Production and Operation

Management
LG

Submitted to: Mr. Ravi Kumar

Submitted by: Sainath.V
Reg no:Blr 0903031023
 Production and Operation Management 2009

Contents
Introduction......................................................................................................................................1
Executive Summary.........................................................................................................................1
Company Introduction.....................................................................................................................2
Awards And Recognition................................................................................................................3
Customer Relationship Management (Crm)....................................................................................3
Crm In Lg.....................................................................................................................................4
Supply Chain Management..............................................................................................................5
Advantages Of Having Supply Chain Management....................................................................6
Disadvantages Of Not Having Scm.............................................................................................6
Enterprise Resource Planning..........................................................................................................8
Advantages Of Having Erp..........................................................................................................9
Erp In Lg......................................................................................................................................9
Six Sigma.......................................................................................................................................10
Advantages Of Six Sigma..........................................................................................................11
Six Sigma In Lg.........................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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 Production and Operation Management 2009

Introduction

In this assignment I am going to analyze Supply Chain Management, Enterprise Resource

Planning, Customer Relationship Management and Six Sigma concept in LG company (Life’s
good). This assignment will help me to understand how an organization works efficiently with
help of SCM, ERP, CRM and Six Sigma and how important that factors in an organization. In
this assignment we will look how LG uses above factors efficiently and wisely and what are the
advantages company gains from the same.

Executive Summary

Firstly I analyzed about company and then Customer Relationship Management, Supply Chain
Management, Enterprise Resource Planning and Six sigma. LG has improved their relationship
between with the help of Customer Relationship Management and they have potential customer
details and they are able to access it at any time. CRM helped them to improve the sales by 2 %.
Supply Chain Management of LG tells that how to reduce the inventory cost and how to forecast
the demand and what are the ways to avoid Bullwhip effect. LG gives more important to Supply
Chain Management and they have unit manager for Supply Chain Management. It helped them
to increase the revenue and reduced the inventory cost by 1 %. LG started using ORACLE ERP
before a month ago and their strategy is to reduce the time. Company has competitive edge in
Enterprise Resource planning and LG insisted their suppliers to follow Enterprise Resource
Planning. ERP reduced their information time and order processing time. LG established Six
Sigma concept before 14 years ago and now company’s defect range is 3.4 % in 1 million
products. They are the first industry initiated Six Sigma in Asia Pacific and company has Master
belt certificate in some of the fields and company has 120 belts in overall. After analyzing this I
came to know that all the four components are very important for an every organization.

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 Production and Operation Management 2009

Company Introduction

LG electronics the global leader and technology trendsetter in customer electronics, mobile
segment, home entertainment and home appliances and expansion of LG is Life’s good.
Company has 112 operational units with 84,000 employees and 81 subsidiaries all over the
globe. LG comprises of five strategic business units (SBU) namely Home entertainment,
Business solutions, Home appliances, Mobile communications and Air conditioning. LG is
known trendsetter in electrics and electronic sector and company in one of the world’s leading
manufacturer of video commodities, Mobile handsets, Flat television, Air conditions and Audio
products. (Corporate overview, 2009)

LG market share in air conditioning, business solution and home entertainment is increasing
gradually it tells that company has large variety of product range and company has good
innovation technology and company is advanced in all aspects of technology. Company was
established in the year of 1958 in the name of gold star, 1995 company renamed its name as LG
then company acquired Zenith which is American based electronic organization. In the year of
2001 LG started manufacturing GSM mobile handsets and CDMA sets; Mr. Yong Nam is the
CEO and vice chairman of the organization.

Company’s management policy is to protect environment and to create cleaner surrounding and
make people happier. Company donates 1 % profit to Corporate Social Responsibility activities.

LG’s vision is entirely different from other organization’s vision and company’s vision is to
supply “top of the range innovative digital products and services and ensure consumer
fulfillment” (Our vision)

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Awards and recognition

 Company won 4 awards in 2009 from European Imaging and Sound Association (EISA)
 Company acknowledged CES innovation awards in fourteen field in the year of 2009
 Received Reddot design awards in 7 fields in the year of 2009 and selected as best of best
products.

Customer Relationship Management (CRM)

Customer Relationship Management is process to which is used to know more about customer
and consumer wants, needs and manners in order to improve good relationship between
Customer and organization. CRM assists business use technology and human resources to
expand approaching into the customer attitude and value of the consumer. [ CITATION Cus08 \l
1033 ] Advantages of CRM

 With the help of CRM company can adjust their level of service according to customer
expectation.
 CRM helps organization to treat each customer individually not by group
 Better customer can be achieved with this
 CRM helps organization to identify the potential customer by storing their information
 CRM boosts their business and helps to increase the revenue
 Importantly it helps to attain an organization strategy goal.

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 Production and Operation Management 2009

CRM in LG

As a part of Customer Relationship Management, LG electronics has opened Customer

Information Centre (CIC) to provide highest support and service to their customer. In 2004 they
established this at United Arab Emirates (UAE) and that was the first ground breaking building
customer relationships.

With the help of this any customer of LG can access these facilities from any part of the world
and it also works as company instant call centre and customer can have assistants in 10 different
languages like Hindi, English and Arabic Etc., Company CEO said that that is their breakthrough
in terms of Customer Relationship Management and with the help of this company provides
professional, standardized services to their customers. [ CITATION Cus08 \l 1033 ]

LG also guarantees eminence after sales services supports with a month assurance time period
and post repairs. Company gives great assurance to their products, if a company’s product fails
within a one month time period service team will repair the product free of charge and customer
can receive repair notifications via SMS alerts on their handsets. (Latest innovations at dealer
seminar, 2009)

Company’s primary objective is to maintain close relationship with customer; hence company
maintains their core objective with the use of Customer Relationship Management. LG’s core
strategy is to enhance the customer experience and customer value and LG Managing Director
for Middle East Mr. Y R Roh said that unlike other call centre their call centre people will take a
strategic approach and their customer information department will take a strategic move towards
call centre deployment.

LG expects nearly 180,000 calls to be generated in the year of 2009 and in this which can be
break into 84,000 inbound calls and 67000 happy calls and remaining 9000 calls will be call
back phones.

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Company going to launch specialized service centers for their computer segment and it will
provide dedicated and extraordinary services and benefits to their valuable customers. Mr. Omar
Choi, Unit General Manager for LG electronics said that company’s sales and revenue increased
by 2 % after establishing the Customer Relation Management centre. This tells us that
company’s profit is partially depends on Customer Relationship Management. This is the
advantage of having Customer Relationship management. (Building customer relationship, 2008)

Supply chain management

This is the pictorial representation of Supply Chain Management.

Supply chain is an efficient tool for business process development; it starts with the resource of
supply and ends when the consumer consumes it. Supply Chain Management includes the flow
of raw materials and getting information from suppliers of goods and from beginning to end a
number of value adding processes to distribution channels and to consumers.

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The ultimate aim of Supply Chain Management is to provide higher quality consumer service
and in the mean while cutting down the inventory cost and unit cost. Supply Chain includes

 Buying the products

 Movements of raw materials
 Organizing manufacturing
 Supplier management.

Advantages of having supply chain management

 Attaining a balance between costs and services

 Reducing manufacturing cost through SCM
 Developing relationship between Suppliers and buyers of the products
 Able to gain a competitive advantage

Disadvantages of not having SCM

 Increase in production cost

 Unable meet uncertain demand in the market
 Losing competitive advantages. (Supply chain management, 2000)

Bullwhip Effect

When the small change in customer demand it leads to bigger change in manufacturing unit this
is called bullwhip effect.

Symptoms of bullwhip effects are excessive stock of raw materials. Poor commodities forecast,
insufficient or excessive capacity utilization and poor services to customer. These are the effects
and symptoms.

SCM in LG had been started in late 90s. The company had practicing the concept of SCM since
long time and recently LG came up with new concept called Eco-supply chain. The company is
moving towards green revolution hence they started providing a certificate to suppliers and get
certifications from various green promotion organizations. LG make sure that the raw material
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 Production and Operation Management 2009
used from the supplier to the finished goods to the end customer is eco friendly. The SCM in LG
is more than a normal SCM, here the concept of eco-SCM is new to the world and acts as a
pioneer for the eco-friendly products. By introducing green program to the company and its
partners the company is getting the image in the public. The SCM in LG needs various manual
certifications in each stage of operation.

The SCM is implemented and then training is given to top management first and then training is
provided to the internal staffs and also for its partners like vendors and suppliers. After that the
company found to operate a smooth supply chain in raw material stage, work in process and
finished good stage. [ CITATION Ben08 \l 1033 ]

LG is one of the players in the competitive electronic market and there are lots of good
companies in the market and LG has competitive advantage in supply chain management. It has
competitive advantage in cost control because their inventory cost is very less. Their inventory
cost is less because they are placing fewer orders in order to reduce the cost of manufacturing.

LG avoids the cause of bullwhip effect by accurate demand forecasting, operating short lead
time, segmenting product line, reducing price fluctuation to local market.

LG has increased their productivity by 10 % with the use global Supply Chain Management and
company checks the current status of product shipment and company has lots of options to
reduce the inventory cost with the help of Supply Chain Management. Company maintains
“elasticity” and “Malleability” to match their supply and demand for their products. Company
still takes more initiatives to reduce the cost of manufacturing; inventory costs with the help of
Global supply Chain Management. Supply Chain analysts saying that LG supply chain is best
supply chain in electric and electronic industry next to dell. (Benefits of Supply Chain LG. 2009)

In LG management gives more important to Supply Chain department, in every unit company
has one supply chain manager and he or she is the full responsible of that unit supply chain.

In their company website they announced that company has reduced 1.8 % manufacturing cost
with the help of effective supply chain; hence company has effective supply chain and company
has competitive advantages in their filed and company stands number one position in the market
with the help of proper Supply Chain Management. Company forecasts very well and avoids the

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 Production and Operation Management 2009
bullwhip effect in supply chain. LG does regular market research for Bullwhip effect and
company uses the resource properly and wisely. [ CITATION Sup00 \l 1033 ]

Company believes in partnerships for better supply chain process and company has chosen
proper inventory control method to avoid excessive production cost.

Hence I came to know that in reducing production cost and improving productivity Supply Chain
Management plays vital role. If every organization use Supply chain Management they can also
reduce the manufacturing cost.

Enterprise Resource Planning

ERP is business term for the wide set of actions supported by multi module application that helps
the organization to manage various functions and manage with a particular software and stored
data with the help of memory. Various functions like purchasing, order placing, supplier details,
customer details, guest details in hotels and operations.

ERP also includes application modules like human resource management and financials.
Typically ERP system integrates with a relational database system.

ERP is a consistent platform it guarantees that there is no inconsistency in the information that is
processed in the organization. ERP is essential for every firm in the world to get competitive
advantage and it is necessary to train the people to use the ERP. In current scenario lots of
companies offers for every industry like ORACLE, SAP and RAMCO etc.,

Advantages of having ERP

 Every department can work independently and they no need to ask for help.
 Guarantees quick process of information flow in the organization.

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 Reduces the trouble of paper work.
 Serving the customers efficiently and provides prompt services to the consumer and
ensures that less error happens while processing information.
 It helps to gain competitive advantage.
 Easy to access the data in the system and user friendly
 Saves time.
 Stops stealing information
 Less human resource is required. (Corporate entity, 2007)

The most important advantage of Enterprise Resource Planning is its accounting applications.
ERP can integrate revenue information, profit analysis and cost of manufacturing and other
financials.

If a company wants to compete with global players, company should start implementing ERP. With use
of ERP any organizations can get reduce the cost and lots of time will be saved.

ERP in LG

Enterprise Resource Planning of LG gives clear idea about their operational strategy. Currently
company uses ORACLE ERP, they using this new ERP on August 2009.

In LG every year company spends $ 4 billion for their ERP implementation and giving training
for their workers. Previously company was using GXS ERP solutions for operations and to
consolidate their supplier information. Since 2001 company was using GXS ERP in their
company, with the use of that LG standing as an example of truly global organization.

They implemented ERP when they want to cut reporting and analysis period, improve
performance, and reduce maintenance costs and to achieve complete visibility into global stock
and marketing and sales costs.

After implementing ERP their company moved to third place in Plasma TV market, and they
positioned at 5 th place in cell phone segment. Company maintains their all information in ERP.
They are updating each and every outgoing and incoming raw material and finished goods &

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unfinished goods. Company sends message to every department with the uses of ERP and
company Chief IT Manager Mr. Wang said that by using ERP company reduced their order
placing times and order processing time and he added that now company are able to process their
order without errors.

Since LG is an electronic company they started using ERP before 8 years now company enjoys
the benefits of Enterprise Resource Planning. LG selected ERP very carefully because they had
higher scare of information stealing but after using ERP they are maintaining their information in
privacy. (ERP benefits, 2008)

There are some disadvantages in implementation of Enterprise Resource Planning said by Wong;
they spend nearly 2 months to train their employees and implementation ERP needs more money
than any other implementation. But after start using ERP Company gained their investment
within 2 years and it reduced the risk involvement in information flows. Company delivers the
product in time they started using ERP because it gives clear cut information all supplies and
finished products. With the use of ERP company utilizes their supply chain management and
customer relationship management very well.

Hence I found that Enterprise Resource Planning helps company to save the time and to
minimize the errors henceforth it leads to improve the performance of organization and increases
the profit of the organization.

Six Sigma

Six Sigma is a procedure which finds the problems and errors within the working system and the
processes of the organization. Six Sigma tries to minimize them to the bare minimum and it
commences towards defining the goal, finding errors and performance measuring.

The ultimate aim of six sigma is to minimize the error and to make company product excel and
superior quality. It is used to create break through developments in working process with a
sturdy spotlight on consumer needs and in some of the organizations it is used to solve critical
problems which occurs while manufacturing the product or while delivering the product.

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Six sigma is to improve the already existing technology or to produce fresh defect free solution
for any organization.

Advantages of Six Sigma

 Focused on consumer and less waste of raw material

 Reduction of errors
 Bringing products into market quickly
 Best safety performance
 Lower costs to offer services and products
 Increase in profit
 Reduces unwanted costs (Sense of Six Sigma, 2008)

There are four different stages in six sigma concepts it rated according to quality of defect free.

 Master black belt

 Black belt
 Green belt
 Yellow belt(least level)

Six Sigma in LG

LG started using Six Sigma concept from the year of 1996 and in the same year General
Electricals also launched the same. After establishing Six Sigma company showed increase in
sales of 36 % in air condition sector and 22 % in refrigerators segment. Company gained 10 %
operating profit after implementing Six Sigma. [ CITATION Anj01 \l 1033 ]

Company reduced the defect level of 3.4 % in 1 million products and it is the least in electronic
industry and company insisted this to their suppliers also. For Six Sigma project LG spends 42
lakh per month. If a company wants to be order winner they should implement Six Sigma that is
what LG doing now. Before establishing Six Sigma LG”s products were order qualifier but it
changed after implementation this concept.

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Within two years of implementation of Six Sigma company got “Best buyer” and “Best
performer”. With the help of Six Sigma Concept Company does Supply Chain Management very
well and reduces the manufacturing cost and also increases the profit of LG.

Company wants to implement Six Sigma to each and every department and company has master
black belt in some of the areas and in some of the areas company has green belt and yellow belt.
(LG and Six Sigma sense, 2004)

Company gets defect free product after implementation hence company spends less money for
repairing and servicing their products, henceforth LG got Good name in the market and it builds
Brand loyalty and with Six Sigma concept company forecasts demand accurately and order lead
time is decreased 55 to 41 days. This is their biggest advantage of implementing Six Sigma

Since it is an electronic oriented organization and they implemented it long back and now
company enjoys the advantages of Six Sigma.

From this I came to know that Six sigma helps the organization in all aspects and it increased
their brand value.

Conclusion

After analyzing Customer Relationship Management, Supply Chain Management, Enterprise

Resource Planning and Six Sigma I came to know that all the above four components are
important for every organization. If a company wants to be an order Winner they should start
working on all the above four components which we discussed earlier. If a company wants to get
a competitive edge they should start implementing Supply Chain Management, Customer
Relationship Management, Enterprise Resource Planning and Six Sigma.

LG has competitive advantage among their competitors because they implemented all the 4
components and company profit increases year by year gradually. Company established all the 4
components long time back now company enjoys the benefits of that. Company should not see
short term goals and company should not consider costs while implementing this, it will help
them to gain a more revenue and brand loyalty in long run.

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References

Advantages of ERP. (n.d.). Retrieved 09 13, 2009, from Erpwire: http://www.erpwire.com/erp-

articles/erp-advantages-disadvantages.htm

Benefits of SCM. (2008, 8 12). Retrieved 9 14, 2009, from koreatimes:

http://www.koreatimes.co.kr/www/news/nation/2008/08/123_28741.html

Customer Relationship Management. (2008, 11 10). Retrieved 09 12, 2009, from lge:
http://www.lge.com/products/supermulti/new/newview.jsp?id=38

ERP Uses. (2009, 04 12). Retrieved 09 10, 2009, from Ameinfo:

http://www.ameinfo.com/192526.htm

Prayag, A. (2001, 11 09). LG sense and Six Sigma . Retrieved 09 10, 2009, from Hinduonnet:
http://www.hinduonnet.com/businessline/2001/11/10/stories/0210186g.ht

Supply Chain Management. (2000, 1). Retrieved 09 13, 2009, from Entrepreneur:
http://www.entrepreneur.com/tradejournals/article/100509033.html

Sixsigma. (n.d.). Retrieved 09 14, 2009, from Sixsigmsspc: http://www.sixsigmaspc.com/six-

sigma/sixsigma.html

System and business growth. (n.d.). Retrieved 09 14, 2009, from eresourceerp:
http://www.eresourceerp.com/erp-system-and-business-growth.html

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