Supply chain disruptions from COVID-19 drive Samsung, LGES, Hyundai Motor toward 'lighthouse manufacturing'
By Kim Yoo-chul
The COVID-19 pandemic was an opportunity for manufacturers in global supply chain systems to embrace significant challenges. Korean conglomerates like Samsung, LG and SK groups also had to adjust to the crisis by revamping their supply chains and embracing more innovative manufacturing processes.
Steps taken by advanced and emerging economies to control their coronavirus infection spikes resulted in national lockdowns and temporary halts in the flow of raw materials and subsidiary products, which as a consequence disrupted manufacturing processes.
The pandemic itself didn't necessarily bring about any new challenges in supply chains because in some business areas it merely shone a light on earlier unseen vulnerabilities, including increased inventory levels due to closures, and resultant profit losses. Executives at Korea's leading exporters noted that the pandemic accelerated the identification of problems that already existed in supply chains.
Sources and executives at Samsung, LG and SK groups' technology units told The Korea Times that COVID forced them to make their supply chain strategies more sustainable, resilient and even collaborative with key stakeholders such as suppliers and customers.
"Companies usually scale back their investments in a crisis, however, during the pandemic, Samsung didn't stop investing in technology improvements, highlighting the company's focus on the value of a digitally-connected supply chain to help the firm respond quickly to volatile supply and demand situations," an official at one the conglomerates said.
Last year, Samsung Electronics, the world's top manufacturer of TVs, smartphones and memory chips, said it planned to spend 450 trillion won on "focus areas," specifically artificial intelligence (AI) and application semiconductors. Company representatives said Samsung is also working on advanced robots and AI.
In January, Samsung invested $46 million in domestic robot maker Rainbow Robotics. This move, which gave it a 10.3 percent stake in the firm, was seen as showing its commitment towards advancing supply chain technologies such as AI, data analytics, and robotic process automation and control towers, while retaining its current staffing system. "Maintaining a high-performing supply chain in terms of both efficiency and visibility has become a competitive necessity," another company official said.
Transitional path, Foxconn model
However, officials at the country's leading exporters said while they have no questions about the necessity of updating supply chains for resilience and operational excellence, it's highly unlikely that manufacturers will see any visible progress in the smart factory concept in the near future.
"Data acquisition and analysis, and factory automation are required for a smart factory because it is more about a high level of customization and how factories operate," said Jeong Hong-beom, an executive in charge of handling smart factory-oriented strategies at Hyundai Motor, the country's top automaker. Crucial to a smart factory is the technology that makes data collection possible, which includes sensors, motors and robotics on actual production and assembly lines.
Because the basic structure of a smart factory includes the integration of information, communication and production technologies, with the potential for integration across manufacturing supply chains made possible via the internet-of-things (IoT), a presidential aide handling industrial policies under the former Moon Jae-in administration said it should be possible for Korean firms to pursue hybrid models according to different production bases as part of efforts to initiate smart factories.
"Simply put, smart factories require a shift in mindset because they are about data management and not just factory automation. Smart factory initiatives are complex to execute and require the backing of employees and business units. Such initiatives could also face resistance to change and cause confusion inside an organization. Given the regulatory risk in terms of data transparency, auditability and labor-centric business structures, Korean manufacturers will remain in the early stages of this for a considerable period of time," the unnamed aide said.
LG Energy Solution (LGES), for example, has recently created a chief data officer (CDO) position, as part of efforts to establish a data-driven smart factory structure. A spokesman at the top battery supplier for Tesla, said it is still in the process of hiring specialists, and classifying data for specific purposes. As a long-term strategy, the spokesman said LGES aims to get potential clients to think more about smart manufacturing utilizing robotics, data analytics and AI.
Min Kyeong-do, an executive at Gaon Partners, a consulting company, said what is happening inside Taiwan's Foxconn is worth watching for Korean manufacturers, which have substantial overseas exposure, as the world's top maker of electronic components is taking steps to build data-driven lighthouse manufacturing networks in the wake of supply chain disruptions.
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