SCM of Samsung Electronics

MIS Group 1
1. What is SCM?
Definition:
SCM is the management of a network of interconnected businesses involved in the ultimate
provision of product and service packages required by end customers. It is related with efficiency of a
companys supply, the goal of SCM is, to reduce cost caused by bullwhip effect, or other dummy cost
in supply chain.
SCM Strategies:
Many companies use these 3 strategies for reducing cost. Samsung Electronics also innovate
SEs supply chain by this strategies
1) Supply Chain Planning (SCP)
SCP is a strategy to provide stable supplies for any circumstance of market. Its
related to company and suppliers. SCP includes:
Supply Chain Network Design
Demand Planning & Forecasting
Supply Planning
Distribution Planning
Manufacturing Planning & Scheduling
2) Collaborative Planning (CP)
CP is planning immediate Information share with customers and supplier. Its
related to company and customer. CP includes:
Design Collaboration
Demand Collaboration
Procurement Collaboration
Retailer Collaboration
3) Supplier Chain Execution (SCE)
SCE is to manage timeline for Supply Chain System. SCE includes:
Warehouse Management
Transportation Management
Inventory Management
Order Management
3PL, 4PL System
SCM Elements:
SCM has 3 elements, Organization, Process, and System. Organization is the controller,
means the company who manage SCM. Process is about supply chain, forecast-based, daily
production planning in company. APS(advanced planning & scheduling)is the system of SCM, based on
ERP. Demand Manager, Master Planner, Demand Fulfillment, Factory Planner is included.
2. Background
2.1 Samsung Electronics
Samsung Electronics is the worlds largest electronics company. As of 2007, its revenue is
$103.4 billion USD and its net income is $21.5 billion USD, making it one of the largest companies in
the world.
Samsung Electronics business areas are Semiconductors, Telecommunication, and
Consumer Electronics. It is the market leader in more than 60 markets, including mobile phone,
television, digital displays, home appliances, DRAM, flash memory, and etc.

2.2 Why did they need SCM

In 1980s Samsung Electronics began to enter the global marketplace as a small consumer
electronics company. After that, information technology related markets were getting bigger and bigger
in the late 1990s, and Samsung Electronics eventually grew up as one of the largest electronics
company in the world. As a rapidly grown company, it had to discard previous system, and build a new
system that fits the newer, bigger Samsung Electronics. One of these key innovations was
implementation of SCM. To describe it in detail, the background of doing SCM can be explained with
two perspectives: Business Process Perspective and Information Systems Perspective.
2.2.1 Business Process Perspective
First of all, there were needs for quick reactions in rapidly changing markets. As business
areas with a lot of innovations, information technology related markets suffer frequent changes. For
example, the price of DRAM and NAND Flash memories fell more than 95 percents in 5 years, from
2001 to 2006. Also, the size of mobile phone market has been constantly growing at a remarkable
rate in the last decade. In these frequent, rapid, dramatic changes, Samsung Electronics need to be
more reactive and proactive, by introducing SCM to its supply chains.
Secondly, as a global corporation with worldwide divisions, Samsung Electronics needed a
centralized supply control. Before doing SCM, supply chains of Samsung Electronics were controlled by
regional divisions and these decentralized supply control had numerous disadvantages. Unreliable
demands forecast, lack of unified standard information, no strategic planning for inventory and low
reliability of delivery due date were the most important problems of Samsung Electronics supply
control system. Therefore, in order to solve these problems, Samsung Electronics need to centralize
its supply management with SCM.
Thirdly, Samsung Electronics competitors were already implementing SCM, and it was
necessary for Samsung Electronics to follow them in order to compete with them. In the late 1990s,
Samsung Electronics competitors such as Sony, GE, and HP were researching about SCM, and some
of them already started to do SCM. As a result of doing SCM, they got shorter lead times, cheaper
logistics costs, and more price competitiveness. Therefore, in pursuit of getting continuous
competitive advantage against them, Samsung Electronics decided to follow its competitors, and
started to implement SCM to its supply chains.
2.2.2 Information Systems Perspective
Samsung Electronics decided to implement SCM because it was an efficient way to integrate
decentralized supply controls. Because the decentralized supply control system had many problems,
Samsung Electronics chose to integrate the supply systems and there were two ways to do it. One of
the possible ways was to integrate all the regional ERP systems around the world by networks.
However, it need more than one year of time with 500 developers, which would be too expensive. Also,
managing and monitoring centralized sales / manufacturing / logistics plans were too difficult in that
ERP network system. Therefore Samsung Electronics chose to make a stand-alone SCM system that
centralizes and streamlines supply chain management.
Also, another reason for doing SCM was that SCM was a step toward future e-business.
Growth in the development and application of e-business technologies in the 1990s made e-business
a promising future trend. Since e-Business and SCM are closely related, many companies started to
do SCM as a step ahead to future e-business, and Samsung Electronics was one of them.
3. SCM Case Samsung Electronics
It is summarized that Samsung Electronics introduced SCM with three plans. By three plans,
Samsung Electronics could accomplish SCM and reduce a lot of costs. These three plans are
presented below.
PLAN1. Rapid planning for fast reaction to market changes
PLAN2. Predicting demands with information integration

PLAN3. Real-Time delivery to customers

3.1 Rapid planning for fast reaction to market changes
Demands prediction by salesperson and order information can be distorted or lost by
unsuitable support of the middle organization. Because a companys future projects are based on this
distorted market information, these wrong information can directly lead to wrong, inefficient project
plans. By integrating all the planning steps into one concurrent planning, Samsung Electronics could
get real-time business information and make right project plans quickly.

[Figure 3.1] Rapid planning for fast reaction to market changes

3.2 Predicting demands with information integration
Information for sales and predicting demands are made by local marketing group who contact
with customers, and this information is controlled by strategy marketing group in the headquarter.
Information management system in this kind of system is very likely to cause incorrect demands
prediction, without the help of concurring collection of demands data. By integrating dispersed local
information managements into one centric management process, it was possible to perform
simultaneous management on information, and eliminate all the inefficiencies originated from
inaccurate forecasts.

[Figure 3.2] Predicting demands with information integration

3.3 Real-Time delivery to customers
Quality, time limit for delivery, and price of products are equally applied to high-tech products.

In order to deliver the products that sustain high-quality within the contract term, it was important for
Samsung Electronics to acquire the credible date that a company can guarantee. Thus, allocation of
resources in advance based on current situation was essential for on time delivery through reliable
information sources, and it was possible with SCM.

[Figure 3.3] Real-Time delivery to customers

4. APS - Global Production Planning
As a specific solution that enables SCM, Samsung Electronics introduced Global Production
Planning. Global Production Planning is a similar concept to APS. With this Global Production Planning,
Samsung Electronics could make plans simultaneously, reduce time needed for planning, and shorten
the planning cycle weekly or even daily planning. Also, it enabled Samsung Electronics to make
precise production plans, enhance its on-time delivery, response quickly to circumstances, and
enhance its customer service.
5. SCM Timeline From 1997 to 2007
Figure 5 is Time line of SEs SCM from 1997 to 2007. Pink arrow shows design for SCM.
Blue section is SCM process. Orange area is shown about APS. And gray thing is about GOC(Global
Operation Center). Green arrow is about organization. Finally in 2009 Samsun Electronics become
SCM World Ranking Top 8.

[Figure 5.1] Timeline of SEs SCM 1997~2007

[Figure 5.2] SCM World Top 8 SE

6. Result of SCM - Improvements on process management
Samsung Electronics improve on process management. Figure 6 show us following things:
Shortened process management cycle: monthly -> weekly -> daily
Simultaneous planning/execution of worldwide manufacturing/sales plans as a single
system
Reduction of lead time for planning: previously 3 weeks, reduced to less than 1 week

[Figure 6] Result of SCM