Samsung Electronics: Supply Chain Strategy

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Introduction

Globalization and the innovative growth of communication technology leads to the increasing number of competition in the industry. More companies join the international market to sell their products to new customers and purchase the necessary resources from global suppliers. Influential technological enterprises started to incorporate complex supply chain systems in order to facilitate the procurement of crucial materials and services for the production of new devices. Samsung is one of those companies that remains innovative in its supply chain management and introduces new concepts. It still manages to maximize the effectiveness of traditional procurement strategies and supply chain functions. The aim of the study is to develop a supply and procurement chain for the launch of Samsung Artificial Intelligence. The objective of the report is to forecast demand of the product and assess market needs for further analysis. The rationale for the study is to design both an effective procurement and supply chain strategy that is going to contribute to the successful launch of the product. The activities related to the study include making a strategic analysis for the development of the product and devising implementation systems as well.

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Background

Samsung Electronics is one of the most influential businesses that operates on multiple different continents and continues to grow in its size and product range. The company’s vision and mission statements reflect that it focuses on innovation of its technological products in order to improve the lives of people worldwide. Samsung identifies its mission as devoting “our human resources and technology to create superior products and services, thereby contributing to a better global society” (Martin, 2019). The company’s vision is to “inspire the world with our innovative technologies, products and design that enrich people’s lives and contribute to social prosperity by creating a new future” (Martin, 2019). The enterprise’s desire to ensure global societal improvement pushes it to establish high standards of quality and innovation. Samsung faces various strategic challenges while trying to accomplish its grand vision. Samsung Electronics establishes its core set of values in its annual reports and on the company’s official website. The conglomerate’s key values include excellence, people, change, integrity, and co-prosperity (Samsung, 2020). Co-prosperity refers to the company’s commitment to become a more socially and environmentally responsible corporate entity.

Samsung is now an international conglomerate that includes a number of subsidiaries. However, the company originated as a local grocery store in a South-Korean city called Taegu (Burris, 2020). Since Samsung’s start in 1938, the enterprise has expanded and entered an electronics industry in the 1960s (Burris, 2020). After its success in electronics, Samsung stepped into the telecommunications market. In the 1980s, Samsung started its international expansion and opened production sites in Europe and America (Burris, 2020). In 2017, Samsung “had more US patents approved than any other company, with more than 7,500 utility patents granted before the end of the year” (Burris, 2020). It is apparent that despite its small beginnings, Samsung grew to be one of the most prominent and influential companies in the world. Therefore, a new product launch needs to meet the public’s high expectations.

Samsung functions in a highly competitive industry that is full of new innovative ideas and exciting products. The conglomerate includes numerous affiliates, including Samsung Electronics (information technology software, electronic devices, and chips), Samsung Heavy Industries (ships), Samsung Engineering, Samsung C&T (construction), Chiel Worldwide (advertising), as well as Samsung Life Insurance (Martin, 2019). This report will focus on Samsung Electronics. The company’s main competitors are Apple Inc., Sony, Intel, and Microsoft. All of the aforementioned competitors expressed an interest in and invested in research of artificial intelligence.

Procurement and Supply Chain Strategy

Strategic Analysis

Strategic analysis of Samsung needs to consist of clearly identified steps in order to ensure the implementation of a supply chain strategy is evidence-based and fact-driven. Samsung’s objective implies the company’s leadership in the smart phone and electronics industries. In turn, Samsung can achieve top market positions by introducing a new innovative product that will generate profits and attract new customers. Artificial intelligence has the potential to become Samsung’s competitive advantage. The successful launch of the AI-powered product is dependent on the optimization of the company’s supply chain management systems. The device would target young consumers, who have not necessarily developed a sense of loyalty to Samsung’s competitors. Additionally, this customer group would not be too young because consumers need to have financial means to purchase AI-based, innovative products. Therefore, with its new device, Samsung would target twenty to thirty-year-olds who belong to the middle class. This way, Samsung Electronics could target young people using penetration pricing strategies and providing them with high levels of accessibility. Artificial intelligence would serve as a unique selling proposition.

Supply Chain Graphic

Supply Chain Graphic

Sourcing Strategy

Samsung Electronics’ sourcing strategy implies the assessment of the main issues and arrangements related to the procurement of necessary resources. Such resources can be tangible and refer to metal, plastic, and other materials that a device can consist of. If Samsung decides to combine artificial intelligence technologies with robotics, resources may include actuators (motion motors), batteries, chips, and an in-house machine learning (ML) platform to ensure the security of data (Parundekar, 2020). The intangible resources for the launch of the new AI-based product include Ml engineers, data scientists, and many others who work on the product. Also, the most important intangible resource for artificial intelligence is data. The report will focus primarily on the optimization of the supply chain management of physical resources.

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Samsung needs to opt for long-term strategic sourcing since it is one of the most effective ways for procuring and assembling the components for the development of the final product. In its supply chain strategy, Samsung needs to address distribution network configuration, production facilities, network mission of suppliers, customer expectations, location, and cross-docks (Kurt et al., 2016). As for sourcing arrangements, tactical sourcing cannot be applied in Samsung’s case because it is oriented on short-term results (Alfian et al., 2017). Strategic sourcing, on the other hand, serves as a preferable option since it allows Samsung to ensure the effective procurement of supplies from a number of different credible sources.

In terms of relationships, Samsung has to invest its time and resources into the process of building high quality, long-term business connections with suppliers. This will be more cost- and time-efficient for the company in the long haul because it will allow the best yields to be generated. Samsung also needs to undertake the relationship purchasing for the procurement of necessary supplies and functional components of the new product.

Strategy Implementation

Forecasting

Forecasting is detrimental for Samsung to successfully implement the right sourcing strategy. Firstly, it allows the company to make projections by analyzing the market and prospective customers. Secondly, forecasting ensures that Samsung evaluates the new product’s strengths and weaknesses. Making projections is an essential part of the development planning process for the continuous period of time. It helps to create strategies for further product designing, planning, configuration, and marketing. It is estimated by the time series analysis that the demand for the artificial intelligence will be grow approximately 105% in the United States. The demand for AI-based products will be particularly high among customers with relatively high income, including the countries such as the United States, United Kingdom, China, etc. Samsung can use different types of forecasting, including sales force estimates, visionary forecasting and market research (Abdel-Baset et al., 2019).

In order to define the type of demand, Samsung Electronics needs to make an analysis based on the sales figures and revenue potential. Demand forecasting is imperative to the overall profitability of the business. Making successful predictions regarding the demand for a new product or service leads to improved supplier relations, better allocation of resources, and the overall optimization of inventory levels. Based on the forecast, managers can improve the process of distribution planning and contribute to a better product lifecycle management. According to Saberi et al. (2019), forecasting allows companies to have fewer missed sales, more effective manufacturing, and higher service satisfaction. Additionally, it will allow Samsung to avoid unnecessary inventory expenditures.

Systems

The process of integrating a supply chain strategy requires a systematic approach, which is why Samsung needs to utilize systems in the management of supplies. Software and material handling are the most credible systems to be used for management of inventory and core materials (Koberg and Longoni, 2019). It is preferable for Samsung to use business resource planning to manage orders. Business resource strategy refers to the process by which the orders and supplies are handled in the most efficient way. It helps in streamlining the supply chain management by the creation of job scheduling. It contributes to generating product delivery dates, production timelines, and long-term schedules (Kuandee, et al., 2019). In order to build a resilient supply chain strategy, it is integral for Samsung to optimize its organizational structure and communication channels between the major departments. The benefits of a systematic approach include improved reporting, more focused IT costs, and improved collaboration. It can also facilitate better workflows, boosted cash flow, and overall better supply chain management.

Demand planning can be optimized using an enterprise planning system (ERP). The ERP system can help Samsung to predict forecast and stock requirements. It allows companies to predict consumer behavior and buying habits, which is helpful in regulating inventory levels. Samsung can use several types of inputs in order for the ERP to analyze the market and make predictions. Such inputs include historical sales trends, manufacturer forecasts, seasonal factors, and, most importantly, constraints. In order to make the ERP functions the most effective, Samsung needs to invest in frequent measurement and include external influences in the report.

Inventory Policy

Supply chain management faces a challenge in the unpredictability of demand and volatile markets. Therefore, inventory control is important to the implementation of an effective supply chain strategy. Controlling inventories needs to be processed with the help of appropriate legal policies that secure the established relationships with suppliers. Reorder points, Min/Max, Periodic order are some of the major inventory policies to be followed for the purpose of managing inventories. It is necessary for Samsung to acquire as much buffer stock as possible. Samsung Electronics can leverage its buffer stock in order to ensure the customers are duly managed. There is an independent demand for artificial intelligence because the novelty of AI generates desirability and exclusivity associated with the purchasing ability of consumers. As for dependent demand, it arises due to peer pressure and can be a result of reference groups.

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Samsung needs to conduct a thorough market research in order to make necessary projections and engage in forecasting. There should be research on the demand and market share for the purpose of estimating reorder quantities and buffer stocks. Additionally, it is extremely important to note that some of the resources required for the assembly and launch of the new AI-based product lend themselves to airfreight. Working with artificial intelligence requires Samsung to establish an in-house platform, which consists of numerous electronic devices. Such electronics often cannot be transported using traditional methods, and, therefore, require necessary logistics to deliver them to a production site. For that reason, Samsung should not only focus on establishing long-term relationships with suppliers, but invest in building connections with transportation companies.

Strategic Improvements/Next Steps

Firstly, Samsung needs to position its new product on the market. It has to differentiate its proposition among the increasing number of competitors. In this case, effective pricing strategies can help Samsung Electronics to gain a competitive advantage in the AI industry. Secondly, relationship transactions and unique operations need to be an integral part of the company’s supply chain management system. It should include a combination of core supply chain activities and innovative trajectories in order to be able to compete with other technological enterprises that develop AI services and products. Samsung’s long-term strategy should focus on building supply chain’s resilience and agility. It can be accomplished by gaining total visibility, continuous product planning, and proper pricing strategies. Lastly, Samsung requires revised direction for its supply chain operations and functions.

Conclusion

Samsung is one of the largest and most influential technology conglomerates in the world. It envisions itself as the international leader of innovation that would contribute to global societal improvement. Due to increased desirability of AI-based products by potential customers, Samsung Electronics could launch a new device that would operate based on machine learning technologies. Such large-scale production requires numerous resources, including data, employees, and basic materials. Samsung needs to optimize its procurement strategy in order to facilitate an efficient channel for acquiring the necessary supplies. The process of optimization implies the creation of a sourcing strategy and the analysis of possible challenges to its implementation. Forecasts demonstrate that the demand for artificial intelligence will grow. However, Samsung still needs to incorporate a systematic approach to making projections about consumer behaviors and market changes. Samsung Electronics’ long-term strategy should focus on building resilience and agility within the company’s supply chain management structure. This can be achieved through proper pricing strategies, ensuring beneficial relationship transactions with suppliers, and fostering innovation within an organization.

Reference List

Abdel-Baset, M. Chang, V., and Gamal, A (2019). ‘Evaluation of the green supply chain management practices: A novel neutrosophic approach’. Computers in Industry, 108, pp. 210-220.

Alfian, G., Syafrudin, M., and Rhee, J (2017). ‘Real-time monitoring system using smartphone-based sensors and nosql database for perishable supply chain’. Sustainability, 9(11), p.2073. Web.

Amron, A. (2018). ‘The Influence of Brand Image, Design, Feature, and Price on Purchasing Decision of Apple iOS Smartphone in Surakarta, Indonesia’. Journal of Social Scienes and Humanities Invention, 5(12), pp. 5187-5191.

Burris, M. (2020). ‘The history of Samsung (1938-present)’. Lifewire. Web.

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Koberg, E and Longoni, A (2019). ‘A systematic review of sustainable supply chain management in global supply chains’. Journal of Cleaner Production, 207, pp.1084-1098.

Kuandee, W., Nilsook, P., and Wannapiroon, P (2019). ‘Asset supply chain management system-based IoT technology for higher education institutions’. International Journal of Online and Biomedical Engineering (iJOE), 15(3), pp. 4-20.

Kurt, O. et al. (2016). ‘The role of mobile devices and applications in supply chains’. International Journal of Economics and Management Systems, 1.

Martin, V. (2019). ‘Samsung’s mission statement and vision statement (an analysis)’. Panmore, Web.

Parundekar, R. (2020). ‘The essential guide to creating AI products in 2020’. Towards Data Science, Web.

Saberi, S. et al. (2019). ‘Blockchain technology and its relationships to sustainable supply chain management’. International Journal of Production Research, 57(7), pp. 2117-2135.

Samsung (2020). Philosophy: Samsung spirit. Web.

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