’s a rundown of a few of the strategies that appear to have paid off for the South Korean giant:
1 – Too much out-sourcing can lead to problems with meeting demand
When Google launched the Nexus 4 in the autumn of 2012, it was caught on the hop when demand far outstripped production. Customers were waiting weeks for shipment with little or no effective communication forthcoming. This remained an issue even in the New Year. Not only did this leave a bitter taste in the mouth, it also did no favours for Google who were itching to increase their share in this market. The whole episode was something of a fiasco. There will always be some delay in the first few weeks after a successful flagship phone launch (indeed we see this now with the Samsung S4). Samsung’s model however means that (historically at least) it has been pretty effective at dealing with the problem. When Google’s problem arose, the UK managing director admitted quite candidly that the supply chain of its partners LG was not all it should have been – blaming a “scarce and erratic” system of supplies. Samsung’s assertion: “supply chain management is a core differentiator for our brand” doesn’t appear to be mere rhetoric. In particular – and in practical terms, the fact that most key components are designed in-house means that the company is not totally reliant on outside suppliers. Authorship of the design blueprint means that control of supply is that much easier for Samsung than it is for a lot of its competitors. Post-launch delays on popular Samsung smartphones, whilst annoying, are certainly not catastrophic.
2 – Successful collaboration
Samsung have embraced the idea of Collaborative Planning, Forecasting and Replenishment (CPFR) – a concept that’s also been used by Wal-Mart and Proctor and Gamble. The key idea underpinning it is to share intelligence with your partners in the supply chain. What you’re aiming to do is to learn as much as you can about your market in different areas. In 2004 for example, Samsung entered into a formal CPFR Agreement with the electronics retailer, Best Buy in North America. Five years later, the two companies mounted a joint launch into the lucrative Chinese market – agreeing to support and assist each other along the way. Practices like this have enabled Samsung to span the globe.
3 – Publicising green credentials
How do you compete with the touchy-feely image of a brand like Apple? The answer: go green. Sustainability, compliance with globally recognised environmental best practices, setting green requirements for your partners. It all features heavily on the Samsung official website. These are all the types of things that certainly don’t do any harm in tempting would-be Apple customers away from their beloved brand.
The next stop for Samsung in 2013? We’re already buying the products. Don’t be surprised if we see a concerted effort to try and personalise the company.
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