Running Head: Smartphone Supply Chain Process Framework
Supply Chain Management
Component 4, Phase 4
Smartphone Supply Chain Process Framework
Mike VanZuiden
Bellevue University
1
Smartphone Supply Chain Framework
2
Abstract
Once owned completely by a few electronics/communication giants, startup
smartphone manufacturers are beginning to proliferate. This is due to the mass
availability of many of the industry standard components, parts and software (Culpin,
2013). With this in mind, Bob Trumped has decided to start his own international
smartphone company.
The focus of the owner/investor is to build a brand that represents social and
environmental responsibility while maintaining low costs and superior customer service.
The plan is to accomplish this through an agile hybrid supply chain model that includes
some centralized component assembly to facilitate a fast response from decentralized,
regional assembly facilities that are adaptable to customer demands and technology
shifts. Products will drop ship to a network of retailers.
Supply chain alignment will be maintained using KPI’s fueled by strong ERP
system that is driven by RFID and demographic feedback. Metrics and strategy will be
used to address opportunities that are shared and rolled up from a network of
stakeholders at the department, region, state and international levels. Corporate values
for all supply chain members will be managed and monitored through a centralized audit
system supported by corporate and supplier codes of conduct.
Smartphone Supply Chain Framework
3
Body
There is a smartphone explosion happening in the smartphone industry and a
good friend of mine wants to join the fray. Seeing that more companies are supporting
a bring-your-own phone platform; my friend, who is a self-made multimillionaire named
Bob Trumped, is sure that there is a way to build these devices for less and cash in on
significant margins, so he is determined to create a new smartphone brand called
Fictiphone.
Having taken a course in supply chain management, my friend Bob has called on
me to assist him in creating a supply chain framework that would be adequate to
accommodate customers in the U.S., Canada, Mexico, France, Germany and Australia
with the service they had become accustomed to in terms of speed and quality, but at a
lower price. Additionally, Bob only does business with companies who are
environmentally and socially responsible; he has said that he wants his company to
represent these same values.
Fictiphone will need to find an advantage if they are to build a less expensive
product while meeting the responsibility, quality and delivery expectations of the
customer and Bob, taking an “intersectionist” (Larson; Poist; Halldorsson, 2007)
approach to business design, was wise to instigate the supply chain in the search for
answers. Beginning our research with raw materials, we were able to find out a few
things that are important to creating a sustainable supply chain. First, most
smartphones are built from 62 different materials; this includes everything from the outer
shell to the electronics. Unfortunately, of those 62 materials, there are some potential
Smartphone Supply Chain Framework
4
problems; some of these materials are in short supply, none have substitutes that
perform equally well, and 12 of the materials have no substitute at all. To complicate
things further, some of the metals that are used in every smartphone are without
substitute and in short supply. Additionally these rare metals are found only in the
countries of South Africa and the Congo, countries that face near constant political
turmoil. All of these issues work together to make smartphone supply chain stability
and challenge (Greenquist, 2013).
In terms of the supply chain framework, the market has two giants that together
control more than 50% of the overall smartphone market and each of them takes a
different approach to manufacturing. Samsung, the number one smartphone producer,
has chosen to use a model where they own most of their supply chain, only outsourcing
where parts/components are commoditized and readily available from other sources.
This gives the company the ability to leverage their buying power. Additionally the
company has manufacturing facilities around the world to match supply to demand
regionally and therefore can offer many product variations so as to appeal to the largest
customer demographic. It is also worth noting that Samsung is known for paying its
employees well above the industry average while still making significant margins
(Gharbijanian, 2014).
The second largest manufacturer, Apple, takes almost the opposite approach.
They outsource most of their manufacturing and supply chain activities. Apple limits
their product options to consumers so as to increase the volume of each item. When
combined with their high product loyalty Apple is able to focus less on the product itself
and more on managing their vendors. However, to facilitate effective management,
Smartphone Supply Chain Framework
5
Apple chooses to work almost exclusively with Asian companies having over 80% of
their production contracts there (Gharbijanian, 2014). This makes the company more
susceptible to higher warehousing and transportation costs and may leave them at
some political risk.
Another consideration that is important to the process is the location of the
headquarters. Bob likes living on the west coast of the U.S. and would like to keep his
corporate headquarters close to home. The company will plan to launch with their
headquarters in the U.S. as Bob wishes.
Understanding these things about the supply chain allows Fictiphone to begin its
supply chain design. Based on what has been learned, Bob has decided he would like
to hire a team of HR professionals and lawyers to develop his corporate and supplier
codes of conduct. These code documents will define Bob’s vision regarding corporate
and subordinate environmental and socially responsibility and set the standard for all to
work under.
It will be important for Fictiphone to understand how their operations will align
with the people, cultures and laws of each country, state and region. An extension of
the legal and HR teams should begin work in all of the countries where the company will
operate; an effort that should engage local contacts. This includes not only where the
smartphones will be distributed, but where factories will be located and where parts and
materials will be sourced.
Bob and his financial team have decided that it is not in the best interest of the
company to own the entire supply chain at this point, so the model that The Fictiphone
Smartphone Supply Chain Framework
6
supply chain will begin with will be a hybrid approach. They plan to own a central
component design/assembly factory that will ship parts to regional assembly/distribution
centers located around the world. This framework should allow Fictiphone to be highly
responsive to customization and demand from local retailers, require little warehouse as
product will be drop shipped to retailers (Entrepreneur, n.d.). Overall this design, when
coupled with well-designed information/ordering systems, should help to reduce the
bullwhip effect and create a cost effective supply chain.
A strong supply chain begins with a viable supplier of raw materials and ends
with a comprehensive and satisfactory customer service and return process. Although
the company is twice removed from raw materials supply, Fictaphone will want to make
sure that their parts suppliers have access to all of the raw materials that they will need
to fulfill Fictiphone’s demand for parts and that they are all supplied from companies that
represent Fictiphone’s corporate values. These relationships will be audited and
maintained through contracts and contract management by Fictiphone.
In order to hold down costs, Fictiphone’s engineering team believes that they
have improved on production methods for some of the key assemblies that will be used
in their phone. They have begun work with parts manufacturers to design and produce
these parts. A second key to lower costs is to use as many common commodity parts
as possible in their overall design. This will allow Fictiphone the option to source these
parts locally, supporting local businesses and communities while minimizing shipping
costs, or leveraging international and volume buying power where appropriate.
Smartphone Supply Chain Framework
7
Planning is an important part of an efficient and effective supply chain. To
facilitate the flow of information that will drive the planning and forecasting functions,
Fictiphone will rely on an ERP system that is driven by RFID and demographic feedback
systems that will encompass and inform the entire supply chain process. These areas
include and will aid in customer relationship management, customer service
management, demand management, order fulfillment, manufacturing flow management,
procurement, product development and returns (Croxton; Garcis-Dastugue; lambert;
Rogers, 2001). The data gleaned from these systems and processes will lead to other
advantages for the company. This is another area where Fictiphone can develop a cost
advantage over its competitors.
For example, employees in Fictiphone’s Customer Contact Centers will have
access to information and guided access to insights that will allow them to assist
customers with issues and concerns; information that could include component
availability and deliveries and impending product improvements will help them to
exceed customers expectations By empowering employees to assist customers in this
fashion, Fictiphone will be able to launch an aggressive web based interface that will
facilitate custom smartphone orders for pickup or delivery locally, pre-set up to each
customer’s preferences; while allowing the traditional packaged phone available for the
typical user.
In addition to making information available for near real time use, Fictiphone will
also create forums to discuss insights gleaned from systems. These forums would
include all of Fictiphone’s supply chain stakeholders from the raw material suppliers to
consumers and other advocates/stakeholders. The forums would occur in
Smartphone Supply Chain Framework
interdepartmental, reginal, national and international events so as to represent, rollup
and create a plan to address the opportunities presented by each group (Croxton;
Garcis-Dastugue; lambert; Rogers, 2001). Data would be used to support and align
thoughts and opportunities with processes so as to facilitate leadership support and
empowerment to foster a culture of continuous improvement and lean processes
(Martin, n.d.).
To measure performance and improvement, the data stream can facilitate a
number of key metrics. These may include, but are not limited to, metrics such as
production costs per smartphone, ROA, inventory turnover, back order rate and perfect
order rate (Klipfolio, n.d.). Key metrics should be focused on critical areas of
performance that leadership wishes to improve and may change over time. Setting the
correct metric targets with all stakeholders involved is another level of assurance that
Fictiphone’s supply chain will be aligned to achieve its low cost, objective while
maintaining exemplary customer service.
In summary, by taking advantage of things such as Google’s free Android
operating system in addition to standardized chips and technology, there is an
opportunity in the market to grab a share of what Samsung and Apple own today
(Culpin, 2015). By leveraging an umbrella approach to supply chain management that
is agile, adaptable, aligned; and in attentive to the flow of data from its systems,
Fictiphone should have the tools necessary to build a low cost alternative without
sacrificing quality, service or delivery speed.
8
Smartphone Supply Chain Framework
9
Fictiphone plans to leverage minimal proprietary parts to take advantage of the
market, but intends to pre-assemble some key subcomponents at a central facility.
These components will be shipped to regional assembly hubs where they will be
combined with other commoditized parts purchased locally wherever possible to
minimize shipping/warehousing costs and support local businesses. From here,
Fictiphones will be drop shipped on demand to retailers for pickup and activation. This
will facilitate responsive supply, allow for customer specific customization/set-up and the
ability to quickly adapt to changing technologies.
Sustainability and corporate responsibility is insured through end-to-end code of
conduct commitments from all vendors and employees. These take into consideration
the unique requirements of each region while ensuring corporate, social and
environmental responsibility. Materials, parts and supplies will be managed along with
compliance efforts.
All processes, products and transactions will be tracked and measured using
KPI’s developed by stakeholders and strategies will be guided by metric targets. This
data and resulting information will be available to all stakeholders near real time to keep
the targets in focus.
Now ready to launch his new business, Bob has asked for a standardized map to
assist with development, training and communication of the Fictiphone supply chain
approach. A SCOR process model (Supply Chain Council, 2006) has been developed
as requested to guide current business development and sustain process integrity (see
below).
Smartphone Supply Chain Framework
10
Smartphone Supply Chain Framework
11
References
Croxton, Keely L.; Garcia-Dastugue, Sebastian J.; Lambert, Douglas M.; Rogers, Dale
S.. (2001). The supply chain management process. International Journal of
Logistics Management. Retrieved from
http://search.proquest.com.ezproxy.bellevue.edu/docview/235873785?accountID
28215
Culpin, Tim. (7/13/2015). Start Your Own Smartphone Company for $1,000.
Bloomberg Business. Retrieved from
http://www.bloomberg.com/news/articles/2015-07-13/how-1-000-buys-asmartphone-brand-to-challenge-samsung
Entrepreneur Staff. (n.d.). Drop Shipping. Entreprenueur.com. Retrieved from
http://www.entrepreneur.com/encyclopedia/drop-shipping
Gharbijanian, Varag. (4/2013). Billions Served (In Secret): How their mobile supply
chaines give Apple and Samsung an edge. Endeavour Partners. Retrieved from
http://endeavourpartners.net/billions-served-in-secret-how-their-mobile-supplychains-give-apple-and-samsung-an-edge/
Greenquist, Brittany. (2013). Raw Smartphone Materials Could Be Running Out – and
No One Has a Solution. RYOT. Retrieved from http://www.ryot.org/rawsmartphone-materials-could-be-running-out-no-one-has-solution/491801
Smartphone Supply Chain Framework
12
Klipfolio. (n.d.). Supply Chain Metrics and KPI Examples. Retrieved from
http://www.klipfolio.com/resources/kpi-examples/supply-chain
Larson, Paul D.; Poist, Richard F.; Halldorsson, Arni. (2007). Perspectives On
Logistics vs. SCM: A Survey of SCM Professionals. Journal of Business
Logistics. Retrieved from
http://search.proquest.com.ezproxy.bellevue.edu/docview/212652114/BD63D286
3F2E4FA1PQ/1?accountid=28125
Martin, James W.. (n.d.). Making SCOR Model More Effective with Lean Six Sigma.
iSixSigma. Retrieved from http://www.isixsigma.com/operations/supplychain/making-scor-model-more-effective-lean-six-sigma/
Supply Chain Council. (2006). Supply-Chain Operations Reference-model. Retrieved
from http://people.ischool.berkeley.edu/~glushko/IS243Readings/SCORV8.pdf