Samsung-Apple competition comes down to supply chains

Jane Barrett, Gartner’s vice president of supply chain research

Samsung Electronics and Apple are locked in a bitter fight for supremacy in the exploding smartphone and tablet market. But the fight is about more than just introducing cooler touch-screen gadgets and could be determined by innovations in supply chain management, according to a senior official at technology industry researcher Gartner.

According to Gartner’s table on supply chain management, Samsung is 13th among the global technology firms, while Apple retained its top status for the fifth consecutive year. However, Jane Barrett, Gartner’s vice president of supply chain research, said that Samsung has been making leaps and bounds in improving its inventory of control and distribution strategies and carved its own edge in a number of areas.

“The standing doesn’t necessarily mean that Apple is better than Samsung in all aspects. It’s how the results of methodology stack up. Apple and Samsung have very different business models, therefore, it’s tough to make a direct comparison,’’ she said in an interview with The Korea Times at the Shilla Hotel in Seoul, Tuesday.

“Especially, we consider Samsung as best in terms of class and planning capacities. Samsung is recognized by Gartner as a leader in SCM practices and processes. Samsung is catching up to Apple in some products as we see strong market share in their Galaxy products.’’

Supply chain management is critical for large corporations that create most of their revenue outside their domestic base because they must find a balance between getting their products out to market quickly and keeping a low inventory. It’s about more than just effectively running warehouses and distribution networks, but is also about the ability to detect and measure the impact of potential risks and being flexible and agile in cutting costs, Barrett said.

This has always been Apple’s strength since its iSomethings became globally popular. New Apple CEO Tim Cook has been putting even more emphasis on improving the company’s supply chain management as the company increasingly relies on partners in China, Taiwan and other developing nations to manufacture its products.

Companies in Asia-Pacific ranked lower than their Western counterparts on the Gartner list, but Barrett pointed out that Samsung was rated as the top firm in the region.

“The analysis is based on companies’ financial performances such as revenue, inventory turns and return on assets (ROA) and opinion, which is gathered through a voting process in which our analysts and peers globally vote for companies they feel demonstrate the best SCM leadership,’’ she said, adding that more than half of its voters were Asia-based.

Barrett was in Seoul as part of her research trip to China and Korea. While here, Barrett said the research firm met with its key clients such as LG Electronics, Hankook Tire and Doosan Infracore over a host of issues.

“It will be interesting to look forward three to five years and see where these technology companies are, given the passing of Steve Jobs and some of the recent senior management chances at Apple,’’ Barrett said.

“Apple has a simple set of products and do very well in terms of orchestrating the launch of new products across a very outsourced model but maintaining tight control.’’

Barrett wasn’t too concerned too about the shipment problems Apple has been facing as it moves its new iPhone 5 to world markets.

“It hasn’t impacted their overall results. However, it would be interesting to see how much better they could do if they did have better availability at launch,’’ she said.

“Also, as their competition catches up and in some instances actually has better features than Apple, we have to question whether they need to take a hard look at their planning capabilities and supply flexibility and realize that consumers will be more likely to switch to another product if the Apple product isn’t on the shelf.’’

Supply chain management critical amid uncertainty

Barrett believes big Korean companies will show more interest in improving their supply chain management systems as the bad global economy takes a bite out of their export prowess. It appears there will be no quick fix to the heady mix of negatives affecting the global economy, highlighted by the financial troubles in Europe, compounded by predictions that global demand is expected to be sluggish for the foreseeable future.

“When we look back at the crisis we had from 2009 to 2010 in the United States, there is no doubt the companies that were more mature in SCM were not only able to better manage the downturn, they were also better able to predict the upturn and ensure they had the capacity and inventory to gain market share,’’ she said.

According to Barrett, companies that have strong sales and operations planning process, good alignment across supply chain management functions within their departments and trading partners are best positioned to navigate out of troubled waters.

“We also cannot forget about the need to have the right talent and skills for more advanced SCM, and this means the need to have people become more strategically focused, having strong analytical skills, and the right mix of depth in functional excellence and people with broad capabilities across the business,’’ she said.

“The main issues for the companies I met with in Korea as well as China were similar. Due to economic uncertainty in many parts of the world, customer demand has become more difficult to predict and in many cases dropping. This means companies need to improve their capabilities to predict demand and the question normally starts with `how can I improve my ability to forecast’,” according to Barrett.

“Consumer electronics companies need to manage short product lifecycles and ever decreasing costs. So this is why we talk about the need for companies to become excellent in demand management as it is related to their specific environment. We also had several discussions about how to elevate the role of SCM in the company and have the senior executives realize the value of SCM as a strategic enabler to business.’’

Samsung and Apple’s consistent and extensive investment in SCM have helped them retain market share and credibility. But according to Barrett, Korean companies need to keep building a strong SCM foundation regarding their organizational structure, people skills, process and enabling technology as they progress.

“So depending on their maturity level they will need a strategy and roadmap of initiatives to continuously transform their SCM capabilities. Being able to understand end to end cost data by product and customer is something many companies cannot do,’’ she said. <The Korea Times/Kim Yoo-chul>