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Corporate strategy and development

Samsung’s horror show. Four contributing factors

Oscar Salehi  

Oscar Salehi  

Samsung's nightmare with fire-prone batteries led to the complete withdrawal of the Note 7 model from market. How could the much respected South Korean electronics giant find itself in such a horrible situation?

As someone who has spent over three decades in supply chain, I began to try and view this problem from a supply chain angle and although there are undoubtedly many areas worthy of examination, I like to focus on four contributing factors.

The product / design development process

The design process in any company is a very rigorous one. There are gates in place, and products must meet the criteria at each stage. This gate review process is much more important in technology than any other industry. Technology companies are always trying to come up with a totally new product or an enhancement to an existing product. Therefore, they are always faced with risks that are different than other industry sectors. I have heard stories where design groups were overruled in several cases in order to meet deadlines. We have been told that whoever goes to the market first with a product will be ahead of the competition. This is true but at what cost?

We hire smart designers to develop new products and we must listen to them to ensure that a product’s life cycle management steps are not ignored because someone in the corner office wants the product out the door as soon as possible.

This is like baking a cake; you cannot serve the cake until the cake is completely cooked and ready to be served.

The manufacturing process

It seems that several issues were raised by the manufacturer regarding the new batteries for the phone during the product development process. However, like the designer, they were overruled.

Manufacturing must always be part of the product development process and any concerns have to be heard and remedies found before the new product moves on to manufacturing for full production.

Apparently, the Samsung manufacturer was put in the position of fixing a design problem by placing additional tension on the battery affected by the sub-optimized assembly.

This could have led to the negative and positive poles coming into contact with each other, resulting in a battery breakdown and fires. If this is true, this never should have happened.

A company’s quality organization also plays an important role in the manufacturing process. They are the last organization to check the integrity of products during the manufacturing process and also before products are shipped to customers.

There have to be investigations underway to determine why Samsung’s quality organization did not raise issues regarding the batteries prior to shipment.

Companies that I have worked for did random quality tests to ensure that the batch that product came from met quality standards. Again, I think the quality team may have been overruled within Samsung management.

Culture and failure of leadership

Samsung has a strong top down Asian culture power structure. Raising issues or giving bad news to upper management is often not considered right or tolerated. I believe that this top down approach is the main reason that Samsung found itself in this mess.

Various members of the supply chain were apparently left alone to find solutions to problems and could not tell their senior management that there were flaws in the product.

I believe that failure of leadership has to be considered here. The leadership of the firm could have made the decision to stop production of the Note 7 until there was no doubt the battery problem was fixed.

Supply chain

Samsung outsourced most of their batteries to only one other manufacturer. (I understand that the batteries in question did not come from their internal division, Samsung SDI.)

Outsourcing 66% of all components for their flagship product to only one other manufacturer is something that goes against best practices. You should never put so many of your eggs in one basket.

Samsung must revisit their supplier strategy and revise their sourcing strategy to minimize their future supplier risk.

I will finish with a quote from Warren Buffet who once said, “It takes 20 years to build a reputation and five minutes to ruin it.” This is so true.

This problem with Samsung is estimated to cost between 5-10 billion dollars. Samsung must now take a hard look at these four contributing factors: product development, manufacturing, leadership and supply chain, learn from its mistakes and make necessary changes.

Hopefully they have learnt a hard lesson that it’s never worth ignoring all the warning signals and forcing a product through to launch before it’s ready.

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