Samsung Group Success

Samsung Group Success

Bus 478

Wing Hung

#200138620

October 11, 2007

Samsung is one of the biggest conglomerates in the world with businesses established in shipbuilding, contracting, and electronics. Global revenues in 2005 alone reach over 56.7 billion (Secrets of Samsung's innovation success, 2006) and brand tracking firm Interband ranked Samsung as the 20th most valuable brand in the world (As Sony gets a tune-up, Samsung Zooms Ahead, 2005). Samsung was not really recognized as an international powerhouse until the 1990s where before it was largely considered only a household name in Korea. So what lead to the success of Samsung in the 1990s? While there is no one deciding factor or event that lead to Samsung's success, many would agree that their entrance and their efficiency in to the semiconductor market and innovative adaptation of the six sigma supply chain management has lead them to be one of the best managed firms in the world.

Samsung's semiconductor business accounted for nearly a third of the 56.7 billions dollars of revenue generated in 2005 (Secrets of Samsung's innovation success, 2006). Despite entering the semiconductor business late in 1983, Samsung is now the world's 2nd largest semiconductor distributor behind Intel. The turning point in the company's history was in February of 1983 when Lee Byung Chul, the CEO of Samsung Group made a push towards a large investment in memory chips and was determined to break into the semiconductor market (Kim, 1998). Lee Byung Chul recognized that there would be a need in the future for more memory chips and he identified that this was going to be the trend. I believe that Samsung realized that the semiconductor business was only in its initial stage of Foster's S-curve and that with careful planning and the right product, they can still capture market share from established companies. The only question now is what kind of memory chip did they want to investment in? Memory chips like SRAM were considered but quickly dropped mostly due to their small market size (Kim, 1998). They finally decided to go with DRAM as their main memory chip. Factors that lead to the decision were the relatively large market for DRAM chips at the time and they also saw how newcomers like the Japanese firms had successfully caught up with well-established firms in a short amount of time (Kim, 1998). Another important factor was the simple design structure of the DRAM chips compared to the design-intensive structure of microprocessors and application specific Ics (Kim, 1998). Samsung realize with the simple design structure of the DRAM chip, they had a competitive advantage because they could just concentrate on the manufacturing process and they have had lots of experience with incremental process innovation so they knew they could be very efficient. Samsung knew they were not yet capable of making design-intensive structures yet, but they knew they could take advantage of their efficient manufacturing process. Lee Byung Chul and his management group made a great strategic choice of product because Samsung is now the largest distributor of DRAM chips in the world for the 11th consecutive year (Samsung Austin Semiconductor, 2004).

While there are many imitators trying to enter the DRAM market in the 1980s, Samsung was able to outlast them because they had the resources and were able to fund the R & D portion and support the capital-intensive structure of the semiconductor industry. Even though Samsung experience large losses in the first 5 years of existence, other profitable sectors of the Samsung group funded the semiconductor sector. This was one of the major advantages Samsung had over other competitors, even if their semiconductor sector is failing, they have other establishments elsewhere that can keep them going. Samsung's first big break came in 1987 when the U.S. restricted the Japanese 256KB DRAM because they accused them of price dumping (Kim, 1998). As such, the increasing demand in the U.S. for the 256KB DRAM chip and the shortage caused by the restriction on Japanese DRAM chips gave Samsung a window of opportunity to break into the world market (Kim, 1998). The following few years, Samsung saw record profits for their 1MB DRAM and 4MB DRAM.

Samsung was then recognized as a major player in the semiconductor industry, but they realized they had to continually get better and more efficient at what they do to try to get a competitive advantage over their competitors who still had a big lead in market share. They realize that the semiconductor environment is very dynamic and their competitors could come up with something innovative and new that could instead give them a great advantage. In December of 1995, they invited a group called the Competitive Semiconductor Manufacturing program to their plant to do a survey on them. The Competitive Semiconductor Manufacturing program was based out of the University of California and they specialized in benchmarking semiconductor plants around the world and analyzing their management practices (Leachman, Kang, and Lin, 2002). Their findings were astonishing to the Samsung Group, they had many strong points like have excellent yields and productivity of equipment and labour, but the weak point was their high manufacturing time (Leachman et al, 2002). The average number of days for production of the DRAM chip was 80 days, well above the industry average. The market was quickly changing from a seller's market to a buyers market in 1996 due to a price collapsed. Samsung realized that with their long manufacturing times and large work in progress inventory, its inventory will quickly become devalued while sitting in the factory and that customers will simply switch to another product that offers a slower lead time (Leachman et al, 2002). They acknowledged that they had to change their manufacturing process quickly or risk being phased out by the competition with considerably lower manufacturing times. Samsung then hired CSM for a year to consult them on how to lower their cycle time.

Immediately CSM found that some of the inefficiencies were due to the way they schedule their productions. Samsung used a "lot-dispatching paradigm" which means that each set of wafers that goes into production is assigned a due date, then during production, the wafer closest to the due date is produced first. A problem with that is when the wafer were in fabrication, it may get out of order and they may have to spend time consuming inspections to get them back into order. In addition to that, disruption at one end of the assembly line could disturb