Inside Samsung’s Fight To Keep Its Global Supply Chain Running
Korean electronics group draws on lessons from past epidemics to tackle coronavirus crisis
South Korea began May with public holidays, the easing of social distancing and the start of the new baseball season, giving many people a sense that life was returning to normal. But deep in the bowels of its sprawling office and factory complex in Suwon, south of Seoul, a team of senior executives at Samsung continued to work hard on tackling the Covid-19 pandemic, warning that the pain caused by the virus is far from over.
“Covid-19 is still spreading across the globe. Many individuals, companies and countries are still being affected and we think it is imperative not to be complacent,” said Kim Seog-gi, the head of Samsung’s coronavirus response task force. While South Korea is widely admired for how it has handled the crisis, Samsung, the world’s largest producer of computer chips, smartphones and electronic displays, has not emerged unscathed.
Lockdowns around the world continue to cause ruptures along its manufacturing and retail networks, while weak demand weighs heavily on its outlook.
But, remarkably, Samsung has not had “any meaningful production disruptions”, said Sanjeev Rana, a Seoul-based tech sector analyst with CLSA.
Mr Kim puts this down to early and decisive action. The company formed its task force and began preparations soon after South Korea reported its first case of Covid-19 on January 20, even while the government maintained that the threat was low and businesses should focus on growth.
“Our biggest worry was that secondary infections could happen within our factories . . . if the virus were to spread there, it would have caused a big problem,” said Mr Kim.
Among the task force’s early wins was an assessment of the capacity to provide basic protective equipment. Realising supplies would be “scarce”, an urgent worldwide effort to secure supplies was launched and teams of the company’s own engineers were dispatched to suppliers’ factories to help them find ways to boost production.
Lessons from the Sars and Mers epidemics prompted the instalment of thermometers and infrared cameras to check people’s temperatures at site entrances. New guidelines for hygiene, distancing and isolation measures were issued across the global business.
“[From] four to eight weeks ahead of the massive outbreak in Europe and the United States, we already had our factories abroad ready for the virus,” said Mr Kim. “We had difficulties sourcing PPE, but we did not have shortages.”
In late February, when South Korea was rocked by an explosion of cases linked to a quasi-Christian religious sect at Daegu. Eventually 11 Samsung employees tested positive for the virus, most of them based near Daegu at the Gumi industrial complex.
The complex houses thousands of businesses producing electronics products and components, including some of Samsung’s flagship smartphones; the company’s mobile division accounted for just shy of half its $190bn in revenue last year.
Factories were forced offline for days at a time as the company scrambled to disinfect sites and find out who else had been infected.
“What is very difficult for the company to do, is to block every individual from going places [outside company property] and becoming infected,” conceded Mr Kim.
But he said Samsung had used its own internal security system on top of the official government contact-tracing system, which combines medical records, mobile phone location data, credit card transactions and CCTV footage.
“We were able to basically trace where the workers had been — you have to tap the name tag when you enter the office, when you enter the canteen or get on the commuter bus,” Mr Kim said.
Meanwhile, a sudden surge of border closures threatened to bring to a halt the movement of goods and people. By mid-February it had taken the unusual step of flying, rather than trucking, components for its latest smartphones into Vietnam from China — where it has its largest foreign manufacturing base — to get around the lengthy delays at the land border.
More recently, with the help of the South Korean government it has won special travel exemptions from foreign embassies and has started chartering international flights to get its engineers to factories around the world.
Some experts, including McKinsey analysts, have predicted that the coronavirus shock will irreversibly restructure global supply chains, with production moving closer to markets.
But Samsung executives argued that the flexibility in having multiple sites had let Samsung continue to serve customers and the group has not announced any sweeping changes to its business plans.
Underscoring the continuity, a decision in early March to shift some smartphone production to Vietnam from Gumi has since been reversed as the virus threat in South Korea subsided.
CLSA’s Mr Rana also noted that the highly automated production of the company’s computer chips coupled with Samsung’s years-long shift of smartphone operations out of China has been vital in helping to protect its two most important earnings drivers.
“Unlike Apple . . . Samsung has negligible exposure to smartphone assembly in China, most of their assembly is done in Vietnam and other countries, so Samsung had time to take precautionary measures,” he said.
Reference: Financial Times