DRAM Contract Prices Remain Under Pressure; NAND Poised for Rebound
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Samsung Electronics Inc. needs to resolve its Galaxy Note 7 battery problem urgently. That message should be going out to the Korean OEM and semiconductor supplier from all players in the electronics supply chain irrespective of their competitive position against the company. The entire industry is getting a black eye each day the Note 7 battery issue plays out in dramatic videos of fires allegedly started by the exploding device.
Why is this not just an issue for Samsung alone and why should rivals worry about the Note 7 battery challenge when demand for their own devices might actually be rising (Apple is reportedly getting a bounce for its latest iPhone) as a result of this problem? The answer lies in the fact that Samsung violated basic supply chain rules in how it has handled the recall of the Note 7 device and in the smear of “guilt by association” that other electronics companies now face as handset buyers and regulators scrutinize the production and use of lithium-ion batteries.
They will be asking other questions. These include: What processes does the industry have in place for effectively handling product recall; Are lithium-ion batteries dangerous and can the industry be trusted to recognize and admit its limitations; Do all makers of electronic devices have steps in place for quickly identifying bad or poorly manufactured components; Should regulators be approving OEM designs and components ahead of production and release to the public; What are the duties, obligations and expectations for telecom service providers that sell to the public mobile handsets and other products that use lithium-ion batteries and; should OEMs be compelled to submit a product recall plan to assure customers problems and concerns will be immediately addressed and negative exposures quickly erased?
It doesn’t appear Samsung had a product recall management plan in place. In fact, the company is providing educational institutions globally the textbook case study of how not to handle a product recall. The company has gone from offering customers a voluntary replacement to instructing them to immediately “power down the device” and now offering a software upgrade to cut off charging once the battery reached a certain level. It has been a scattershot response to a desperately urgent personal and public safety need.
Buried inside Samsung’s disastrous response to the Note 7 battery problem are lessons for other electronics manufacturers. The company just wasn’t prepared for a potential failure. That’s what Best-in-Class companies do. They anticipate unwanted problems and they put in place mechanisms for dealing with such scenarios.
That process involves trying to ensure those problems don’t come up in the first place by incorporating product design into the manufacturing system. Best-in-Class companies talk about factors such as design-for-manufacturability (DFM), which aims at ensuring designs can be well produced and in a cost-efficient manner. They stress bringing all other supply chain players into the product design process early in the conception cycle to identify and neutralize potential problems in the manufacturing cycle. Compliance with regulatory requirements in the age of conflict minerals, the EU's Waste Electrical and Electronics Equipment Directive (WEEE) and technology transfer restrictions form part of the checklist.
The regulatory rules are so important that many distributors, including the biggest companies like Arrow, Avnet, Future and WPG and also mid-tier players like Electrocomponents, Digi-Key, Mouser, TTI, etc., have full time employees whose main job is ensuring customers and suppliers do not fall afoul of export restrictions. These best-in-class companies also stress the importance of an effective and efficient sales and marketing campaign in addition to ensuring smooth coordination with logistics services providers and warranty and guarantee fulfilment experts.
The one part of the process we hardly ever hear about is the strategic product recall and replacement team. This group and the plans it must have in place may be an after-thought at some companies but others typically review such processes, do best-case and worst-case scenario planning as well as have tactical crisis management teams in place. It’s not unusual for these companies to do a stress test of their supply chain to ensure it can handle a product recall.
Samsung may have had these systems in place but it has so far spectacularly failed the real-world scenario of having to recall the Galaxy Note 7. In fact, the company continues to flail around, tossing out one uncoordinated fire-fighting plan after the other in a desperate attempt to quell the problem. In one of the latest attempts the company said it would send out a software upgrade to Note 7 owners to tamp down on battery charging once it reached a certain level. Is that comforting for people who have seen videos of burnt Note 7s? As a former owner of the Note 7, this action does not inspire confidence in the company and the telecom service providers that allow the device on their networks.
So, despite asking customers to “immediately power down the device” Samsung, it seems, still expects people in the meantime to continue using the Note 7. If the company’s assumption was that many Note 7 owners would simply ignore this advice, they would be right. However, the only reason many Note 7 users may continue to use the handset is because of the company’s inefficient product recall program.
As I worked on this article, an e-mail from Samsung crossed my desk. The company promised to have replacement devices for Note 7 owners by September 21. Here’s a quote from the message, which I received because I ordered the device ahead of its public release:
Dear Bolaji, as part of our voluntary recall, Samsung is announcing that new Galaxy Note7 replacement devices will be available in the United States at most retail locations no later than September 21, 2016.
The company received approval for its exchange program from the Consumer Product Safety Commission (CPSC) and has announced an official U.S. voluntary recall of the Galaxy Note7. We strongly advise all customers who have Galaxy Note7 devices to replace their current device with a new device under the terms of the U.S. Note7 Exchange Program.
If this was the best this company was prepared to do to protect customers from the likelihood of being burned by an exploding device, I can understand why regulators might also want to get involved.
This was originally a Samsung Electronics problem but watching the company’s uncoordinated response it's right to ask if other companies have a recall program in place for defective devices and how effectively they would respond to an unwanted recall.
By the way, why is anyone still using the original Note 7? (See: Another Samsung Galaxy Note 7 up in smoke as users ignore recalls).
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