7ENT1069 CW1 Procurement Strategy
Introduction
Supply Chain Management is the process oriented planning of sourcing and procurement of raw materials for the manufacturing of finished products. This project would be focussing on the supply chain management of Samsung in procuring one of its key raw materials and analysing the factors, principles and providing alternative solutions.
Section 1- Case Study Overview
Samsung is a multinational electronic appliance company that manufactures a wide range of electronics and home appliances with current global technologies. Samsung procures electronic materials like Silicon which acts as one of the key raw materials and it is largely used by the company as a semiconductor item. Samsung sources Silicon from Asian countries like Korea, Japan, Taiwan, Hong Kong, Vietnam, China, and Singapore as well as from USA and UK (Samsung.com, 2021). Silicon is used as a semiconductor material in mobile and computer processors for electronic devices falling under Samsung Electronics. The supply chain management of Samsung is based on five main important categories (Samsung.com, 2021). The categories are cost management, capacity of human resources, on-time delivery along with a response to risk and supplier competitiveness. Samsung also considers the social, economic and environmental factors for its supply chain management.
Section 2-Reflections on the raw material sourcing
Factors that need to be considered for raw material procurement
Economic Factors
Identification of economic factors is an essential part of raw material procurement as it helps an organisation to strategically plan their supplying activities. Economic factors of Samsung focus on cost effectiveness and quality technology to create corporate growth and to ensure a stable relationship. According to Mangla and Luthra et al (2018), economic factors including cost-effectiveness of procuring raw materials is a crucial aspect that needs to be focused on by businesses for efficient supply chain management. In case for the procurement of Silicon, Samsung needs to consider the economic conditions of countries like Japan, Vietnam, China, Korea, Singapore from where the company would be able to source the raw materials in a sustainable manner.
Social Factors
Social factors of Samsung ensure that the suppliers of the company abide by the trading standards that include business regulations and human rights. As observed by Jia et al. (2018), social factors consisting of International Trade Relation and Business Ethics play an important role. In case of the procurement of Silicon, Samsung may need to analyse the current trading standards of countries like the USA and UK and may aim to build transparent trade relationships.
Environmental Factors
Environmental factors of Samsung focus on the suppliers manufacturing environment friendly and sustainable products. As asserted by Cole et al. (2019), environmental factors including sustainability may act as one of the major components for the supply chain management of the company. In case of the procurement of Silicon, Samsung may need to check on the recycling ability of the raw materials to continue with its eco-friendly manufacturing process.
Principles of good practice that can be applied to select a supplier
Identification and application of principles of good practices within supplier selection is crucial for effective resource management. It has been identified that Samsung has enabled a new procurement portal for the registration of new suppliers (Samsung.com, 2021). New companies that want to register as a supplier would need to pass certain criteria that are divided into three main categories.
Occupational Safety
In order to register as a supplier, the new supplier would need to satisfy the requirements that are needed to ensure occupational safety, occupational health safety, fire prevention and prevention of hazardous substances. The new supplier would be expected to ensure to bear the minimum safety hazards and treatments for all of its manufacturing units.
Labour Rights
For the registration as a supplier the new company would need to satisfy rules falling under the criteria of labour rights. Under these criteria the company would be needed to ensure voluntary work, complying with work hour regulations and is also needed to ban discrimination.
Environmental Policy
The registration for the new supplier also ensures that the company is performing its business operations as per the current global and regional environmental policy. The company would be needed to use non-hazardous items, sustainable and eco-friendly items that would not harm the ecological balance of the regional manufacturing area.
Section 3-Reflections on the raw material sourcing
Supply strategy for the specific raw material
Selection of a country/region
Samsung can choose one of its top supplier countries like China from where the company would be able to procure a suitable amount of Silicon and supply the raw material to UK. China is considered as the largest silicon manufacturing company in the world for manufacturing an estimated 64% of total global estimated silicon production (Statista.com, 2021). Companies residing in various provinces of China may be able to meet up the supply requirement of silicon for Samsung.
Suitability of the various regions which might currently supply the raw materials
As inferred from the study by Raj-Reichert (2020), China has emerged as one of the top suppliers of semiconductors like Silicon for electronic industries. According to Chen and Ogan (2017) the Chinese market manufacturing silicon is expected to generate up to USD1,000bn by 2025. Over the years China has set up manufacturers of semiconductors which can serve both domestic and international demand that are backed by Government initiatives. As asserted by VerWey (2019), Beijing is expected to play a key role in manufacturing and supplying semiconductors globally. These factors may help Samsung to choose China as a supplier of silicon who would be able to meet the demand for UK.
Current advantages of using this area for one’s supply chain
Samsung’s collaboration with China as a supplier of Silicon may act as an advantage for the company. The Chinese government had committed to set up their domestic semiconductor manufacturing industry by offering a sustainable amount of capital and tax incentives which may uplift the manufacturing capacities of semiconductor companies like Samsung Electronics China Semiconductor Co Ltd (SESS). As noted by Majerowicz and Medeiros (2018), Samsung may also benefit by the two strategic plans like MIC 2025 and National IC Plan that were taken up by the Chinese manufacturing units in order to catch up with international competitors.
Challenges faced with respect to using this area for one’s supply chain
Samsung may also face certain disadvantages from China as a supplier of Silicon. According to VerWey (2019), China has been one of the largest suppliers of Silicon since 2005; despite this only 15% of the total semiconductors were supplied by China based companies. China is still in the developing stage of manufacturing the semiconductor industry as compared to other leading global countries like USA. The semiconductor industry in USA has retained half of the global market whereas China is covering around 5%. Samsung may face difficulties in the supply of silicon sourced from China if the global competition with USA rises (Statista.com, 2021).
Section 4- Addressing Capacity Issue
Critical discussion of the drawbacks of single sourcing-global sourcing
From the given case study it is derived that Samsung procures silicon from China following Single Sourcing- Global Sourcing Method. According to Wagner (2021), during the period of high demand of raw materials if the supplier country is not equipped it may not be able to meet the requirements within the stipulated delivery time. From the catastrophic event as given in the case study, the manufacturing units in China may not be able to provide Samsung with a suitable amount of Silicon to deliver to UK. This may result in a serious backlog in the company’s goals and targets which may hamper the further trade relations between Samsung and China.
Identification of alternative strategy for coping with the capacity shortage
Identifying the disadvantages of single sourcing strategy adopted by Samsung, it can be suggested that Samsung would be needed to opt for the Dual or Multiple Sourcing strategy for silicon in the future. The dual sourcing strategy may help Samsung to be less dependent on the semiconductor manufacturing units of China. This strategy would also help Samsung to manage its business activities from other similar supplier countries in case of unexpected catastrophic events faced by one supplier country.
Justification of the strategy adopted
Samsung’s adoption of Dual or Multiple Sourcing Strategy may increase the competition among similar suppliers other than China which may indirectly provide Samsung with higher and better quality of raw materials and semiconductors like Silicon. As asserted by VerWey (2019) the upcoming years Samsung may consider countries like Vietnam to source raw materials as well as set up manufacturing units. Vietnam may also act as an important gateway for Samsung’s supply chain management where Samsung would be the single largest foreign investor, enabling it to receive the best and major quantity of silicon.
Conclusion
It can therefore be concluded that Samsung may consider Dual or Multiple Sourcing Strategy for procurement of silicon. China can be the leading supplier source of silicon for Samsung from where the company would be able to meet high end demands. Vietnam can also act as the alternative source for supplying raw materials for Samsung therefore helping the company to maintain a smooth and competitive supply chain.
References
Chen, X. and Ogan, T.L., (2017). China’s emerging Silicon Valley: How and why has Shenzhen become a global innovation centre. European Financial Review, p.55.
Chun, M.Y.S., Nhung, D.T.H. and Lee, J., (2019). The transition of Samsung electronics through Its M&A with harman international. Journal of Open Innovation: Technology, Market, and Complexity, 5(3), p.51.
Cole, R., Stevenson, M., and Aitken, J. (2019). Blockchain technology: implications for operations and supply chain management. Supply Chain Management: An International Journal, 6(1), pp. 67-72.
Jia, F., Zuluaga-Cardona, L., Bailey, A., and Rueda, X. (2018). Sustainable supply chain management in developing countries: An analysis of the literature. Journal of Cleaner Production, 189, pp. 263-278.
Majerowicz, E. and Medeiros, C.A.D., (2018). Chinese industrial policy in the geopolitics of the information age: the case of semiconductors. Revista de Economia Contemporânea, 22(1), pp. 89-95.
Mangla, S.K., Luthra, S., Rich, N., Kumar, D., Rana, N.P. and Dwivedi, Y.K., (2018). Enablers to implement sustainable initiatives in agri-food supply chains. International Journal of Production Economics, 203, pp.379-393.
Raj-Reichert, G., (2020). Global value chains, contract manufacturers, and the middle-income trap: The electronics industry in Malaysia. The Journal of Development Studies, 56(4), pp.698-716.
Samsung.com (2021). Sustainability:Samsung. Available at:https://www.samsung.com/us/aboutsamsung/sustainability/supply-chain/ [Accessed on: 03 April 2021]
Statista.com (2021). Major countries in silicon production from 2010 to 2020. Available at:https://www.statista.com/statistics/268108/world-silicon-production-by-country/ [Accessed on: 02 April 2021]
VerWey, J., (2019). Chinese semiconductor industrial policy: Past and present. J. Int’l Com. & Econ., p.1.
Wagner, J., (2021). Multiple import sourcing: First evidence for German enterprises from manufacturing industries. In Microeconometric Studies Of Firms’imports And Exports: Advanced Methods of Analysis and Evidence from German Enterprises (pp. 375-390).
