What Makes Samsung Tops in TVs

The Korean electronics giant's supply chain management system has catapulted it ahead of Japanese brands Sony, Panasonic, and Sharp

by Moon Ihlwan

Samsung's Bordeaux TV

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Every Monday morning, Lee Chun Jae begins his week at Samsung Electronics by setting in motion manufacturing operations around the world for the Korean giant. Lee is the operational chief at the 70-member command center of Samsung's supply chain management (SCM) system, and on Mondays he sends out the week's new instructions for production and shipping to 20 television and monitor factories in 11 countries. Over the weekend, the system had generated weekly, monthly, and quarterly sales forecasts based on the previous week's data on sales, manufacturing, supplies, and product development. Doing the job is like being "a conductor of an orchestra," says Lee. "SCM allows all units to operate in harmony."

The elaborate system is the crucial weapon that has enabled Samsung to pull off a coup (BusinessWeek.com, 10/4/07) in the ruthlessly tough home electronics industry. Company executives believe the system, together with innovative design and parts standardization, has propelled Samsung ahead of Japanese electronics giants Sony (SNE), Matsushita Electric Industrial (MC), which is adopting its popular brand name Panasonic as its corporate moniker, and Sharp (SHCAY) in the television industry.

The Japanese used to rule the TV world. But in 2007, for the second consecutive year, Samsung was No. 1 in the global TV market. Statistics from market researcher DisplaySearch show Samsung's share of 13.6% in overall TV sales, compared with runner-up LG Electronics' 11.4%. They were followed by Philips (PHG), with 7.4%, and Sony, with 6.6%. In the more crucial flat-panel TV segment, Samsung's 17.2% share was way ahead of No. 2 Sony's 10.6%, Philips' 10.2%, LG's 9.7%, and Sharp's 8.9%.

Learning by Trial and Error

Samsung executives credit the work of Lee managing the company's far-flung factories for the company's dominance. "SCM sets us apart from our rivals in the most significant way," says Yoon Boo Keun, executive vice-president in charge of Samsung's TV and monitor businesses. The system got its start after the Asian financial crisis in the late 1990s, but Korean executives say it really began sharpening the company's competitive edge in the past three years, after much trial and error. "What's important is analytical know-how and capability to cope with fast-changing demand and supply at all levels," says Yoon.

In an industry where prices fall at breakneck paces, maintaining a low inventory level is vital. Further pressuring the TV makers: Whenever retail prices fall, big electronics channels such as Best Buy (BBY) and Circuit City (CC) require them to compensate for the gap between new and old prices for their inventory kept in the stores. So reducing inventory levels is crucial. Samsung's dropped to 15 days last year from 21 days in 2004. The company's Korean and Japanese rivals don't release their inventory levels, so it's hard to make comparisons.

Just as important is the speed at which new TVs enter the marketplace, and Samsung updates its product offerings "twice as often as our rivals," Yoon crows. "An enormous advantage we enjoy is that we are the only one in the industry capable of launching the whole line of products simultaneously in global markets." Introducing many new models at intervals increases marketing spending and diminishes efficiency in attracting consumer attention.