5 Preliminary Supply Chain Lessons from Samsung’s Exploding Phones

October 20, 2016




You’ve probably heard about Samsung’s phones catching fire: news of the company’s massive recall has sent the consumer electronics industry into relentless chatter. After reports emerged in August that some of the company’s flagship Galaxy Note 7 smartphones began spontaneously combusting, the company issued a recall for phones made with batteries that came from a certain supplier, Samsung SDI. They then reissued the phones with batteries from ATL, another supplier – and when those phones began also catching fire, Samsung made the remarkable step of scrapping the Galaxy Note 7 altogether.

It’s a tough hit to take for a company that’s become a major player in the consumer electronics industry, emerging as a viable competitor to Apple which, if you haven’t been paying attention, is still the largest company in the world. The company stands to lose approximately $10 billion because of what amounts to a Supply Chain problem. 

We’ve often remarked on the Argentus blog how Supply Chains seem to break into the wider news sphere only when there’s a problem – be it a major product recall, a shortage of product, or a botched retail expansion. It’s an unfortunate fact, because stellar Supply Chain operations truly make the world go ‘round for businesses everywhere, and they deserve more recognition in the world of business than they get.

That being said, it’s worth taking a preliminary look at the failure of Samsung’s Galaxy Note 7 from a Supply Chain perspective to see what lessons we can learn. More details about the company’s Supply Chain issues will emerge in the coming weeks, but there are a few preliminary lessons we can draw from Samsung’s experience that will be relevant to Supply Chain professionals more generally:

1. With new product launches, Supply Chain can be a company’s best friend, or worst enemy:

Solid Supply Chains offer competitive advantage. They can help new product launches go smoothly, which is a crucial aspect of a business as innovation-driven as consumer electronics. But Supply Chain failures like Samsung’s product quality issues with its Galaxy Note 7 can turn a dream product launch into a nightmare. The company faces a $10 billion loss because stopping sales leads to higher fixed costs – compounded by the fact that the company has already sunk millions of dollars into marketing the new phone. 

2. Supply Chain and Product complexity can be a major pitfall

Consumer electronics can have some of the most complex Supply Chains in the world, rivaling pharmaceutical and aerospace. Products feature hundreds of highly-engineered components, making product quality control trickier than some other consumer goods. For the past few years Samsung has competed with Apple in this space by staking its claim on product design and features. Reports suggest that Samsung attempted to turboload the Galaxy Note 7 with features to compete with Apple’s iPhone 7, and this seems to have been part of the problem. When you have more features, you have a more complex supplier base – and the upshot of this is that, after the first recall, Samsung was mistaken about which component, provided by which supplier, was causing the issue.

The lesson? Companies need to be careful about how extra complexity in product and supplier sourcing can lead to quality issues – and make those issues tougher to correct.

3. Rushing a product to market can cost you billions on the back end

Similar to above, Samsung’s efforts to compete with Apple’s iPhone 7 meant that they rushed the phone to market. Even though it had great reviews when it debuted in August, hidden quality control issues with the phone were just beneath the surface. Analysts suspect that a top-down management approach that emphasized speed above a deep understanding of the product might have led to corner cutting.

The lesson here? Management needs to work closely with product and Supply Chain teams to make sure that goals are aligned with what’s actually possible on the ground.

4. Supply Chain impacts branding and customer perception:

Even though lots of businesses still – to their detriment – see Supply Chain as a back office function, moments like these show that it has a tremendous impact on the front-facing aspects of a business. Disruptions to product flow because of Supply Chain mishaps can damage a brand at times irrevocably. It remains to be seen what major impact the failure of the Galaxy Note 7 will have on Samsung’s brand – especially as a competitor for Apple, which is known for Supply Chain excellence if not Supply Chain innovation – but early analysis suggests that consumer confidence in the company might take a major hit.

5. Supply Chain issues can pile up, and have knock-on effects:

To add to Samsung’s manufacturing woes is the collapse of South Korean shipping conglomerate Hanjin. Samsung has a reported $38 million worth of goods stuck aboard two Hanjin ships, compounding their Supply Chain difficulties and further threatening their brand position.

The coming weeks and months will reveal the full cause and impact of the collapse of the Galaxy Note 7, both from a Supply Chain and branding perspective. The company is clearly taking a major financial blow in the short term. It remains to be seen whether they can turn their fortunes around similarly to how Tylenol improved on tamper-proof packaging to turn around Extra Strength Tylenol following its 1980s product recall. But we think it’s already worth thinking about what broad lessons Supply Chain professionals can learn from Samsung’s experience – while they count their lucky stars this unfortunate issue hasn’t happened at their company. logo_icon

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