Category: Samsung

Executive Summary

The report has presented financial performance of Samsung Electronics Co., Ltd. The analysis reveals that the smartphone giant has started to recorded negative trends in its performances. Total revenues and profits for the fiscal years 2013 and 2014 have shown significant declines. For instance, revenues dropped by 9.83% while operating profit also reduced by a significant margin of 31.97%. Analysts have observed that Samsung will continue to face difficult market environments as Chinese manufacturers flood the market with cheap products. In addition, the company has recorded low operating profits because of high-level of inventory and related costs, as well as low demands. Samsung is however still a profitable company.

Introduction

The purpose of this report is to present financial analysis of the performance of Samsung Electronics Co., Ltd. It includes financial reports highlighting trends in performance using appropriate and relevant ratios analysis techniques, and non-financial performance indicators by designing a balanced scorecard covering two perspectives, analysing the two balance scorecards and an evaluation of the technique used. Samsung Electronics is the largest South Korea’s electronics company, specialising in various types of consumer devices, such as household appliances, IT and mobile communications and device solutions. The company has a global presence.

Comparison of Latest year Results with the Previous Year Results (Horizontal and Vertical analysis)

Samsung current state of financial results is disappointing. While it is the largest smartphone manufacturer in the world, the company has faced many challenges in the last two fiscal years, experiencing dwindling revenues and earnings. In the fiscal year 2013, for instance, the company had better result relative to the fiscal year 2014.

Despite shipping more smartphones during the year 2014, the revenue from the mobile division continues on its downward trend, threating the corporation. Operating profit also dropped from KRW 36,785 billion to KRW 25,025 billion. In fact, analysts believe that the future will be challenging for the giant (McCormick 1).

Nevertheless, the company asset size slightly increased.

Ratio Analysis of both Latest and Previous Years

Liquidity

The current ratio for the fiscal year 2013 and 2014 presented shows that Samsung has a ratio above 2. In this case, Samsung can sufficiently fulfill its short-term obligations as required when they are due.

Users of financial statements can rely on this ratio fast to evaluate financial health of Samsung. Notably, a higher ratio is better because it shows that the company can pay off its debts without financial difficulties. This means that Samsung has a significant part of asset values to its total current liabilities.

Samsung has also maintained a quick ratio beyond 1.6 in the analysed financial years of 2013 and 2014. As such, Samsung can meet its short-term debt obligations when they mature for payment.

Notably, both quick ratio and current ratio have improved marginally to boost the overall liquidity of the company.

It is imperative to recognise that ratios below 1 should be a source of concern for any company regarding its liquid assets and its position to pay off current liabilities. Samsung, based on these ratios, is therefore capable of meeting its short-term obligations whenever they fall due.

Solvency

Samsung equity ratio shows the fraction of assets funded by investors when total equity is compared to total assets. This ratio declined from 0.02 to 0.01 between 2013 and 2014. The ratio also helps in assessing how leveraged Samsung is when assets financed by debts are analysed. Today, Samsung dependence on investors to fund operations is satisfactory at that rate since higher ratios are not beneficial to the company.

The financial leverage ratio for the company declined from 1.48 to 1.42 between 2013 and 2014. This ratio shows that Samsung has not been aggressively using debts to fund its global operations. As such, the company does not have volatile earning situation in which additional interest expenses consume profits. Moreover, a higher ratio enhances chances of bankruptcy and default. Generally, a ratio above 2 should be a cause for concern for the company, investors, and creditors.

Working Capital Management

Samsung inventory turnover is about 7. Conversely, Apple, Inc. has an inventory turnover of 83.45 and 57.94, Nokia has recorded about 6.29 and 6.82 while Huawei Technology Co Ltd inventory turnover ranges between 5.30 and 4.98 for the fiscal period 2013 and 2014 respectively.

Low inventory turnover is a sign of inefficiency because it is associated with the rate of return of zero. It shows poor sales or too much inventory, possible overstocking, poor liquidity and/or obsolescence. However, it could also reflect material accumulation to manage possible shortage. In the case of Samsung, its inventory turnover nearly matches some of its competitors, but not Apple, Inc.

High inventory usually reflects strong sales, and better liquidity.

From the analysis, Samsung’s ratio ranges between 48.88 and 51.86 Day’s Inventory for the fiscal year 2013 and 2014. This means Samsung has adequate inventories to last the next 51.86 days. Alternatively, Samsung will turn its inventory into cash in the next 51.86 days. For the same periods, Apple, Inc. had Day’s Inventory of 4.37 and 6.30, Nokia recorded 58.04 days and 53.48 days while Huawei had 68.89 days and 73.35 days. Based on this industry figures, the length of days could be longer or shorter, but there is no specific Day’s Inventory for the industry.

Profitability

Net Profit Margin for Samsung declined from 11.32 to 9.72 between the year 2013 and 2014. This ratio has significantly dropped. Nevertheless, Samsung makes some profits for investors once all expenses, including operating costs, taxes, and preferred stock dividends have been paid. The ratio indicates that Samsung adequately generate profits for investors, but the decline points towards tough future.

Return on Assets ratio shows a decline from 13.11 to 9.02 between the fiscal period 2013 and 2014. Samsung is now generating almost 9 cents from every KWN held in assets.

Samsung return on equity ratio has dropped from 19.82 to 13.09 in the financial year 2013 and 2014 respectively. The dropped in the ratio is a bad indicator because the company would generate less revenue from its investments.

Asset Efficiency

As can be observed, Samsung asset turnover ratio declined from 1.16 to 0.93 for the two fiscal periods. This implies that for every KRW in assets, Samsung only generates some 0.93 cents. That is, Samsung is not effective in using current assets to generate revenues. Conversely, fixed assets turnover ratio also declined from 3.18 to 2.64 in the same period. Samsung gets about KRW 2.64 from its fixed assets. Investors may be keen on the use of specific assets, including fixed assets to generate revenues.

For Apple, Inc., the asset turnover dropped from 0.89 to 0.83, fixed assets ratio also declined from 10.67 to 9.82 during the same periods. Nokia fixed assets turnover is 12.73 and 19.86 with asset turnover of 0.46 to 0.55, and Huawei fixed assets turnover ratio was 2.71 and 2.69 while asset turnover was 0.48 to 0.50 for the fiscal period 2013 and 2014 respectively.

These ratios show that different companies in the same industry use their assets in various ways to create efficiency. Hence, it is difficult to have a specific figure for the industry.

Comparison with Industry Average Figures as Available

As previously noted, ratios vary from one company to another within the same industry. In this case, three major competitors of Samsung, including Apple, Inc., Nokia, and Huawei have been used with the aim of comparing performances.

Apple, Inc. has far much better ratios relative to Samsung. For instance, its profitability ratio (net margin for fiscal year 2013 and 2014 are 21.67 and 21.61 respectively) is relatively high. In addition, other ratios also demonstrate similar superior performances. On the other hand, one can compare Samsung to Nokia and Huawei because these companies almost have same ratios in most instances. Still, ratios may differ significantly based on other variables. For instance, Nokia net margin ratio moved from 27.19 to 19.73 while Huawei ratio changed from 7.11 to 7.21 in the fiscal years 2013 and 2014 respectively. This implies that specific company variables significantly influence financial performance of firms within the same industry.

Discussion of the Performance of the Company

Samsung has experienced a decline in sales and profit between the fiscal years 2013 and 2014. The smartphone giant has seen its total sales revenues decline by 9.8% from KRW288 billion to KRW206 billion. At the same time, operating profits recorded a larger drop, with 2014 figures coming in at KRW 25 billion relative KRW 36 billion recorded in 2013, down 31.97%.

In fact, many analysts believe that Samsung will continue to experience major declines (Mundy 1; Triggs 1). The company and its investors have been anxious about future profits. Specifically, the IT & Mobile Communications Division, which handles the smartphone segment, has recorded the worst decline.

Samsung observes that its second quarter of the fiscal year is normally characterised by low demands. Nevertheless, some factors appear to have made the year particularly challenging for the giant. The company acknowledges that tablet sales have dropped. Its inventory level is high specifically in the EU. As such, shipment and sales have been poor. In fact, mid and low-end products were specifically affected due in part to enhanced price competition from low-end Chinese smartphone makers.

Further, the company continues to experience declining sales from display panel division because of reduced prices occasioned by low television demands and oversupply of such products by Chinese rivals, who seem not to pay much attention to profits (Mundy 1). Samsung inventory costs associated with smartphones have also weakened its operating profits.

Amidst these declines in revenues and profits, one must remember that Samsung is still a profitable company. In addition, Samsung is optimistic that its revenues and profits will grow once it launches new products into the market (Triggs 1).

Designing Two Balanced Scorecards for Directors and Managers

Samsung strategic vision focuses on new technology, innovative products, and creative solutions to inspire stakeholders.

The training perspective of the balanced scorecard strategic goal is to enhance employee efficiency at Samsung. Employee efficiency will lead to direct organisational operational excellence. To attain the strategic goal of employee efficiency, this component consists of outcome measures that focus on employees with the aim of advancing their skills and competence. In this regard, key performance indicators (KPIs) used focuses on the role of directors and managers to instil a culture that encourages collaboration and learning among employees (Kaplan and Norton 1).

Objective: to improve employee training and knowledge acquisition

Outcome measures (KPIs): enhanced access to information and knowledge, availability of resources to promote learning, innovative practices reflected in new products, and new creative solutions delivered by employees.

The internal process perspective sets a strategic goal of attaining operational excellence based on continuous efforts to perform better, delivery innovative solutions and products for the public. Employee efficiency will be responsible for driving internal process perspective and change all measures in this perspective. The outcome measures for the internal process reflect efficiency while KPIs assess effectiveness, prompt, innovative capabilities, and most importantly, relationship with stakeholders.

Objective: to establish a dynamic company

Outcome measures (KPIs): understand needs of customers and other stakeholders, adoption of modern technologies for service delivery, encourage access to information, and internal efficiency in service delivery.

The directors and managers would use the balance scorecard to quantify impacts of each objective and related KPI based on the realised strategic goals of Samsung noted in each perspective.

The company will conduct survey to collect useful data on performance and analyse them to determine the overall relevance of KPIs in realising the major goal (Anthoula and Alexandros 72-76).

Discussion of the Advantages and Limitations of the Ratio Analysis and Balance Scorecard

It is acknowledged that ratio analysis is an imperative tool for understanding financial statement. It therefore offers some distinct advantages to users. Ratio analysis simplifies contents of financial statements for users without technical accounting backgrounds. These ratios assist organisations to compare and understand performance among companies in the same industry as they strive to demonstrate financial health of a company. They are also imperative for trend analysis and help users to judge the company without tedious processes of evaluating the entire statement.

Despite the importance of ratio analysis, it has some inherent limitations. Ratio analysis fails to account for unique operating conditions, including markets, regulations, and geographical differences among others. These factors vary significantly for every company and, therefore, comparison could be misleading. Estimates and assumptions are adopted in financial accounting information. Besides, different accounting policies are used, and they can significantly limit comparison, making ratio analysis irrelevant for comparisons. Finally, ratio analysis does not give current or future information about the company.

The balanced scorecard offers a balanced assessment of performance, as well as a complete picture on customer, financial, employee training and process performance. It assists an organisation to assess possible immediate solutions for weaknesses identified. As such, it can help in setting short-term and long-term performance objectives. Finally, it helps organisations to set strategic goals and actions with preferred outcomes.

Conversely, as an accounting tool, balanced scorecard has some limitations. The tool is subjective and difficult to implement because of the four broad areas. Financial elements found in the metrics are limited. As such, economic value and risk management are not captured while it leads to additional reporting. Finally, designing the most effective metrics for a company could be a daunting task. Consequently, firms may not designing their own metrics for specific environments.

Conclusion

The report covers financial analysis of Samsung. It shows that the company has started to record declining total revenues and profits when performances for the fiscal period 2013 and 2014 were compared. These challenges have been generally attributed to fierce competition from cheap Chinese manufacturers, high levels of inventory, high costs of inventory and declining market demands and prices. As such, Samsung now faces challenging periods ahead. It is however imperative to note that Samsung is still a profitable company despite such financial performance challenges. Although the company’s financial performance can be compared against the industry peers, there is a general lack of uniformity on performances based on the ratio analysis.

Nevertheless, Samsung should continue assessing its performances using financial ratio analysis and balanced scorecard to understand its performance across various segments.

Works Cited

Anthoula, Kladogeni and Hatzigeorgiou Alexandros. “Designing a Balanced Scorecard for the Evaluation of a Local Authority Organization.” European Research Studies 14.2 (2011): 65-80. Print.

Kaplan, Robert S. and David P. Norton. “The Balanced Scorecard—Measures that Drive Performance.” Harvard Business Review. 1992. Web.

McCormick, Rich. “Samsung sales and profits down despite Galaxy S5 launch.” The Verge. 2014. Web.

Morningstar, Inc. Samsung Electronics Co Ltd. 2016. Web.

Mundy, Simon. “Samsung disappoints as tech sector slows.” Financial Times. 2016. Web.

Samsung Electronics Co., Ltd. 2014 Samsung Electronics Annual Report. 2015. Web.

Triggs, Rob. Samsung posts Q2 2014 earnings report – mobile division as poor as anticipated. 2014. Web.

Abstract

This report covers operational issues of Samsung Group and Al-Bilad Arabia Company Ltd (ABA) from a cultural perspective. Samsung is headquartered in South Korea, where the protestant’s culture thrives. ABA is headquartered in Arabia where the Islamic culture flourish. ABA faces operational challenges that arise due a high power distance score, which is a product of the religious culture of the residents.

Samsung Group, on the other hand, faces problems related to low power distance score. South Koreans appreciate the role of democratic rule. Theories and models of leadership indicate how each of the companies is managed in the culturally different atmospheres.

Report on Management Styles in Different Cultures

Societies have different cultural value systems. Culture is a code of norms, values and attitudes that determine the way people think and act. Social culture commonly develops into corporate culture, which is a combination of organizational and national /regional culture. International companies meet operational problems related to culture when performing their daily business operations. The problems commonly arise due to differences in power distance score (Kondra and Hurst, 2009).

Samsung Group faces exceptional operational challenges that arise due to the influence the Protestants’ culture. It uses democratic management methods to solve them. Al-Bilad Arabia Company Limited (ABA), on the other hand, is managed using traditional leadership styles such as the autocratic method. The styles are relevant due to the influence of the Islamic religion in Arabia.

Al-Bilad Arabia Company Limited (ABA) is headquartered in Arabia and has international business links. ABA is a leading IT service provider in Saudi and the neighbouring GCC countries. However, it also trades in gas, oil, and other forms of fuel. The company was founded in 2002 and has excelled in executing SAP projects. As a result, it built a SAP Support and Delivery Centre in Al-Khobar in 2009 to support customers in the area.

ABA built the facility because it recognized the different cultural needs of the people. It, therefore, took the opportunity to use the facility in managing the diversities effectively. According to the company, it can use its effective strategy, understanding of the market, and experience of the business needs in the region to accomplish two things. First, it can use the information to deliver its promises and, second, to maintain its position as a market leader (Chilmeran and Guyon, n.d.).

Samsung Group also has a unique background. The Group is headquartered in Samsung Town, Seoul, in South Korea and has affiliated businesses and subsidiaries internationally. It was founded in 1938 and has increasingly globalized its businesses. Currently, mobile phones and semi conductors are its most essential sources of income.

The Group has influence on South Korea’s economy, culture, media, and politics. Therefore, it believes that it is digital leader, responsible global citizen, multi-faceted family, and an ethical business. The corporation has developed an approach of trading that ensures it contributes more effectively in creating a better world (SAMSUNG, n.d).

Both Al-Bilad Arabia Company Limited (ABA) and Samsung Group are international companies. However, each of them has exceptional operational issues to handle, depending on the cultural issues in their areas of operation. Majority of ABA’s clients profess the Islamic faith, and the religion determines the community’s acceptable corporate culture and methods of management.

Hofstede calculated power distance scores for different countries and discovered that most countries in the Middle East have very high scores (Hofstede, 2001). High power distance scores imply that inequalities of power and wealth are accepted within the community. Islamic teachings emphasize on the need for expressing respect and loyalty towards leaders, which the locals fully embrace.

Therefore, ABA faces culturally related challenges when dealing with communication, competition, recruitment, and customer care matters. The management has to develop appropriate methods of communicating with junior staffs to trade successfully. The culture may become a communication barrier and lead the company to be unproductive, if it is poorly managed (Adler and Elmhorst, 2012). Moreover, the culture gives more authority to men than women.

The company has to employ a high number of men in managerial positions to compete effectively with similar companies trading in the region. At the same time, it needs to give special attention to its customers’ care system by being gender sensitive while employing staffs. The Group should also solve challenges relating to methods of communication with customers depending on ages and social status.

Notably, most of the challenges that Al-Bilad Arabia Company Limited (ABA) faces are related to Hofstede’s theory of power distance score (Hoftede, 2001). The company uses coercive style of leadership. The management system empowers supervisors to enforce company rules accordingly.

It also gives them power to instruct employees to respect the company and its managers. The company provides clear directions to all subordinates on what to do. Moreover, it keeps detailed reports to maintain tight control over workers. By implementing these rules, ABA uses the coercive leadership style to solve some of the cultural operational issues it faces.

However, it has also adopted the authoritative leadership style to take advantage of employees’ management skills tactfully. The company solicits some subordinate input in decision-making. However, it remains firm but fair when delivering orders and directions. Its managers balance positive and negative feedbacks but dominate team-members and use unilateralism to achieve team objectives. The leadership styles help the company to respect the society’s culture and identify with the customers’ needs.

Samsung Group and ABA encounter distinctive operational issues. However, the issues reflect on the culture of the society in which each of the two companies operate (Schmenner, 1998). Residents of the area in which Samsung Group operates accommodate the freedom of worship and democratic leadership.

Christians began to establish their presence in South Korea in 1794. Some protestant Christian missionaries later entered into the country in the 1880s. Moreover, other religion groups, such as Shamanist, Buddhists, and Muslims, have since established their presence in the country (South Korea-RELIOGION, n. d.). The idea of power in the country is based on the protestant ethic that emphasises on equality of people.

Consequently, Samsung Group faces problems when managing customers who embrace anti- democratic rule cultures. The Group also has problems managing supplies from such cultures. It cannot use local styles top manage customers and suppliers who do not believe in democratic leadership.

Besides, the company has problems in handling communication hierarchies while dealing with employees. The challenges are unique and require solutions that are relevant in solving issues related to the community’s cultural aspects. Since Samsung Group has survived stiff competition from Apple and other giant global businesses, it is correct to note that it uses appropriate management styles. These include coaching and modern democratic styles.

The company implements the democratic styles by rewarding adequate performance and avoiding punishing offenders or giving negative feed back. It also encourages subordinates to take part in management through offering to advise the management. The company sometimes implements the coaching method, as well.

It implements the method by asking subordinates to set their own goals, identify problems, and solve them. The two methods are effective in managing companies that operate in self-governing cultures, such as in South Korea where Samsung Group operates (Kim, 1998).

Samsung Group and ABA has certain conflicting issues relating to cross cultural management. The two companies utilize different methods to solve similar issues. To enhance communication, ABA has adopted a system that recognises the seniority of employees. It has an effective chain of command that serves the whole organization and its customers.

In 2009, it built a SAP Support and Delivery Centre in Al-Khobar to address the needs of customers in the region (Chilmeran and Guyon, n.d.). This shows that the company has a management structure that recognizes the role of customer support departments. Moreover, it has a president and chief executive officer who is the final decision maker.

Further, ABA has supervisors who interact freely with employees to ensure that the team produces the right quality and standard of IT and fuel products. The effectiveness of the company’s operational style, management structure, and corporate cultures are evident by studying its mode of operation. The theory of management states that the autocratic leadership and management style is more prevalent in the Muslim nations than in the democratic nations, such as South Korea or United States.

Samsung Group employs different strategies to manage its operations, communication and cross culture related issues. Evidently, it does not use the autocratic leadership style since, according to research, only the Muslim nations appreciate the style (Schmenner, 1998).

South Korea appreciates the democratic culture and, therefore, Samsung Group operates in the country by observing it. Unlike ABA, the Group operates without setting systems that recognize the seniority of employees. It understands that all employees are equal. The Group’s employees, therefore, form part of its management. However, it employs senior managers and has an operational chain of command. Some of the senior managers are in Samsung Town, Seoul.

They handle both local and global operational issues. However, the Group’s chain of command is for convenience, as the staffs take part in the democratic leadership system. The company solves cross-cultural differences using democratic methods, in which individual preferences are highly respected. It accommodates everyone’s interests, as along as business operations remain unaffected negatively.

This is in contrary to ABA’s system where managers have authority to give directions as they think appropriate, since it is culturally accepted. The Samsung Group also does not necessarily impose gender related restrictions when carrying out recruitments or procurement procedures since it is against its culture.

There are key cultural differences in the two companies. ABA believes that managers have the ability to instruct employees to accomplish tasks successfully. Samsung Group does not believe so. It believes that managers and employees should work together and achieve excellent results. The Group also believes that individual interests should be respected while the former believes religious teachings are more significant than individual rights (Schmenner, 1998).

The differences have led to developed of varied management structures in the two companies. ABA has a bureaucratic management structure that has respect for merit and well-defined duties and responsibilities (Schmenner, 1998). It also has a hierarchical structure. On the other hand, Samsung Group uses a functional structure, in which employees are grouped according to their level of expertise. They govern themselves and endeavour to produce standardized iPods and phones, among other products.

Cross-cultural management is essential in the current globalized market. It is imperative that the world is set to witness people from different cultures increasingly trading together. Global companies must lean to manage cultural differences effectively. ABA can increase its prospects in the market by opening SAP Support and Delivery Centre branches in other regions.

Moreover, apart from implementing autocratic and coercive leadership styles, it should implement the democratic style, at least partially. This style is effective in helping all stakeholders to feel recognized and respected. As a result, it may help the company to increase its chances of making higher profits.

Another recommendable way of increasing profits is changing management structure. The bureaucratic structure is essential in controlling production, as the management holds all the necessary information. However, ABA should use the coaching method to give employees the opportunity to use their innovation skills. Its information technology products may be out dated in case it fails to act accordingly.

In the same way, Samsung Group should improve its methods of managing cross-cultural differences. The company uses both coaching and democratic systems, which are useful in the modern world. However, while trading with Muslims, it should use the authoritative or coercive method. The traditional methods are still popular among Muslims, in particular.

It should empower its officials to take control of new recruits in Islamic regions, instruct them to obey the chain of command, and be hard working. The company should also improve its management structure by creating modern quality management systems. This will ensure that company safeguards its assets from staffs harbouring intentions to misuse the democratic space in undermining efforts of the business to increase quality and productivity.

References

Adler, R., & Elmhorst, J. (2012).Communicating at Work: Principles and Practices for Business (11 ed.). S.l.: Mcgraw Hill Higher Education.

Chilmeran, T., & Guyon, S. (n.d.). Albilad. Albilad Arabia Co. Ltd.. Web.

Hofstede, G. H. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations (2nd ed.). Thousand Oaks, Calif.: Sage Publications.

Kim, Y. (1998). Global Competition and Latecomer Production Strategies: Samsung of Korea . Asia Pacific Business Review, 4(2), 84-108.

Kondra, A., & Hurst, D. (2009). Institutional Processes of Organizational Culture. Culture and Organization, 15(1), 39-58.

SAMSUNG. (n.d.). Smartphones, Cameras, Laptops, Refrigerators. Retrieved from https://www.samsung.com/hk_en/aboutsamsung/home/

Schmenner, R. (1998). On Theory in Operations Management. Journal of Operations Management, 17(1), 97-113.

South Korea – RELIGION. (n.d.). Country Studies. Retrieved from http://countrystudies.us/south-korea/43.htm

Abstract

In business, a company’s ability to innovate is recognised as one of the greatest determinants of the future success of a business (Popa, Preda, & Boldea, 2010). The concept of open innovation refers to the strategies applied by various companies for the purpose of improving their operations, processes, services, and products (Raja & Sambandan, 2015). The popularity and use of open innovation have increased due to the intensification of competition in different markets and industries. Attempting to stay at the top of the competition, the companies are forced to adapt to the rapidly changing business environments and generate change and innovation on a regular basis. The purpose of this paper is to compare and contrast two companies that are choosing to employ different approaches to open innovation practised through the companies’ respective innovation strategies. The selected companies, Samsung Electronics and P&G, are large international corporations that have expanded globally and are known for their strong business presence and good brand reputation.

Introduction

According to Leger and Swaminathan (2006), “innovation can be defined as all the scientific, technological, organisational, financial, and commercial activities necessary to create, implement, and market new or improved products or processes” (p. 1). However, regardless of this clear and recognised definition, the concept has a diverse nature and can be understood in several different ways. In practical terms, the latter tendency serves as one of the major points of difference between the innovation strategies chosen by various businesses based on their vision of and approaches to innovation as a phenomenon. Today, a new form of innovation, known as open innovation, offers an approach that involves new resources as well as new perspectives on this concept and what it entails. Chesbrough’s definition of open innovation is based on the theory that in order to prevent the exhaustion of the internal resources, the leadership of a company is to engage the external opportunities of obtaining creative ideas, new technologies, and innovative projects (as cited in Di Minin et al., 2016). In other words, a combination of the ideas generated both internally and externally is viewed as an optimally efficient approach referred to as open innovation. There exist a variety of ways in which this approach could be employed by contemporary businesses. This paper will review and compare two of such strategies used by two different companies – Samsung Electronics and P&G. First of all, an introduction of the two companies and their businesses will be provided, followed by the respective descriptions of the open innovation strategies employed by both manufacturers. Secondly, the similarities of and contrasts between the two strategies will be pointed out with the help of analysis of the open innovation strategies chosen by the companies, as well as the theoretical frameworks and knowledge to which these strategies apply.

The Two Companies

The primary objective of open innovation strategies is to encourage businesses to refer to a larger pool of resources while attempting to grow and expand. The two companies selected for this review are Samsung Electronics, a world-renowned manufacturer of electronic and digital devices, and P&G, a business specialised in manufacturing and branding versatile consumer goods. Both of the businesses are global companies with very strong reputations, functioning in highly competitive industries and successfully maintaining their positions at the top of the competition in their respective fields. Also, both of the companies are using open innovation in order to provide themselves with access to a broader scope of resources. However, the approaches employed by the two manufacturers are rather different.

Samsung Electronics’s Open Innovation

In particular, has developed a wide and diverse research and development network, Samsung draws ideas and innovative projects from the internalised resources (Kim, 2013). To be more precise, the company operates as many as forty-two research centers and facilities located all around the globe (“About Samsung,” 2017). The major function of these facilities is to generate creative ideas and serve as the sources of ongoing innovation for the company. One may criticise this approach and state that it does not qualify as an open innovation strategy because it centres on the ideas and projects generated from within the organisation and does not integrate the resources found externally. However, it is important to notice that research and development represent the expenditures that require a very heavy investment; in fact, Samsung is known to be among the most generous research and development spenders worldwide (and not only in the electronics industry) (Triggs, 2014). To be more precise, the amount spent on research and development at Samsung in 2014 reached 14 billion US dollars (Adnan, 2016). The total number of employees engaged in R&D practices for the company approximates 42 thousand people, thus making the research and development facilities some of the most populated areas of the organisation. In addition, Samsung recently initiated the CIT, an internal committee responsible for the promotion of collaboration with the external sources of innovation (Kim, 2013). In that way, the overall open innovation strategy of Samsung can be summarised as a centralised and focused network of specialised facilities developed and established specifically for the purposes of innovation.

P&G’s Open Innovation

At the same time, when it comes to the strategy employed by P&G, it has a more external orientation and is designed based on the operation of several innovation portal-sites using open networks and a “connect and develop” principle (Panduwawala, Venkatesh, Parraguez, & Zhang, 2009). In particular, using its open innovation strategy, the company relies on such resources as NineSigma, Yet2.com, YourEncore, and Innocentive (Kim, 2013). This strategy is designed to provide the company with creative projects and ideas upon request once there is a need for innovation or change in product design, marketing schemes, packaging, operations, or technologies. The resources mentioned above serve as the providers of connection between the company in need of innovation and creative teams of professionals. Interestingly, connect and develop model has been adopted by P&G several years ago after the company’s leaders made a decision to shift from the previous practice of research and development (Huston & Sakkab, 2006).

Comparison

The differences between the strategies used by the two companies lie in their orientation (R&D has a primarily internal focus whereas C&D is externally-centred), operations (R&D is usually based in brick and mortar research facilities, while C&D relies on the Internet as a source of connection and ideas). R&D can be viewed as an old-fashioned approach to innovation that requires a significant portion of the investment in the maintenance of multiple physical facilities and thousands of employees. C&D is lighter and more flexible, with this model, the research is generated by a network of specialised companies, thus allowing the user company leveraging the external ideas bringing them through their own labs as products. In terms of cost-effectiveness, R&D can be recognised as requiring more attention and finding than C&D. However, the effectiveness of the strategies is also evaluated based on the resources involved in the generation of innovation. Samsung’s R&D is controlled in a centralised manner, helping the leadership of the company organise the roles and goals of the research facilities worldwide. Also, it is suitable for the organisational culture of Samsung based on the Chaebol structure and encouraging a lower openness when it comes to innovation and change. P&G’s C&D strategy allows for about half of the company’s initiatives related to product design and marketing to come from the outside sources.

Comparing the two open innovation strategies, it seems possible to note that Samsung Electronics seems to be one step behind its Western counterpart P&G. In particular, the history of the adoption of innovation in these companies indicates that P&G has changed its approach, moving on from R&D strategy as a tactic that is no longer cost-effective. However, Samsung still relies on R&D and deems it a useful and viable strategy. It is possible that the leadership of Samsung has developed a complex and extensive network based on R&D; if that is the case, the potential adoption of C&D would be complicated by a common factor in innovation theory – the lack of readiness to shift to a new system (Wisdom, Chor, Hoagwood, & Horwitz, 2015).

Moreover, both C&D and R&D can use the chain-linked innovation model in which market research serves as the basis for the invention of a new design that undergoes testing and analysis, potential redesign and production leading to distribution and marketing (Leger & Swaminathan, 2006). However, the major difference is that when applied to the strategies used by Samsung and P&G, it can be seen that the latter company prefers to obtain needed inventions for their business improvement from creative teams working on the outside of the organisation. At the same time, it is important to note that market research conducted from within the company is still a factor by which the company’s leaders and managers arrive at the decision to implement some kind of change. As a result, the desired inventions and innovations being sought are not randomly generated but are specifically outlined by the company. In other words, P&G experts contact their open innovation channels with clear and detailed requests as to what kind of change or invention is needed. As for Samsung, all of the stages of the chain-linked innovation model seem to occur within the organisation’s extremely elaborate network of research centres. In accordance with this model, it is up to the company to decide whether the preferred source for innovative projects would be people who were specifically recruited for this purpose or unknown creative teams working online.

Both C&D and R&D rely on knowledge as a tangible commodity that is inherent in the skill levels of the employees or the people engaged in the development of innovation (Mytelka & Smith, 2001). Samsung’s products reflect the knowledge, experience, and professionalism of the people behind the innovative projects the company adopts. The company’s choice of R&D approach indicates that the company is oriented to emphasise awareness of what types of skills the employees in their centres possess, how (and whether) they learn and develop, and what kinds of skills are going to become essential in the future. At the same time, P&G prefers to trust outside creators when it comes to the necessary skills and knowledge.

In addition, it is important to mention that in the process of exploring the concept of innovation in general, various researchers approach this topic differently. In particular, contrasting perspectives treat innovation from the point of view of inventing new technologies and generating new knowledge or else as seeing innovation primarily as a process of adoption of new technologies and knowledge (Berglund, 2004). The two views emphasise different aspects of innovation – the creation of change and the adoption of change. In R&D strategy, the creation of change is the main purpose of a research department, while in C&D, innovative technologies and projects generated by outside agents are adopted by the company.

Conclusion

In conclusion, Samsung and P&G are two global companies using two different open innovation strategies. The former draws innovative ideas using C&D portals, and the latter relies on a specifically established network of 42 research facilities located worldwide. In other words, one may say that the approach of Samsung is similar to that of P&G but is based in brick and mortar centres instead of using the Internet as the major sources of connections. The leaders of Samsung have centralised control of their research facilities and can coordinate their actions and break down projects. To sum up, in terms of control, R&D is more beneficial, while C&D’s strength is cost-effectiveness and flexibility. Both strategies are strong and viable in contemporary markets and are based on the frameworks developed within the theory of innovation.

References

About Samsung. (2017). Web.

Adnan, F. (2016). Samsung’s R&D spending was over $14 billion in 2015. Web.

Berglund, H. (2004). Interesting theories of innovation: The practical use of the particular. Innovation Engineering and Management, 1, 1-22.

Di Minin, A., De Marco, C. E., Marullo, C., Piccaluga, A., Casprini, E., Mahdad, M., & Paraboschi, A. (2016). Case Studies on Open Innovation in ICT. Web.

Huston, L., & Sakkab, N. (2006). Connect and develop: Inside Proctor & Gamble’s new model for innovation. Web.

Kim, E. (2013). A case study about Samsung Electronics’s open innovation. Web.

Leger, A., & Swaminathan, S. (2006). Innovation theories: Relevance and implications for developing countries. Web.

Mytelka, L. K. & Smith, K. (2001). Innovation theory and innovation policy: Bridging the gap. Web.

Panduwawala, L., Venkatesh, S., Parraguez, P., & Zhang, X. (2009). P&G’s big stake in open innovation. Web.

Popa, I., Preda, G., & Boldea, M. (2010). A theoretical approach of the concept of innovation. Managerial Challenges of the Contemporary Society, 1, 151.

Raja, B. H., & Sambandan, P. (2015). Open Innovation in Pharmaceutical Industry: A case study of Eli Lilly. Web.

Triggs, R. (2014). Samsung Electronics is the biggest R&D spender in tech, 2nd overall. Web.

Wisdom, J., Chor, K., Hoagwood, K., & Horwitz, S. (2015). Innovation adoption: A review of theories and constructs. Administration and Policy in Mental Health, 41(4), 480-502.

Company’s Background

Samsung Company is a South Korean international corporation whose headquarters are located at Samsung Town in Seoul. The organization comprises multiple affiliate businesses that run on the Samsung trademark. Lee Byung-Chul established the organization in 1938. Initially, Samsung was a trading company. The corporation specialized in grocery farming and the production of noodles (Choi 374). It also sold dried food locally. Between 1938 and 1958, it used the Samsung Byeolpyo noodles logo, which represented its primary line of business. In 1947, the Korean War led to Lee fleeing Samsung Town, which resulted in the closure of the business (Choi 376). He opened a sugar refinery business in Busan. Later, Lee and Cho Hong-Jai, founder of Hyosung Group established a new business that became known as Samsung Moolsan. In 1951, the corporation split, and Samsung Moolsan transitioned to Samsung Group. The Corporation embarked on an aggressive diversification strategy resulting in it venturing into the electronic industry and shipbuilding business.

In 1968, Lee invested in the electronics business, culminating in the establishment of Samsung Electronics, which is a subsidiary of Samsung Group. In 1970, the company manufactured the first 12-inch black-and-white television set (TV) (Choi 381). It continued to look for ways to enhance the manufacture of TVs, and three years later, Samsung Electronics made a 19-inch TV popularly known as Maha 506. In 1978, the business became the global leader in the manufacture of television sets. The increased diversification of product lines led to Samsung manufacturing its first personal computer in 1983. The company’s objective was to become the leader in the electronics industry. In 1991, Samsung ventured into the mobile phone business. Investment in modern technology enabled the organization to produce the first liquid crystal display (LCD) screen in 1995 (Choi 385). After a ten-year period, Samsung became a leader in the production of LCD screens globally.

The organization’s logo has evolved. Today, Samsung has a blue logo that depicts consistency, steadiness, and corporate social responsibility. The corporation also has an audio logo. Samsung Company uses a unique font dubbed SamsungOne, which enables the organization to realize the steady and widespread visual distinctiveness of its products. The font was devised to be applied across Samsung’s different device portfolio. It made it easy for customers to read all Samsung products ranging from the smallest gadgets such as smartphones to the most massive electronics like refrigerators and TVs.

In 2004, the organization surprised the world by developing the first-ever 46-inch LCD television (flat screen). In 2007, Samsung realized the dream of becoming the global leader in the electronic industry (Pratiwi 47). In 2012, Samsung Electronics became the largest manufacturer of mobile phones worldwide. In 2017, the business continued to internationalize its electronics and activities. At this time, semiconductors and mobile phones are the significant sources of revenue for the corporation. Presently, Samsung’s brand value is ranked sixth globally.

Mission and Vision

Presently, Samsung Company has four primary product lines, which are mobile phones, television and home theatre, computing, and appliances. The business has a significant influence on South Korea’s politics, culture, media, and economic development. Jain and Kaushik argue, “Samsung has been a major driving force behind the “miracle on the Han River” (17). The corporation’s affiliates produce over 20% of the country’s total exports. Samsung’s vision is to inspire the world through the development of state-of-the-art products. The company’s mission is to stir up the universe through innovative designs, products, and technologies that improve people’s lives and promote social growth.

Works Cited

Choi, Philip PilSoo. “Evolution of Samsung Group and its Central Office: Imperfect Market and Capacity-Building.” Asian Business & Management, vol. 15, no. 5, 2016, pp. 370-398.

Jain, Hardik, and Shantanu Kaushik. “Making of Two South Korean Chaebols: Samsung and Hyundai.” International Journal of Advanced Research, Ideas and Innovations in Technology, vol. 4, no. 1, 2018, pp. 12-31.

Pratiwi, Detha Misgi. “The Influence of Brand Image, Brand Trust and Customer Satisfaction on Brand Loyalty (Case of Samsung Smartphones).” Journal of Berkala Ilmiah Efisiensi, vol. 15, no. 5, 2015, pp. 45-61.

Samsung Electronics is a South Korean-based multinational corporation focused on the production of electronics and technology. Samsung operates under the principled vision of ‘Inspire the World, Create the Future’. Based on McKeown & Durkin (2016), embraces the ‘know yourself’ principle. It has the ambition of being the leader in innovative technologies and solutions. It then evaluates its resources and possibilities and sets specific goals such as achieving sales goals and becoming a top 5 global brand in terms of value. Finally, Samsung recognizes its unique value proposition as being one of the best producers of electronics, because of its “operational excellence and innovation prowess” achieved through tremendous investment into research and development as well as quality improvements over decades on the market (Samsung, 2020).

Another major part of internal analysis that drives Samsung’s strategy is understanding its customers and competition. Despite the brand’s widespread recognition worldwide, Samsung earns just a fraction of its revenue from commercial product divisions. Its most profitable divisions are its core electronic components segments creating world class displays (ordered and used by many of its competitors) and chips which are in high-demand consistently (Lawler, 2021). Therefore, seeing this trend years ago, Samsung has reorganized to invest heavily into R&D and leverage its intellectual and technological resources in order to produce not only the high quality powerful electronics products that its customers enjoy, but also become a massive global supplier to other firms, charging a premium price. By doing so, it is able to attain its vision by changing the world through its technological production, but also achieving its financial and operational goals.

In the context of external analysis, based on the grid proposed by McKeown & Durkin (2016), Samsung is at the prime point, it is mainstream, in the mass market, and generally warmly perceived by customers. However, it is seeking to expand, to be at the very peak of being the hottest and most desired product available in its industry. While memory chips, displays, and mobile technologies are a major growth factor for Samsung, going forward into the next decade, it identified data and artificial intelligence as the primary engine of growth. Samsung will invest over $350 billion over the next 5 years into the strategic areas of artificial intelligence, semiconductors, and biotechnologies (Holt, 2022). It sees these areas of tremendous growth opportunities for both the company and the industry, once against operationalizing its vision of changing the world through technology and human innovation.

References

Holt, K. (2022). Samsung is investing $356 billion in chips, biotech and AI. Engadget. Web.

Lawler, R. (2021). Samsung earnings record fueled by chips, OLEDs, and foldables. The Verge Web.

McKeown, N. & Durkin, M. (2016) The seven principle of digital business strategy. Business expert express publisher.

Samsung. (2020). Vision 2020. Web.

Are you interested in understanding how the Six Sigma model can be applied to improve a company’s performance? If so, you might find it helpful to read this case study on Samsung’s adoption of Six Sigma in its supply chain. The case study provides detailed information on how Samsung implemented Six Sigma and its positive impact on the company’s operations and business performance. Read this report to gain insights into how Six Sigma can be effectively used to improve a company’s supply chain.

Introduction

Businesses are working toward limiting their operation costs to achieve competitive edge against competitors in their respective industries. One area where quality management has been focused on by organisations is supply chain management, which is considered as a perfect way of managing inventory.

Supply chain management has increasingly received recognition as a strategic means of re-inventing an organisation’s entire business operation and planning (Evans & Lindsay, 2008).

Samsung Group, which manufactures electronic components as well as financial and services corporation, has a complex global supply chain that has in turn integrated advanced planning mechanisms and scheduling. This report highlights on Samsung’s adoption of the six sigma model and how the company has used the model in enhancing its operations and general business performance.

Supply Chain Management Six Sigma Black Belt

The initial course in adoption of six sigma at the Samsung Group is the establishment of the methodology through a training program that lasts for four months. The training program mainly focuses on training and mentoring, and it is referred to as the Supply Chain Management Six Sigma Black Belt (Choi et al., 2012).

As part of the training programme, full-time training is offered for a period of one week each month for four months. This is supplemented by guiding of supply chain management Black Belts as appertains to their selected projects. Prospective employees at the Group have to finish three similar projects before receiving a supply chain management Black Belt full certification.

Leveraging of six sigma within the established human resource belt system enables Samsung to alleviate supply chain management talent shortage. This has been the most significant obstacle in improving the performance of supply chain management.

The anticipation of the Samsung Group is that the supply chain management six sigma will lead to enhancement of performance within the supply chain management function owing to greater understanding of the supply chain in general (Choi et al., 2012).

Samsung equally expects that its move to adopt the supply chain management six sigma will in turn lead to an improved Return On Investment (ROI). The existing training program is structured within Samsung’s Six Sigma Academy with the objective of developing talent, as well as future leaders at the company.

As Bae and Kim (2004) assert, the Group’s establishment of a Six Sigma Academy was done with an aim of educating employees and building up a team of specialists empowered with the ability to solve problems.

Samsung Six Sigma Supply Chain Management

Samsung’s Supply Chain Management Business Team drew up the main methodology that was used to develop the supply chain management six sigma at the company.

The eventual six sigma model that was adopted at Samsung was an integration of the various approaches that had been made at different companies. The companies that had successfully adopted and integrated six sigma included General Electric (GE), Honeywell, and DuPont.

Tailoring of Methodologies

GE’s most critical approach in adopting and implementing six sigma was based on tailoring the motivating methodologies in as far as specific needs together with characteristics of the business units were concerned.

Samsung’s Business Team focused its research on GE’s business, which in turn has taken six sigma’s process innovation generic methodology. GE has tailored the methodologies in such a way that they reflect specific needs in as far as product development activities and system plan and implementation are concerned.

GE medical system’s definition, measurement, analysis, design, and verification (DMADV), in particular, attempted to take into consideration the process redesign and process management within its six sigma model.

According to Hammer (2002), GE’s method and procedure attempted to move beyond the DMAIC that was originally designed for the development of high-quality products. The GE’s definition, architect, build, testing, and launching (DABTL) is an approach of the six sigma model that was designed for the development of systems.

Supply Chain Operations Reference (SCOR)

Samsung’s main reason for analysing DuPont’s six sigma approach and design was based on the company’s combination of its six sigma principles through the SCOR model. The SCOR model acts as a good model for enhancing communication amongst players in the supply chain management. The most integral management processes of SCOR include plan, source, make, as well as deliver, and return.

Burgess and Singh (2006) highlight how important it has been to use the SCOR framework in undertaking supply chain analysis. According to Burgess and Singh (2006), DuPoint’s six sigma utilizes the “function deployment tool (QFD)” as a quality tool for customizing services and processes to meet customer specifications.

Lean Methodologies

Samsung Business Team’s interest and focus on Honeywell mainly bordered around the latter’s extensive and successful application of lean operation methods. Honeywell’s successful development and eventual ownership of the Six Sigma Plus, also known as DMAIC, was the main influence behind Samsung’s decision to borrow a leaf from the firm’s approach.

DMAIC model utilizes functions of lead manufacturing together with six sigma concepts. Some of the commonly used lean manufacturing tools are the value stream and thought process maps (Flight Global, 2003).

The Samsung Business Team arrived at a decisive conclusion after analyses of the different six sigma approaches and models. This conclusion consequently led to the development of the supply chain management six sigma methodology at the Group.

The Samsung Supply Chain Management (SCM) Six Sigma

SCM projects to involve both design and improvement

Often, six sigma projects target to improve the performance standards of an existing system or redesigning the processes and systems. When talking about six sigma considerations and terminologies, redesigning of systems and processes are addressed through defining, measuring, analysing, improving, and controlling; DMADOV in short (Yang & El-Haik, 2009).

On the other hand, improving the performance levels of the existing systems is often addressed through defining, measuring, analysing, improving, and controlling, referred to in short as DMAIC.

According to the estimates by the Samsung Business Team, it anticipated that close to 75 percent of the supply chain management projects would involve redesigning, with the remainder of the projects focusing on process improvement.

After the above findings by the Business Team, Samsung resolved to adapt the extant approaches of its six sigma model, where both improving and redesigning processes were settled upon.

With the anticipated mix of projects as highlighted, this new approach pursued by the company closely supported process redesign compared to improving the processes, although it continued to incorporate other relevant elements that targeted process improvement.

DMADOV

This methodology proved to be inadequate in offering the necessary support that was required at Samsung in order to execute the whole range of the supply chain management projects (Yang et al., 2007). DMADOV’s origins are from the design of a product, with the basis of supporting projects within the supply chain.

However, its major variation is in the fact that the project team’s tasks would be to give specifications on how a suggestion on improvement would eventually be realised after conducting analyses. This is opposed to expecting the project team to optimise or focus on design as the case is with DMADOV (Yang et al., 2007).

System Development Option

It is common to realize successful system management following pursuant of six sigma projects under supply chain management. This calls for a new approach to be taken to facilitate processes that would realize successful system building.

Nevertheless, most projects undertaken to revolutionize supply chain management call for changes to be done in the current system. Consequently, it is important to have an approach in hand such that it is possible to come up with an alternative enablement activity that can see system implementation take effect.

DMAEV

Samsung pursued the DMAEV approach, where five design parameters including process, organisation role and responsibility, operation rule and policy, as well as system, and performance measure were incorporated within the six sigma model.

Other critical aspects that were also incorporated included the supply chain management-related methods of investment value analysis and process modelling, as well as the map techniques of the value chain.

Define phase

The phase seeks to name the entire project, with an inclusion of the problems that require being tackled, the goal and scope of the project, together with the expected outcomes and the project schedule (Kumar, Wolfe & Wolfe, 2008).

The initial step is identification of critical issues via the customer’s voice (VOC), together with the business’ voice (VOB). An analysis of the supply chain management’s related processes is also undertaken. As a result, the customer’s critical to quality characteristic (CTQ) is identified, while also determining the CTQ-dependent variable.

Measure phase

This phase determines the CTQ-dependent variable, establishes a different target level, while also finding the important explanatory variables. Other specific indicators are also identified after verifying the CTQ-dependent variable.

The indicators can substitute the dependent variable. The current CTQ-dependent variable is then measured before an enhanced target level of the same index is established. The potential problem causes of each of the five parameters are also deduced (Kumar & Sosnoski, 2009).

Analyse phase

At this stage, the hypotheses of the potential problem causes are generated and effectively evaluated in order to reject or prove them. Evaluation of the hypotheses considers both quantitative, as well as qualitative methods. Various statistical tools are used in the quantitative analysis, and they include ANOVA correlation, and Pareto analysis (Kumar, Strandlund & Thomas, 2008).

Qualitative analysis, on the other hand, makes use of process mapping, value stream maps, as well diagrams that reflect cause and effect. The objective of this phase is to decide on the vital few variation causes.

Enable phase

The various ways of improving the ‘as-is’ are identified in this phase, with a ‘to-be’ plan also drawn out. The use of qualitative function deployment (QFD) is undertaken at this juncture in order to pick on the subjects for improvement as appertains to the vital few variation sources. Detailed action items are also elicited for purposes of achieving improvement.

Verify phase

The final phase in this process seeks to establish a test plan, with the main objective of validating and verifying the solutions selected in the previous ‘enable’ phase (Kumar & Sosnoski, 2009). The change management plans, as well as control mechanisms are developed here before operationalisation of the optimal solution.

Supply Chain Six Sigma Application

Define

Investigations of the internal, as well as external business environments formed the basis of the VOC/VOB analysis at Samsung. A major aspect of the initial stages of the application involved identifying the project’s clients.

The external business environment turned out to be challenging as the devaluation of the local currency, the won, as well as a rise in the prices of crude oil offered challenges to the business operations for the company (Miltenburg, 2005). Additionally, Samsung endured a challenging moment as operation costs, particularly those related to holding surplus inventory, affected the firm’s profitability.

The company identified its business units, including planning and administration, top management, sales, purchasing, production, transportation, and global operation centre as the primary clients of the project.

The definition stage also involved identifying inefficiencies and problems that affected the supply chain management business processes. This involved production-related activities such as manufacturing and material purchasing, global operation activities such as weekly production plan, order fulfilment, and inventory management.

The sales activities included order management, forecasting, transportation, sales, and transportation. Up to eight inefficiencies were realised. They included lack of visibility in all the critical areas of process replenishment, forecasting of inventory and demand, packing and shipping, as well as weekly production planning.

From the above analysis of the VOC/VOB process, two probable CTQs were drawn out. They centred on demand stabilisation on the one hand, and inventory stability on the other hand (Miltenburg, 2005). Samsung evaluated the priority of the two aspects elicited in line with the VOC/VOB findings of the process analysis. This saw the development of a management process pegged on the inventory being settled upon as the CTQ aspect.

Measure

The surplus inventory rate’s baseline level was established at over 10 percent after making the appropriate definitions. This led to the establishment of a new target, which was put at 6 percent. The new changes required that Samsung reduces its surplus inventory by 42 percent.

Five design parameters that included operation rule and policy, process, performance measure, system, as well as organisational responsibilities and roles were established as the probable root causes of variation (Miltenburg, 2005).

A consideration of the project owners that also involved client groups’ representatives eventually settled on seven causes of variation. These seven causes encompassed the three critical parameters of role and policy, process, and system. Thus, the three parameters formed part of the variation sources.

Analyse

The selected variation sources had the respective data collected in order to enable the firm undertake an extensive data analysis. The results included both qualitative and quantitative analyses, including the inclusion of statistics, graphs, Delphi method, benchmarking, document review, and on site visit.

According to the data results that were obtained from the analyses, three variances exceeded the surplus inventory level, which was also established as the standard excess inventory management (Miltenburg, 2005). The factors were considered to have had a significant effect on the CTQ.

Enable

Out of the three vital few variance factors, Samsung came up with three probable solutions as a way of improving the supply chain management. Each solution had extensive improvement subjects that were elicited with regard to the established five parameters. The entire information was formulated via a quality function deployment, abbreviated as QFD.

Samsung thereafter used benchmarking to develop the three probable solutions of what it anticipated in solving the challenges it faced. The company determined how highly relevant a web-based user interface that had been designed for purposes of managing inventory turned out to be. This was with regard to the improvement subjects that had been identified in the quality function deployment.

Necessary changes were eventually designed and implemented using optimal solution. The basis for this included the five parameters that had previously been identified. An illustration on the ‘process’ parameter involved identification of all the processes that were listed for purposes of requiring improvement.

DABTL was employed in the case of the ‘system’ parameter in order to identify the system requirements, as well as architect, build, conduct tests, and operationalise the web-based system (Choi et al., 2012).

Verify

Pilot tests were carried out in two stages within the company in a selected business unit. The initial stage focused on providing proof concerning the applicability of processes that had newly been proposed, roles and responsibilities, rules and policies, as well as performance measure. The system’s pilot test did not feature in this initial stage.

In the second stage, all the improvement subjects that were linked to the previously established five parameters were piloted (Choi et al., 2012). The results of the pilot test saw a reduction in the range of 37 percent in as far as the level of the surplus inventory was concerned.

The actual changes in figures reduced to 6.5 percent from a high of 10.4 percent. The drop in inventory levels fell short of the anticipated target, but it saw associated costs drop to $1.9 million from a previous high of $2.7 million.

Samsung later developed a control and change management plan. The control plan comprised of performance indicators, such as inventory consumption rate, the methods that needed to be followed to control, the respective business unit that was responsible for every of the individual factor, and the necessary actions required for unexpected events.

In particular, the change management took into consideration important aspects, such as the critical success factors needed for systems to register success, training, communication among different groups, incentive systems, and ways through which potential conflicts could be resolved.

Conclusion

Samsung Group’s adoption and eventual implementation of the supply chain management six sigma was purposely meant to improve process and quality performance at the company. The company equally sought to synchronise its value chain with regard to inbound logistics and customer services, as well as sales in general. Samsung has attained growth and high levels of innovation by implementing the six sigma model.

The implementation of the six sigma model within the company’s supply chain management has seen Samsung reduce and eliminate costs that were previously associated with holding surplus inventory in some cases.

Another critical focus of the company even as it implemented the six sigma model was to produce workers with the highest skills and knowledge that could enable the company compete effectively in the market with its rivals. This has in turn created a deep knowledge reservoir in the company, which is used to equip employees for purposes of enhancing their performance going forward.

References

Burgess, K., & Singh, P. (2006). A proposed integrated framework for analyzing supply chains. Supply Chain Management: An International Journal, 11(4), 337-44.

Choi, B., Kim, J., Leem, B., Lee, C., & Hong, H. (2012). Empirical analysis of the relationship between Six Sigma management activities and corporate competitiveness: focusing on Samsung group in Korea. International Journal of Operations & Production Management, 32(5), 528-550

Evans, J. R., & Lindsay, W. M. (2008). Managing for quality and performance excellence, 9^th edition. Mason, OH: Thomson

Flight Global (2003). Honeywell proves benefits of strong business focus. Web.

Hammer, M. (2002). Process management and the future of six sigma. MIT Sloan Management Review, 43(2), 26-32.

Kumar, S., & Sosnoski, M. (2009). Using DMAIC Six Sigma to systematically improve shopfloor production quality and costs. International Journal of Productivity & Performance Management, 58(3), 254-273.

Kumar, S., Strandlund, E., & Thomas, D. (2008). Improved service system design using Six Sigma DMAIC for a major US consumer electronics and appliance retailer. International Journal of Retail & Distribution Management, 36(12), 970-994.

Kumar, S., Wolfe, A. D., & Wolfe, K. A. (2008). Using six sigma DMAIC to improve credit initiation process in a financial services operation. International Journal of Productivity and Performance Management, 57(8), 659-676.

Miltenburg, J. (2005). Manufacturing strategy: how to formulate and implement a winning plan, second edition. New York, NY: Productivity Press.

Yang, H. M., Choi, B. S., Park, H. J., Suh, M. S., & Chael, B. K. (2007). Supply chain management six sigma: a management innovation methodology at the Samsung Group. Supply Chain Management: An International Journal, 12(2), 88 – 95.

Yang, K., & El-Haik, B. (2009). Design for six sigma: a roadmap for product development. New York, NY: McGraw-Hill.