Introduction
The aspect of operations management can be seen as an important aspect of the overall strategy of companies. Operations management can be defined as the fields concerned with “the design, planning, control and improvement of an organisation’s resources and processes to produce goods or services for customers” (Johnston, 2003). The relation of operation management to the strategy of the company can be seen through its influence on the competitiveness, which can be evaluated through five performance objectives, which are quality, speed, cost, dependability, and flexibility (Slack et al., 2010). The cost factor can be seen among the most important categories of performance objectives, where the reduction of costs can be seen as a strategic objective as well. The importance of such objective can be seen through the influence of the remaining objectives on cost reduction, where it is stated that “[i]f managed properly, high quality, high speed, high dependability and high flexibility can not only bring their own external rewards, they can also save the operation cost” (Slack et al., 2010).
The way the aforementioned statement can be applied in practice can be seen through the case of Samsung Electronics. Samsung Electronics, a leading electronics company, and “the world’s largest memory chip and LCD panel maker” (Nystedt, 2010). The cost factor was an important aspect for Samsung Electronics, where high costs along with low manufacturing rates were among the company’s problems in early 1990s. Now being a leader, the way performance objectives might influence the cost of operation might still remain a significant issue of the company. In that regard, the present report will attempt to provide an evaluation of the way changes in performance of such objectives of operations as quality, speed, dependability, and flexibility, might influence the cost of operations of Samsung Electronics.
Analysis
Quality
Such performance objective as quality is believed to be among the most important indicators, being written about more than any other performance objective (Slack et al., 2010). Generally, such aspect can be related to reducing errors and defects in products, through increasing the operations for which the products and the services are the main results. In Samsung Electronics, it can be stated that the one of the departments responsible for quality is Corporate Technology Office, which one of the responsibilities is the optimization of the Research and Development (R&D) processes (SAMSUNG, 2010). Quality can be controlled through standardization of innovative R&D processes and developing an infrastructure for concept development at the design stage. In manufacturing operations, it can be stated that the adherence of Samsung Electronics to Six Sigma can be seen as a representation of quality control. In a broad way, Six Sigma can be defined as the methods employed by a company to eliminate defects in products and services (Jacobs and Chase, 2010). The influence of quality performance on cost performance can be seen through the cost saving that the company achieved through quality control. It is stated that after Samsung introduced Six Sigma in early 1997, the parent company Samsung Group showed amazing results, where for example the cost savings by Six Sigma projects totalled US$150 million (Park). Additionally, the introduction of Six Sigma in Supply Chain management by Samsung also contributed to operational cost reduction. In that regard, all of the aforementioned can be seen as the internal effect of quality in Samsung Electronics. The external effect on quality can be seen through the rebranding that resulted from the company’s focus on quality. “By vaulting the quality of its offerings above the competition in those areas, Samsung figured it could boost the overall perception of the brand” (Business Week, 2005). The result of such change in brand perception can be seen through taking the position at the top of the leading electronics companies in the world.
Speed
Similar to quality, the influence of the speed objective is mainly related to its internal effect on operations. One area in which the speed objective can be seen as an influential factor is the cycle time in manufacturing. For Samsung, such aspect as the cycle time can be seen important, where the company addressed such aspect through the implementation of SLIM (short cycle time and low inventory in manufacturing), “a set of methodologies and scheduling applications for managing cycle time in semiconductor manufacturing” (Leachman et al., 2002). Targeting the speed objective, the company managed to reduce the time needed to manufacture DRAMS, from 80 days in 1995 to about 30 days by the end of 1998 (Leachman et al., 2002). The benefits brought by speeding up manufacturing can be seen through many dimensions, all of which led were reflected in a way or another in revenues. The main area in which the speed objective can reduce costs can be seen through the reduction of inventory levels. Reduced cycle times allowed more accurate forecast of sales, which in turn reduced the inventory levels. There are other benefits for such aspect of the sped dimensions, all of which in total allowed Samsung Electronics to gain more than $1 Billion in sales revenues during the period in which the company implemented SLIM(Leachman et al., 2002).
Dependability
Generally, there are three ways through which the company can influence costs, and all of which are achieved through an internal effect on operations. The costs are affected through saving money directly, and through increasing the stability of the organisations, which in turn improves its efficiency (Slack et al., 2010). The third way, on the other hand, can be seen through that the cost-saving influence is achieved through the extra costs that might be incurred through ineffective use of time in the company (Pycraft, 2000).
In Samsung Electronics, the dependability factor can be seen through influencing the company’s supply chain management, which in turn decreases delivery time. Taking the example of the company’s implementation of several supply chain management solutions, among which is the Adexa’s Enterprise Global Planning System (eGPS) platform for supply chain planning (Adexa, 2010). The influence of implementing such solution on the dependability performance objective can be seen through shortening the order delivery time, quicker response to customers’ demand changes, and focusing on “key customers through strategic buffering” (Adexa, 2010). All of those factors in turn increased the company’s stability, and in turn, efficiency, e.g. reduction of costly rush orders, expedited material purchases, and overtime (Adexa, 2010). Accordingly, it can be assumed costs were saved through eliminating ineffective use of time.
Flexibility
The flexibility performance objective can be explained through many ways, which in general means that the company is capable to change its operations in a certain way (Slack et al., 2010). Flexibility as a performance objective can be seen in other performance objectives, influencing each of them. For example, with the company’s being capable to change implement the SLIM system, which in turn reduced cycle time, can be interpreted as in terms of flexibility as well as speed. As an external effect, responding to certain product trends and demands can be also interpreted in terms of flexibility – product/service flexibility.
The cost performance is influenced by internal flexibility, where in the case of Samsung Electronics it can be specifically outlined through reducing time lead to cost reduction. Flexibility in manufacturing and planning was achieved through the company’s focus on Enterprise Resource Planning (ERP) system, reducing manufacturing lead time, increasing delivery speed, and improving market responsiveness (Rhee and Kim, 2000). All of the latter can be seen in reducing the costs that would have been incurred in case such time was not saved. As proposed in a cumulative model empirical research Nakane (1986), the flexibility is achieved only after all other performance objectives are achieved (Rhee and Kim, 2000).
Recommendations and Conclusion
Analyzing the interrelation of performance objectives, it can be stated that it is recommended for the company to attempt to achieve the entire performance objective in order to influence cost performance. In that regard, it can be stated that the flexibility performance objective might be attempted to be achieved first, after which the flexibility will be reached. It is recommended for the company to manage all performance objectives properly in order to influence costs.
The present paper analyzed the case of Samsung Electronics and the way the company managed its operations’ performance objectives. It can be concluded that the company managed to influence cost performance through the internal effect of all objective, mainly through reducing time and increasing quality. It is recommended that the company continues to manage all performance objectives in order to influence costs performance of the company’s operations.
References
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