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Business Case Studies

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Background and Company overview

Shutterfly is an internet based company that offers its clients a chance to publish and create customized: prints, calendars, stationery, cards, photo books and photo-sharing websites among other services. It was founded in 1999 amidst the dotcom craze where a lot of companies of its kind were more interested in aggressively pursuing market share than maintaining a profit margin. The sudden interest in the internet had led to the establishment of many internet based companies with a hope of snatching a speculated demand that never really actualized. Shutterfly is one of the few companies that survived the dotcom bubble and it eventually went public in 2006. Its survival can be greatly attributed to implementation of Enterprise Resource Planning (ERP) and Material Resource Planning (MRP).

ERP and MRP

Enterprise resource planning is a process that applies software to integrate and manage all the vital departments and functions of a business into one generalized system so that every unit of the business is able to acquire information efficiently from all the other units. On the other hand, material resource planning is a computerized approach to inventory planning, corporate planning and manufacturing and supplier scheduling which provides the users with the correct timing and quantity for orders. It also generates new orders and reschedules existing orders, in order to meet client specifications. The MRP is change driven meaning that it constantly recalculates based on actual forecasts unlike traditional methods that rely on historical data of demand to react to existing problems. Using ERP AND MRP, Shutterfly was able to keep all the different service departments in touch with each other and by concentrating on actual information about the demand available, they managed to turn a profit instead of being drawn into the aggressive market grabbing frenzy.

Processes to plan for sudden and drastic changes in demand

Using MRP, a company is able to keep track of inventory at all times and therefore, they are able to anticipate by using forecasts based on facts what the demand of products would be which eliminates the risk of being caught unaware. Using ERP and MRP, a company can maintain a balanced inventory that allows it to experience as little loss as possible while taking advantage of any opportunities in the case of any sudden changes in demand without having to rely on speculation

Evaluation and analysis of success in implementation

As explained, the dotcom era led many companies into believing that the demand for internet-based products was greater than it was at that time which led them to expanding aggressively in search for market share as they anticipated a repayment of the investment when the demand finally materialized. On the other hand, Shutterfly did not utilize that strategy because they locked in their profits by making sure they had a profit margin in every transaction across all the departments of the company. This was made possible by use of ERP and MRP which made sure that minute details about cost and orders was communicated across all channels which made pricing and other decisions inclusive and appropriate. They made plans for the demand that was anticipated using MRP but they did not let the speculative atmosphere lead them into preparing for a demand that could not be forecasted using the actual facts on the ground.

LITERATURE REVIEW

Introduction

In an organization, operation refers to the unit of it concerned with conversion of a wide variety of inputs to outputs (services) that are of a quality high enough to satisfy the end users. Broadly, operations can be classified into manufacturing and service operations. The former is concerned with transformation of inputs into tangible goods while the other’s outputs are intangible. On the other hand, management refers to how the organization transforms its various operational resources into value added products in a controlled manner dictated by the policies of the company. Therefore, operations management can be defined as the process of transforming inputs to outputs using various resources in a controlled way to ensure long term survival of a company. Operation’s management is directly responsible for the growth and survival of a firm because it’s responsible for how resources are used and a good performing operations unit should have the following results: low cost of production, high quality of goods (services), timeliness, dependability and flexibility (Slack et.al. 2004).

As mentioned, operations management ensures proper utilization of resources for long-term survival of an organization and to make this happen, business strategies have to come in play. Strategies have traditionally been associated with military tactics but the techniques usually associated with the battlefield started being adapted to business in the 1960’s. Business strategies took to mean collection of intentions or plans that set long-term direction of operational deeds that will result in eventual success of the business. In an organization, strategy exists in three levels: corporate, business and functional. The highest level is the corporate level because it is concerned with the nature, scope and long-term direction of the entire organization. Business level strategy details a way for the business to deal with external factors affecting the business and what the business should aim for in relation to the industry it plays in and for single enterprise organizations, corporate and business level strategies are the same. The lowest level of strategy is the functional level where strategies are confined to the individual units of the business for example: marketing, finance and human resource among others. In its role as a determinant of an organization’s overall direction, strategy is concerned with a business’: environment, objectives and resources. As explained, operational management deals with a company’s resources therefore operation management strategies are concerned with long-term management of said resources in a way that ensures it accomplishes its objectives despite of any changing factors in its external environment.

Operation management strategies

Manufacturing strategy

In 1969, Skinner recognized the need for a manufacturing strategy. He was of the opinion that companies within the same industry have different characteristics thus show varying weaknesses and strengths which manifest themselves in the way they choose to compete against each other. Due to this, each company has different priorities and trade-offs because of operating traits inherent in their customized production systems. In essence, Skinner appreciates all manufacturing strategies as he says that none is superior to any other because it is not possible for one to always produce better results in all situations than all others (1969). Where one strategy can be specialized in producing high quality standardized goods at a low cost, it might not be able to adjust effectively to a sudden change in demand which means it would lose its competitive edge to a manufacturing strategy with more flexibility.

In the 1980’s, a new approach to manufacturing strategy was introduced which advocated for less customization in the manufacturing process in favor for what was called ‘lean production’. This development was because Japanese companies were constantly outperforming American companies at the time with this new approach to the traditional strategy. The lean production approach emphasized that labor and equipment usage rates are less vital than throughput time and that manufacturing of products should be done in parallel rather than sequentially by use of cross-functional teams (Katkyama, 2010). By use of this method, the companies were able to achieve: lower production cost, higher product quality, faster production times and flexibility in production so that they could deal with any sudden changes in demand.

The fact that Japanese companies did better was not because their manufacturing strategy was superior, it is because they were able to improve several facets of the strategy which gave them a competitive edge in comparison to their counterparts which to some extent compliments Skinner’s thoughts about superiority of one manufacturing strategy over another. The lean production approach is a hybrid that combines craft and mass production so that a company utilizing this strategy is able to produce high quality products and mass produce it without the time costliness of customization which gives a firm a competitive edge.

In each instance of implementation of manufacturing strategy, different companies set different trade-offs and priorities which makes all the difference when it comes to achieving excellent operational performance. The lean production approach utilizes generalizations so that equipment and workers are flexible and can act many roles instead of specialized single roles. Communication along the assembly lines is informal and horizontal. Rejects and waste are greatly discouraged so line workers have to work harder to ensure that the products are acceptable for distribution. The entire production process is based on: quantity, quality and efficiency, which has led to better performance for any company adopting this methodology.

In addition to lean production, companies have evolved their manufacturing processes with the evolution of technology. Some processes that required human intervention in the 1980’s can now be accomplished faster and more effectively by application of computer programs and some ‘hands on’ assembly can now be done using automatons (assembly robots) which reduces the chances of human error. This has gone a long way to reduce overhead costs and to increase the quality of products which has led to companies with better technologies acquiring a competitive advantage over their competitors. An example of a company that has effectively combined lean production and technology in their manufacturing strategy is Samsung Electronics. The company uses several assembly lines of workers working parallel to each other to assemble components of electronic devices where the most sensitive are assembled by automatons. This has led to high productivity which allows them to meet the global demand for Samsung devices while still maintaining high quality and low production costs. Apart from assembly, complex calculations can be accomplished within seconds by use of computer applications while it would take a human much longer to achieve the same results.

Service strategy

For a long time, operation strategies were only defined for manufacturing business’ but the increase in popularity of service companies has led to increased competition in that industry which has in turn led to implementation of advanced strategies in order to acquire a competitive advantage. The service industry is characterized by: low entry barriers because service innovations are not patentable therefore it is not uncommon for one company to start a service which is easily emulated by others especially because the initial outlay for setting up is not very high, erratic sales because of erratic demands-this is due to the fact that unlike an object, services are reliant on time thus clients are not always predictable, they have less chances for economies of scale, many services have product equivalents which may sometimes make the service a second option and customer loyalty to established firms which makes it hard for young firms among other factors (Chase and Hayes, 1991).

One of the approaches employed to gain a competitive advantage in this sector is low-cost leadership. The most effective action that differentiates one company from another is their investment in technology. Customers want to have the best and most effective service but they are mostly unwilling to break their banks to acquire it so a service strategy should involve investing in high-tech technology while still keeping the costs low(Mintzberg,1985). Take an Automated Teller Machine (ATM) as an example, people can withdraw money conveniently without the bank having to pay additional tellers to man the machines. A bank with many conveniently placed ATM’s will attract a larger customer base than one without. The machines are a one-time purchase while human labor is a continuous expense hence use of the machines reduces overhead for the company in the end.

Another approach to this strategy is differentiation. While almost everyone can own a car, not many can own a Mercedes-Benz and that distinction and exclusivity is what most companies are gearing towards as the competition for finite products intensifies. With this strategy, what a company sells is a sense of distinction from the rest hence the challenge is to ensure that the brand does not lose its prestige which would make the entire strategy worthless. Apart from exclusivity based on class, some companies may choose to target only niche clients with specific products designed to suit their eccentricities.

Just like in the manufacturing strategy, no approach to service strategy is perfect by itself but some companies have created an approach that is a hybrid of many. An organization will have products designed to appeal to any client that may require the services the company offers.

A CASE STUDY OF SUMSANG ELECTRONICS

Keywords: BPR, human resource, Samsung Electronics,

Methodology: Literature review of existing case studies on Samsung Electronics and review of the annual report showing events and results of 2014.

Introduction

Operation’s management strategies have been contemplated-although not by the same name, since the advent of trade. In a world where monopolies are a rarity, the competitive advantage proffered over any business is directly linked to the effectiveness of its operation management strategies. No manufacturing or service strategy is superior to any other (Adam et.al., 1989); yet, some companies consistently perform better than their counterparts in the same industry. Samsung Electronics is an example of such a company and it has performed well since its inception especially in the last decade where it has ranked first as a leading manufacturer and supplier of electronics.

Background information

Samsung Electronics company can be classified as both a manufacturing and service company in that it is a leading manufacturer of electronics e.g. handsets, refrigerators, speakers, televisions etc. and a service one because it offers customer service to all its customers by: warranty and repair services, technical help desk, network provision and sale of some exclusive products among others. The company is a child of the Samsung Group which was founded by Byung Chul in 1938 with just 30,000 Won as start-up capital. The electronics unit was established in 1969 in Suwon, South Korea and it has a mission statement that allows it to grow and evolve with the changes in the outer world which allows the company to make money while still maintaining its commitment to human and environmental protection.

Global physical presence

Samsung Electronics is headquartered in Suwon, South Korea and has offices in Seocho in seoul. It has regional headquarters in: China, Japan, Singapore, India, South Africa, Russia, United Kingdom, Germany, United States of America and Brazil. The company is governed by a board of 12 Korean directors and it has 80 sales networks around the world employing 370,000 people. In addition, it has 42 global research facilities and 7 lifestyle laboratories employing over 50,000 researchers. The company has several satellites in orbit and has proposed a plan to launch 4600 satellites in low orbit that would ensure cheap internet coverage all over the world.

Business strategy

Business strategies are plans or sets of intentions that lead to actions designed to ensure long-term success of a business and Samsung Electronics employs a number of strategies to ensure its continued dominance over the competition. One of the strategies used is manufacturing strategy. In acceptance of the original strategy, Samsung has endeavored to: reduce production cost, offer high quality goods in a timely fashion, be dependable and flexible. To reduce production cost, the company has adopted lean production where assembly of device parts is done by parallel assembly lines working full time without interruptions (Jung, 2014). Taking an example of handsets; the global demand for mobile phones is enormous therefore a company cannot meet demand if they customize each and every unit so Samsung’s parallel assembly lines allow it to meet the demand and be flexible enough when there is a sudden change in demand. By training workers to be all-purpose rather than specializing in one skill, the company is able to reduce its overhead costs.

Samsung Electronics is also the global leader in cutting edge technology that has enabled it to have a competitive advantage in both its manufacturing and service functions. In manufacturing, the company has advanced technology in the production process to reduce production cost. It has implemented automatons, software and other robotic options that make the production process faster and reduces the reliance on human labor. Use of this technology reduces the number of faulty products that come back as rejects which in turn increases the net sales of the company. Also, as leaders of wearable technology as seen in its range of wearable gear, it has been able to capture the customer’s attention before the competition can come up with competing technology. Its goal to be a trend setter rather than follower has seen it gain market share every time a new unique product is realeased.

Also, as will be seen below, Samsung Electronics has a wide range of products designed to suit the everyday person and the niche client that wants something very expensive and unique. The company uses differentiation as an approach to service strategy to create a range of products for the eccentric and rich client who wants distinction from his peers by having a brand item that is not commonly available. It has also launched seven lifestyle laboratories around the world where market research and technical support is done in order to improve and support local product lines. Due to its presence across the globe, Samsung Electronics has created priceless brand recognition and the support services offered to its clients has become an asset that encourages customers to choose its products over any other available alternatives.

Types of products and services

Samsung Electronics’ business is broadly categorized into three categories: consumer electronics, IT& Mobile communications and device solutions. Under the consumer electronics, Samsung has a range of products namely: visual display products, digital appliances, printing solutions and health & medical equipment. For the visual display products, Samsung has 28.3% global market share making it the leading supplier of flat panel televisions including LCD and LED. It also has a global market share of 39.1% in the 60 inches and larger TV market and 34.3% share in the UHD TV market. For the digital appliances market, Samsung offers refrigerators, washing machines, air conditioners and home cleaning robots. For the printing business, the company supplies differentiated printers that have normal and specialized services including: cloud and mobile printing. It is the 2nd largest global supplier of A4 laser printers with a market share of 15%. In the medical field, Samsung Electronics is a leading developer of equipment like: large-scale medical imaging equipment (ultrasound, digital X-ray, portable CT etc.), which are used in medical institutions all over the world.

For the IT & Mobile communications industry, Samsung Electronics is the leading global supplier of handsets with a market share of 22.1% and a smartphones market share of 24.7%. The successive galaxy range of smartphones is especially popular combined with the company’s new range of wearable gear tech. On this platform are also laptops and tablets which are used widely by individuals and institutions globally. . In addition to the above mentioned products, Samsung also offers numerous others like: memory chips and flash drives for which they hold a market share of 40.4% and 36.5% respectively, and LED lighting products.

Other than the manufacturing business, Samsung Electronics is also a player in the service industry where it has collaborated with mobile service providers in Europe, Asia and the United States to provide innovative technologies like: carrier aggregation (CA) and LTE networks. Samsung also has numerous outlets all over the globe that offer technical services and logic processing technology to its customers

Target market

In a report to the stakeholders in 2014, the management of Samsung Electronics claimed that the range of their products is informed by people’s everyday needs. Therefore, the company’s products are targeted to both low-priced markets and premium markets. In the low priced markets, Samsung electronics is steadily expanding its market share in Africa, Asia and the pacific Islands while it still expands its roots in the United States and Europe especially when it comes to service providing. An example, the company has one person sized fridges to institution sized ones which means it targets every individual and organization able to spend money on electronics. However, the range of their products is versatile and flexible so that there are products suited for specific ages and their location in the world than others.

Samsung Electronics’ supply chain

Samsung Electronics has been ranked among the companies with the best supply chain management in the world. There are several factors that have enabled the company to excel in this area but mostly, it is their adoption of best practices that has led to this achievement. One of the best practices adopted is involvement with clients at the macro level (Jung, 2014). The company installs staff members in local universities in countries they have interest in to attend MBA programs and the purpose of these country specialists is it to gather knowledge of customer behavior and preferences which is then incorporated in product design in a process called quality function deployment. The company has also standardized its production processes and mostly centralized them in Korea which allows them to manage quality of products and meet demand for products through mass production. In addition, Samsung utilizes the APS (Advanced Planning and Scheduling) system that allows it to manage a flexible production plan.

Business processes that need improving

Samsung experienced a decrease in sales revenue in 2014 compared to the previous year due to the increased competition from Apple Inc. on high end products and Chinese companies on the low end products therefore the company has to come up with more aggressive sales and marketing processes that will enable it to regain its lost market share. However, the major problem Samsung is faced with when it comes to providing the best product to customers is limited innovation as ironic as it is seeing that the company is renowned for being very innovative. Samsung electronics is slow to adopt information and people of a culture different from Korean culture which is a hindrance to the creative process. Their innovative pool is confined to what Korean people can come up with which lacks the diversity that would be brought by including people of different perspectives from different parts of the world. Innovation is the first step in product creation therefore; diversification of the innovative pool is something that the company definitely needs to work on if it hopes to keep its position as a global leading supplier of electronics (Khanna, 2011).

Even with the technological advancements Samsung has had in its production process, there is still a lot of inefficiency in the production of products .Operation management is all about efficiently managing the resources of a company therefore Samsung can exhaustively use their resources by embarking on: clean production, material reduction and recycling which not only benefits the company but it also reduces emission of pollutants which are harmful to the environment and people. Current operations and performance

Despite being a global leading supplier of many electronic devices, Samsung is facing fierce competition from other companies, one of which is Apple Inc. The financial reports released in 2015 for 2014, showed a sharp decrease in sales and operating profit for the company, no doubt caused by the increasing uncertainty of the world economies. 2014 saw an increase in US interest rates, financial risks in emerging markets due to drop in commodity prices and economic recession in the Euro zone which all contributed to the decreased profits especially because most of Samsung Electronics’ transactions are in foreign countries and conducted in foreign currencies.

To combat the above issues and to ensure that the sales and operating profits do not decrease further, the board has to come up with strategies designed to launch Samsung into new markets and introduce new products. With that in mind, Samsung is in the process of production of Galaxy S6 and Galaxy S6 Edge for the premium market and several products for the lower priced markets. Apart from products aimed at individuals, there is also production of products for business’ and institutions including B2B. The management is also planning to more closely manage the investment portfolio of the company to ensure risks arising from currency and interest rates are hedged against because foreign money represents a lot of the expected profits. Human resources

Human resource is one of the most important assets that a company has and Samsung is dedicated to adding employee value and training talent as much as possible. Seeing that the company is global, it recruits talents from all over the world and puts them through a rigorous education and training system (Youndt and Snell, 2004). The company offers its recruits over 1500+ education programs on: value & leadership, next-generation leaders, global competencies and expert training. We have also seen that Samsung more often than not enrolls its staff for MBA’s in universities located in countries where they have a business interest in. These staff members are then used as expatriate executives, versed in both the culture of the local economy and the Korean culture so they are able to smoothly run foreign divisions of the company and effectively communicate with the mother company back in Korea.

The company operates under principles of legality and mutual respect for people. To implement this, it has strict prohibitions in place against child labor and emails are sent to employees and monitoring officers every day once the worker’s legal working hours approach which prevents overworking of any of the staff. There are also great work days where the company organizes festive events to thank and appreciate their workers. The workers are also given online courses regarding their rights and the rights of others so that they can have the knowledge to act in case they experience any discrimination, sexual offense or any other issues. A counselor has also been made available for any employee who might require their services.

The global turnover rate of Samsung employees is between 10-20% every year which is a relatively high number. This can be attributed to the fact that the company discourages labor unions which would normally mediate in grievances between employer and employees, and there have been cases over the years of workers developing blood cancer for which the company offers help and treatment to the afflicted and affected. It is therefore imperative for the company to come up with ways to address the safety issues surrounding the workplace because a high turnover rate adds to the company’s expenses each year due to the new recruits’ education and training expenses.

Options for improving business performance and their implication

Business Process Reengineering (BPR) involves dramatically changing the way a company conducts several vital business processes in the hopes of achieving better productivity and quality while reducing cycle times of production. Samsung Electronics is already very involved with its customer needs and already started the adoption of cross functional organizations from functional organizations but there is still a lot that needs reexamining. For productivity to increase, the company has to overhaul the production process in order to incorporate clean production, material production and recycling which will lead to better resource utilization and translates to better profit margins for the company. This overhaul would also ensure that the quality of products produced is of a higher standard. Granted, the initial outlay for implementing such a project is huge but the potential benefits arising from improved productivity in time, cost and quality are huge enough to justify such expenditure.

I also think that Samsung should reduce its manpower in the manufacturing and assembly departments. A lot of the company’s expenses arise from salary and benefits to workers so a reduction on manpower and more investment in automated options would reduce the company’s expenses dramatically. As explained above, there is a high turnover of employees therefore the company should use a sort of escalator program when giving education and training to recruits because as it is, it is spending too much money training people who end up leaving after a year. In the interest of keeping costly lawsuits at bay, Samsung should invest in safety and preventive measures that protect its employees from exposure to harmful materials during production, this measure would go a long way in reducing expenses that occur in case of treatment and litigation.

Samsung Electronics already has the technology to produce robots, automatons and complex programs that can do better jobs than humans so I would recommend that the company refines and implements that technology so that only minimal human intervention is required in the production process.

Conclusion

Despite its position as a global leader, Samsung Electronics is mandated with the harder task of keeping that position and that will involve dramatic reengineering of business process and addition of more innovative talent in the company.

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