More information continues to come forth regarding Samsung’s bold decision to permanently suspend production and sale of its newly announced Galaxy Note 7 smartphone. Thus far, the information points to both product design/management as well as supply chain related learning. While it is still rather early to be able to definitely conclude what led to this brand debacle, the one clear aspect is that the Samsung Note 7 incident will be of multi-industry discussion, thought exchange and study for many months to come.  samsung-galaxy-note-7-recall-fire-explosion-sized

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Many industry, business and other media voices are already concluding that Samsung’s decision to terminate the Note 7 product represents a bold effort to protect its overall brand and creditability with customers. The more that the negative publicity continued regarding Samsung, the more the damage. New reports and social media commentary are surfacing that the manufacturer’s engineering teams were themselves challenged with determining the specific root cause(s) of the thermal runaway fires.

We initially call Supply Chain Matters reader attention to a recently published and rather insightful New York Times report: Why Samsung Abandoned Its Galaxy Note 7 Flagship Phone. This report indicates that within its process of overall response to reports of phones exploding and catching fire, Samsung’s engineers were unable to replicate the fire conditions. Further noted was that because of the tight deadlines and intense internal visibility to find root cause, engineering elected to conclude that the effect had to be associated with faulty batteries or battery design.

In August, the looking glass, as this blog speculated, quickly turned to battery supplier Samsung SDI. The Times citing documents from a South Korean product safety regulator as a source, indicates speculation that either the plates inside the battery were too close or the battery had defects in insulation or coating of electrodes. The early September product recall of 2.5 million phones was targeted to those Note 7’s that had Samsung SDI batteries. Both Samsung and the Korean regulatory agency turned to batteries supplied by alternative battery ATL to be those to be incorporated with the recall’s replacement phones. That decision reportedly backfired when reports of fires associated specifically to the replacement phones began to quickly surface.

No doubt, these efforts involving suspicions with battery design operation caused Samsung’s internal supply chain teams to scramble for a response plan.  We speculated in our prior blog commentary that the rest of smartphone and consumer electronics industry was obviously watching events very closely as well to ensure that a battery defect was not involved with other product supply chains. Samsung SDI itself is a supplier to many other branded smartphones including Apple’s iPhone.

The Times article goes on to cite a former director and battery expert at the Korea Electronics Technology Institute as indicating that blaming the batteries as the problem was too quick to judgement given the lack of definitive post-testing data. Instead this expert noted: “The problem seems to be far more complex”.

Other reports that we have reviewed thus far also point to engineers under the gun to quickly resolve the cause of fires with un-conclusive or definitive test data. In the end, concerns for the brand, and concerns for short and longer term revenues and profitability seemed to have taken hold. Equity analysts at Credit Suisse had recently estimated that the Note 7 recall could cost Samsung upwards of $19 billion in lost revenues. Research firm Strategy Analytics had earlier estimated more than $10 billion in financial losses. Samsung itself has indicated to shareholders that it anticipates A $5.3 billion loss during the next few quarters. The manufacturer has already downward adjusted its third-quarter profit forecast by $2.6 billion. Thus the financial implications of this incident can be substantial.

In today’s world of global business, events reverberate continuously at the speed of social and traditional media. Staying in-front of and in-control of such information flow, particularly when it involves brand crisis is a daunting challenge that requires expert resources.  Industries further exist in an overall business environment more inclined to lawsuits and litigation response to product recall incidents which often hampers open communication and timely response when lawyers become the filter for external and internal communications and investigation mechanisms. We have observed that theme consistently in these incidents as well as the supplier implications.

While information, discourse and industry implications related to the 2016 Samsung Note 7 product management events will continue to unfold, we offer one clear takeaway.  The business process, information, market intelligence and decision-making relationships among product design, management, procurement and broader supply chain strategy teams is ever more important and required in today’s global business environment. No company is immune, regardless of stature or brand identity. The supply and product value chain leadership and accountability umbrella is broad and ever more inter-dependent.

Supply Chain Matters advocates that Sales and Operations Planning and internal organizational management mechanisms include product design and management as an entity within integrated business and operations planning.

Bob Ferrari

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