Samsung’s recall of its Galaxy Note 7 smartphones due to reports of fires caused by the lithium-ion battery exposes another hole in its supply chain strategy. In addition to lacking a product recall management plan, Samsung Electronics Inc. made another supply chain mistake by allocating a majority of its lithium battery orders to a single supplier, according to EnergyTrend. The result was fewer supplier options when faced with a product recall due to quality and safety issues. The incident should serve as a risk management reminder to all OEMs.
Samsung buys more than 60 percent of its Note 7 batteries from a single supplier - Samsung SDI, which is virtually unheard of in the battery supply chain, according to market researcher TrendForce.
“This incident exposes Samsung’s flawed strategy of allocating most of its smartphone battery orders to Samsung SDI,” said Duff Lu, research manager of EnergyTrend, division of TrendForce, in a statement.
“Most branded device vendors allocate their battery orders evenly between two or more suppliers,” Lu added. “It is a rarity to have a vendor handing over 60 percent of its orders to one battery maker. Apple, for instance, never allocates more than 40 percent of its iPhone battery orders to its largest battery supplier ATL. This effectively spreads the risks of encountering problems with product quality later on. To lower costs further, Apple in recent years has divided its battery supply chain into battery cell manufacturing and battery assembly.”
While the product recall is expected to have a ripple effect in the supply chain, Lu believes the battery defect will have a short-term impact on the lithium battery industry because only one model is affected. However, it will likely result in smartphone makers rethinking their strategies for battery supply chains, he added.
For Samsung it’s a bigger challenge. Not only does it have to find and approve alternative suppliers, it also is faced with rebuilding its reputation, which is never an easy task after a product recall.
The product recall also will result in a closer look at lithium battery technology. Smartphone makers will likely “have to accept a tradeoff between energy density and component cost when choosing their batteries,” Lu said.
Today, most smartphones and notebooks use lithium-polymer batteries because of their inherent benefits. They can be made lighter and thinner compared to other lithium technologies. The market share of smartphones using lithium-polymer batteries is at 70 percent in 2016, up from 35 percent in 20100, according to EnergyTrend.
“Energy density of smartphone batteries has been increasing steadily in recent years to satisfy consumers’ habits of using their devices for extended periods,” Lu stated. “While mainstream smartphone batteries now have a density of more than 680 kilowatt-hours per kilogram, some products are even developed to last longer than notebook batteries. However, the increase in energy density of lithium batteries has also led to growing concerns over their safety.”
Case in point: The lithium-polymer battery in Apple’s new iPhone 7, for example, offers an increased capacity of 1715 mAh, up from 1960 mAh in the iPhone 6, but it is said to be a larger battery, according to a teardown from IHS.