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PESTELE ANALYSIS OF SAMSUNG ELECTRONICS (SEC)/

INFORMATION TECHNOLOGY AND MOBILE COMMUNICATIONS


DIVISION

Executive Summary

In the global economy, logistics and supply chain have become the key enabler that prosper
businesses. Managing the Global Supply Chain (GSC) in its right course requires steadfast
arrangements and decision making at all levels for they have a direct and significant impact
on a company’s performance. The bigger and more complex Supply Chain (SC) network
gets, more difficult to see into distance tires and get a full view of a product lifecycle. This
case study analyses the current challenges and their effects from 2015 to 2018 of Samsung
Electronics (SE), large scale malty-national conglomerate, operating worldwide through its
more complex SC. Samsung lost its market shares in both its Consumer Electronic products
(CE) Information Technology (IT) and Mobile Communications (MC) divisions since year
2013 and researcher mainly focused on these areas and used the PESTELE analysis along
with Michel Porter's Five Forces framework. During the analysis it was revealed that still SE
trying to recovering the brand image which was lost in the Galaxy Note 7 issue, further
lobbing with political agenda, political instabilities in the some regions where SE operating,
not having own operating system (OS), technological innovation and advancement, capturing
of emerging venture in market by competitors and offering with low profit margin in cheaper
rates, impulse buying of products according to the dynamic market place and bargaining
power of suppliers and rivalry amongst industry competitors are some of key issues. To
recover SC, market share , recover brand image and reputation SE need to investment in
production facilities, stay ahead of the technological and innovation , product differentiation,
increase customer loyalty to retain market share and ensure sustainability, strengthen the
Samsung experience store and aggressive push into the developed countries and marketing
and innovation to capture disposable income, acquire a retail chain of stores to create impact
and maximise product value and increased sound communication, integration and
collaboration between various departments all along the SC, more authentic CSR program
and a more public commitment to gain lost reputation are majour decisions to be considered
to regain market and improve the SC and revenue are the best options.
Tables of Content
1. Introduction ……………………………………………………………………... 4
2. Overview of the Samsung Electronics …………………………………………. 4
3. Analysis of Samsung’s Supply Chain for the Period 2015-2018 ……………… 3
3.1 Samsung Operations …………………………………………………… 5
3.2 Supply Chain Analysis ………………………………………………… 7
3.3 Analysis of the external environmental ……………………………….. 9

4. Current Situation ………………………………………………………………. 9


5. PESTELE Analysis ……………………………………………………………. 10
5.1 Political ………………………………………………………………… 11
5.2 Economical ……………………………………………………………. 12
5.3 Sociological …………………………………………………………… 13
5.4 Technological ………………………………………………………… 14
5.5 Environmental ………………………………………………………… 15
5.6 Legal ………………………………………………………………….. 16
5.7 Ethical …………………………………………………………………. 17

6. Michal Porter’s 5-forces Analysis ……………………………………………… 18


7. Conclusion and Recommendation
7.1 Conclusion ……………………………………………………………… 19
7.2 Recommendation ………………………………………………………. 20

References ………………………………………………………………………… 21-23

List of Tables

Table 1: SE Supply Chain positions in year 2014 to 2018 …………………………….. 10


Table 2: Analysis of Political component …………………………………………….. 11
Table 3: Analysis of Economics component ……………………………………….. 12
Table 4: Analysis of Sociological component ………………………………………. 13
Table 5: Analysis of Technological component ………………………………………. 14
Table 6: Analysis of Environmental component …………………………………….. 15
Table 7: Analysis of Legal component ………………………………………………… 16
Table 8: Analysis of Ethical Component ……………………………………………… 17
Table 9: Competitive analysis using Porter’s 5- Forces ………………………………. 20

List of Figures

Figure 1: Samsung organisational chart and majour divisions of


Product portfolios ………………………………………………………. 5
Figure 2: Supply chain transformation in the Western & African
Theatre in global landscape ……………………………………………... 6
Figure 3: Supply chain transformation in the Eastern theatre in global landscape ……... 7

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Figure 4: Samsung Supply Chain and strategy …………………………………………. 8
Figure 5: Samsung Supply Chain ……………………………………………………….. 8
1. Introduction

In an increasingly competitive, dynamic and highly complex business world, progress in


Supply Chain Management (SCM) is important for businesses to prosper and maintain a
competitive edge. Further, SCM is a comprehensive and innovative activity, including
processors, system and governance, in view of optimize marketing, sales, development,
manufacturing, purchasing, logistics and services over the entire SC (Mangan and Lalwani,
2016c). This requires the management of a vertically and horizontally integrated network of
organisations. SCM encompasses the management of relationships, in-bound and out-bound
flows of material, communication of information and the coordination of resources. The
purpose of SCM is to create value, enhance efficiency and satisfy customers (Mangan and
Lalwani, 2016c).

This case study focuses on Samsung’s, CE and IT and MC. This product range contributes
more than 45% of Samsung’s company revenue (Patel, 2017, AB, 2018). Annually, Gartner
evaluated the performance of publicly listed companies with revenues greater than US$12
billion for their SC performance. Gartner then rank and provide a list of the top 25 SCs in the
world. Criteria considered in the Gartner rankings include peer opinion of voters (25%);
Gartner opinion (25%); three year weighted ROA (20%); inventory turns (10%); three year
weighted revenue growth (10%); and a Corporate Social Responsibility (CSR) component
score (10%) (Gartner, 2016). Between 2016 and 2017, Samsung fell from 8 th position to 25th
and developed up to 17th position in year 2018 (Gartner, 2016, Gartner, 2017 and Gartner
,2018).

Six sigma and SCM have been two important enablers for the SE growth. However, SE relies
that there is significant room for improvement specially its SCM operations. This assignment
identifies Samsung’s key SCM challenges that contributed to Samsung’s loss of competitive
edge according to the Gartner rankings, review relevant SCM literature and analysis
according to the PESTELE and Michel Porter’s Five Forces analysis. Moreover, there are
recommendations to improve Samsung SC performances also included.

2. Overview of the Samsung Electronics

SE is a multi-national conglomerate, operating world-wide through its 217 subsidiaries, with


the corporate management office in Suwon, South Korea. The Company has three business
divisions: consumer electronics, information technology & mobile communications and
device solutions. This is further sub-divided in two segments: ‘Semiconductor’ (Semicon) for
memory and system LSI (Large Scale Integrated) and ‘Display Panels’ (DP) for LCD and
OLED panels (Samsung, 2018). SE business portfolios can be further illustrated as per figure
1. The Samsung Group of companies has large, complex, GSC makes extensive use of SCM
solution to support and improve its operations.

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Figure 1: Samsung organisational chart and majour divisions of product portfolios.
Source: (Samsung Electronics, 2017).

3. Analysis of Samsung’s Supply Chain for the Period 2015-2017

3.1 Samsung Operations

Samsung Supply Chain (SCC) having more than 2500 suppliers, over 308,745 employees in
80 countries, 39 production bases in 17 countries and 55 regional office around the world and
35 R&D centers (Samsung Electronics America, 2018). SSC operations are mainly divided
into key division across the globe as illustrated in the world map show on figure 2 and 3
respectively.

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Figure 2: SC transformation in the Western & African theatre in global landscape
Source: (Samsung Sustainable, report 2018a)

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Figure 3: SC transformation in the Eastern theatre in global landscape
Source: (Samsung Sustainable report, 2018b)

3.2 Supply Chain Analysis

SCC is more complex in nature since it connects across the planet and producing number of
products. In 2013, Samsung introduced 7 best practices and transformation including ‘Six
Sigma’ and ‘Advance Planning & Scheduling (APS)’ embedded to SSC as illustrated on
Figure 5 (SupplyChain, 2013). Considering the SC of the electronics and computing industry
(Figure 4), identified that manufacturing is the maximum value adding activity (approx. 50%
of total), and a key area for companies to reduce costs and control product quality. To keep
products in unique high quality and consistency SE assembled and complete 90% products
in-house. Samsung is ‘contract manufacturer’ in DS business, and ‘vertically integrated’ in
CE and IM businesses, including retailing through ‘Samsung Experience Stores’ and
servicing through ‘Samsung Care Centers’ Figures 4 and 5 illustrate the all-encompassing
competitiveness its edge in cost, delivery, quality, technology, and human resources in order
to maximise synergy, speed, and efficiency with its suppliers and create a corporate
ecosystem that enables sustainable growth (Samsung sustainable report, 2018).

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Figure 4: SSC and strategy
Source: Source: (Samsung Sustainable, report 2018c)

Figure 5: SSC
Source: (Ijbm.co.in, 2018)

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3.3 Analysis of the External Environmental

Samsung is considered the market leader for CE goods and home appliances with a global
market share of 21.6%, followed by LG at 11.6 %. (Statista, 2017). As Guarnieri (2016) and
Chien and Gunther (2008) stated that SE operates with the highly competitive industry and
shows high growth rates, and high turbulence, mainly driven by the dynamic technological
obsolescence, according to the Moore’s Law. (Doubling the processor speed every two years)
Therefore, this industry needs to invest heavily in R&D.

Consumer electronics: Samsung is the market leader in TVs with a global market
share of 21.6%, followed by LG at 11.6% (Statista, 2017a). The industry is highly scattered
in other household appliances (refrigerators, washing machines, microwaves etc.), depending
upon geographical area, and the market leader’s share is not more than 20% (Electrolux,
2015). Therefore, competitors trying to catch the market introducing innovative product
keeping low profit margin.

Smartphones: Samsung is the market leader with a global market share of 21%,
followed by Apple at 12.5% (IDC, 2017). However, this is also high competitive market
since Huawei, Oppo, Vivo, Nokia, also introducing new products with technological
innovation and introducing in cheaper prices. Therefore, the SC is very competitive to
produce SKUs in cheaper price and high quality. Therefore, SE mostly sourcing from Latin
American, Asian and African region where labour cost is low but certain degree of
uncertainty.

3. Current Situation

After continuous growth of the SE started losing market share in 2014 onwards.
Revenues decreased by 9.83% and operating income fell by 31.97% in 2014, as compared to
2013. This situation has being continued today. However, recovery could be witnessed only
on DS last 3 years due to strong demand within the global semiconductor. In year 2014 SE
secure 6 place and drop down to 8 place in year 2018 (Table 1). However, in 2017, Samsung
faced significant drawbacks in its SC and dropdown from 8th position to 25th in the Gartner
GSC index (Gartner, 2017). With the product recalled on 2.5 million of Galaxy Note 7, due
issues of outsourcing without proper quality assurance (QA) and Quality Control (QC),
Samsung faced fatal drawbacks. However, in year 2018 SE secure the position of 17, yet
need to catch up the market as previously preformed.

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Table 1: SE Supply Chain positions in year 2014 to 2018

Source: Gartner SC index (2014 to 2018)

Significant fluctuation in SC position triggered many challenges and issues related to


Samsung. Apart from the low profit and damage of brand image on Galaxy 7, presently
Samsung has some challenges identified and illustrated in PESTELE and Five Force
Analysis.

4. PESTELE Analysis

Lynch (2015) recommended that use of the PESTELE framework to understand the causes
affecting the competitive environment in an industry. Therefore, PESTALE analysis will be
provided a good logical argument on SE to understand factors effected to the business
environment and SC.

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4.1 Political

Table 2: Analysis of Political Component

Challengers Courses Impact

Political instabilities in global suppliers in SC (North Korea, African and Latin Disruption to GSC High
American countries) Reduce markets here
Reduce revenue
Political scandal, lobbying, and corruptions in South Korea (Granting of Billions of Deteriorate of brand name High
USD for political campaign ) Claps of internal business
environment
SE bribery issues in South Korea Deteriorate of brand name Low

Economic slowdown in Europe as a result of BREXIT and ensuring economic Disruption to GSC High
uncertainty Reduce markets here
Reduce revenue

Political influence is most important factor for firms when setting up production bases in countries, either to obtain favourable
tariffs or get excise duty exemptions and even run the business in the countries (Mallard, 2015). The political pressure from US
government has highlighted by Reuters (2017a) and (Bloomberg, 2018) when Samsung setting up a production base in USA.
Since, there are 33 production plants established in the African, Asian and Latin American regions SE need to effective
coordinate, collaboration and manage supply chains; because this regions always faces to political instability due government
changes, labour union activities, tax and tariff fluctuations etc which directly affected to SC performances. Further, recent arrest
of Samsung’s Vice Chairman, Lee Jae-Young (TheGuardian, 2017), in a corruption scandal shows that politics plays a significant
role in how businesses are run and this has directly impact to the goodwill and brand image of SE. Further, turmoil with North
and South Korean also leads to instability of the SC. Economic slowdown in Europe as a result of BREXIT and recent US tax
issues also having high impact on SC proformance.
4.2 Economic

Table 3: Analysis of Economics Component

Challengers Courses Impact

Reduction of 27.74% in revenue and 56.69% in operating profit of IM Deduction of market revenue and share High
division in year 2015 to 2017 Disruption of smooth function of SC
Increase in cash conversion cycle from 46.65 to 87.87 days in last three Reduce revenue generation High
years Loosing of working capital to expand
business
Disrupt to SC
Centrilised SC in USA (only 2 sales bases in North America) Increase transportation and Low
miscellaneous expenditure
Increase administrative cost
Reduction in inventory turnover from 7.47 to 6.55 over last three years Cash flow issues Medium
(2014 to 2017) Deduction of sales and revenue
Capturing of emerging venture in emerging market by competitors Loosing of R & D focuses High
Cost consideration

Clashing of cost on marketing, R &D and low cost leadership Galaxy 7 issue Medium
Heavy cost on R & D
Increase in cross border tariff for exports in USA and economic Economic controllable issues High
slowdown in Europe, BREXIT and economic uncertainty

CE products have shorter life-cycles due to the speed of technological obsolescence and companies need to price new products at
a high price to be able to breakeven quickly(Torresen and Lovland, 2017). When SC network designing always aiming to increase
customer responsive and decrees the SC cost since electronics good required innovation, quality and low cost over rivalry and
introduce before competitors (Mangan and Lalwani, 2016d). The consumers have buying power to afford new electronic
products. Since SE is operating developed and developing countries, economy in which Samsung operates is crucial to its
expansion. Macroeconomic environment in which Samsung operates is always best where uncertainty and volatility require many
R&D initiatives to acquire the market over competitors (Razdan, 2018). SE have established 35, R & D centers and heavily

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investing on it. Therefore, they have able to become a market leader or pioneer of the CE, IT and Semicon divisions. However,
launched Galaxy Note 7 before iPhone 7 but failed. This was the highest lost recorded in SE supply chain history. Yet SE
struggling to recover the market in terms of market share, revenue and goodwill.

4.3 Sociological

Table 5: Analysis of Sociological Component

Challengers Courses Impact

Reputational damage on losing patent infringement case (to Huawei 2017) Engaging in unethical business Medium
Increasing of barraging power of ‘captive’ suppliers Rivalry among competitors High
Lack of customization of products according to the culture and country R&D Low
Capital
Low product diversification
Impulse buying of products according to the dynamic market place Life-style changes High
Marketing
Consumer references
Innovative products and
technological advancement
Customer health and safety R&D failures High
(Galaxy Note 7and top loading washing machine) QA & QQ

Ssocial factors include culture, lifestyle, preferences, etc. which impacts the business of an organization.The changes in the life-
style of consumers, due to the fast pace of modern life, has seen increase in ‘impulse’ buying of products, driven by the sense to
achieve instant gratification (Mittal, Sondhi and Chawla, 2015). In addition, Park, Jun and Lee (2015) have concluded in their
study that mobile phone shoppers are impulse buyers, and have a high consideration for the product price, since they perceive
effort and time spent in buying as a cost. Moreover, Samsung is a family owned and multinational organization which carries out

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its business at the global platform with the bases in Korea. The ongoing changes in the social trends and preferences affect
company in both positive and negative senses. However, SE has experienced a growth with these social changes and had also
modified its products and services according to the cultural diversity around that world.

4.4 Technological

Table 7: Analysis of Technological Component

Wang and Ahmed (2001) mention that a company’s dynamic know-hows depend upon market dynamism (due to shorter life
cycle and changing market demand and technological advancement), and this drives the firm to develop core capabilities over a
period of time. The CE industry is highly vibrant, driven by technological innovation and being the first to offer latest products to
the market. specially in televisions , mobile products . Which means that to achieve core capabilities, companies have to make
significant investments in production technology and R&D (Razdan, 2018). Table 7 indicated latest issues on SE.

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4.5 Environmental

Table 6: Analysis of Environmental Component

Challengers Courses Impact

Use of eco-friendly material for production (E.G. semi-conductors, chips, Lose of loyal customers High
CFC free products, etc) Lose market and revenue
Reverse logistics Adding toxic and harmful martials High
(e-waste) to environment

Traditional SCM focus on cost, time and quality. However, presently it has been extended to integrate environmental and socia l
dimensions (Bentahar and Benzidia, 2018). Moreover, firms go beyond and taking environmental and social conditions into
account in the SCM and brings strategic advantage to the company’s competitive advantage (Zhu et al, 2018). The concept of
reverse logistics (RL), Triple bottom-line (3BL/TBL), green logistics and sustainability concepts presently has been considered
by the organization to capture market and earn un-touch revenue over competitors (Roger, Tibben and lembke, 2010) . SE use
some 3rd world countries (India, African countries) to dump their e-waste which impact of brand image and reputation. Presently,
people more concern on eco-friendly product.

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4.6 Legal

Table 7: Analysis of legal component

Challengers Courses Impact

Intellectual property rights, Copy right and patent right Lose of loyal customers High
(Alleged intimation of Apple iPad and iPhone and patent infringement Lose market and revenue
to Huawei’, SE had to pay penalties) Lose brand name image and reputation
Reverse logistics Adding toxic and harmful martials to Medium
(e-waste) environment
Safety related legal issues QQ & QA issues High
Complying of labour laws There are some issues reported 2nd Medium
and 3rd supplies in SC due ill
treatment of workers and pay issues
Legal issues on political lobbying, corruption, Lose of loyal customers Medium
Lose market and revenue
Lose brand name image and reputation

Legal factors are been concerned with the rules and regulations being imposed on the organization by the government .SE had
paid heavy penalties towards the charges being levied by Apple for the imitation of iPad a, iPhone and Huawei. This act led to
the downfall of the image of SE and consequently hampered the business to the great extent. There are strict copyrights laws
which limit the company and are concerned with the issues as well. It has been identified that SE had faced stringent regulation
and laws for the electronic devices safety and security regulation by the regulatory bodies.

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4.7 Ethical

Table 8: Analysis of ethical component

Challengers Courses Impact

No-union policy Discourage of employee Medium

Safe environment Safe environment for workers who in dangerous Medium


plats/workshops
minimum wages Reported in Chain and South Korea (specially in outsource Medium
industry)
100% Korean corporate management/leadership Believe in indigenous (Korean) leadership Low

Beyond the environmental dimension social and ethical factors presently considered as very important aspect of GSC (Leire,
Mont, 2010). Further important factors such as SSM transparency, minimum wages, safe and secure work, and collective
bargaining etc have considered as code of conduct of firms and SC (Wieland and Handfield, 2010). In such a situation, Samsung
must be aware of the need to make products in a way which satiates the ethical consumer

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5. Michal Porter’s 5-forces Analysis
Michal Porter’s 5-forces theory is one of the best option to analyse the market, to understand the
competitive landscape (Porter, 1985). Analysis of the competitive forces (Table 9) shows that
bargaining power of suppliers is high: due to short lead times, and the high level of technical
competency required in manufacturing electronic parts, thus requiring captive suppliers. Since the
industry is close to reaching maturity, growth rates have slowed down, with competition of rivalries in
CE and IT and MI division.

Table 9: Competitive analysis using Porter’s 5- Forces

Electronics and Computing industry (2015-2018)

Competitive force Impact Reason


Bargaining power of suppliers Short lead times
High Captive suppliers

Bargaining power of buyers Buyers have limited alternative


Low choice for new products

Threat of substitutes Short life-cycle of products


Low
Threat of new entrants High investment required for
Low new product development

Rivalry amongst industry The industry is close to reaching


competitors High maturity stage

Porter (1985) argued that ‘low cost’ and ‘differentiation’ are the best strategic options to competitive
advantage for a firm. Glowik (2009) argued that “SE parent group has been successful in several
unrelated business, which reflects strength in forecasting future market potential”. Having large-scale
plants (production in economies of scale) contributes Samsung the advantage in controlling quality and
reducing costs for its CE products. Nevertheless, intra-company revenue records indicated that SE
consume only 50% of what the DS plants produce and the balance 50% of capacity is contracted out to
other firms such as TCL and Hisense (IHS, 2017).
6. Conclusion and Recommendation
6.1 Conclusion

Considering the recent past Samsung’s issues, it seems to that Samsung did not have a sufficiently
responsive, resilient and cost effective SCM system and strategy to quickly minimise financial losses
associated with the failed launch of the Samsung Galaxy Note 7 .Therefore, Poor SCM performance
can have serious impacts on Samsung’s profitability and competitiveness. SCM is interdependent with
all aspects of company operation and improving the integration of information and materials flows to
enable informed and fast decision making. Therefore, SC issues can be attributed to a breakdown in
communication, integration and coloration between internal department and third party venders. The
bigger and more complex SC gets, more difficult it is to see into distance tires and get a full view of a
product lifecycle.

6.2 Recommendation
1. Key factors contribute to success in SE in CE and IT and mobile phone industry shows that
product affordability, product features, and product quality are the main requirements to achieve the key
success .To achieve this following are the key

a. Low cost of production (for contract manufacturing only)


b. Investment in production facilities
c. High investment in R&D
d. Availability of talent (scientists and designers)
e. Product differentiation

2. SE parent group has been successful in several unrelated business, which reflects strength in
forecasting future market potential. In addition, Samsung’s investments in large scale modern
manufacturing plants for CE, IT and mobile means that high production volumes are necessary to
achieve economies of scale.
3. Samsung’s corporate strategy and prescriptive of emergent strategy is can be illustrated as
Differentiation for CE and IM and Cost leadership for DS (semiconductors and display panels).

a. In 2015-2018, Samsung’s made key strategic moves to established plant with US $ 2.5
Billion investment in USA (Reuters,2017b) to increase focus of manufacturing of CE and IM
and display panels divisions, this will enable to SE take the USA and Canadian market with the
economic recovery.
b. Increased focus on ‘retailing’ of mobile products and TVs, with launch of ‘Samsung
Experience Stores’ globally, in key markets like UK, USA, Korea and Malaysia.
c. Acquire a retail chain of stores to create impact and maximise product value

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.
4. Establish more R&D centers in USA for product development
It was observed that out of 34 R&D centers, only North American centers contributes almost 35% to
Samsung’s global sales revenues (Samsung, 2017).

5. Introduce a customer loyalty arrangement in industrialized countries to uphold operating


margins and need to focus on developed countries, since consumers are more technically adapted and
have the buying power as a result of higher per capita income
6. Needs to increase customer loyalty to retain market share and ensure sustainability.
7. Implement ISO 31000 for Risk Management systems across the organisation.
8. Consider the adoption of ISO 9000 Quality Assurance systems.
9. Review the Analytical capability and to ensure that the right data is collected at the right time,
meaningful analysis is done and in a timely manner.
10. Increased collaboration between various departments all along the supply chain and considering
the ‘whole of organisation’ costs in decisions. This could be done through regular meetings and
reviews, digitisation of information flows and early engagement of SCM staff from design through to
end of product life.
11. Develop a contingency plan so that there are clear procedures on how to respond to a SCM
unexpected event quickly and including strategic marketing.
12. Set up a multidisciplinary internal team for quick response in case of a critical event.

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