OEMs outsourcedmanufacturing to electronicsmanufacturing services providers. Often they also ended up outsourcing procurement and lost control of relationships with suppliers. Now many OEMs have taken backmaterials sourcing and re- established direct relationships with suppliers. However, that was not an issue for LG because the company is vertically integrated.
Linton said: “We are old school.Wemake our products
ourselves.We have 46 factories and only outsource about five to 10 per cent of ourmanufacturing. The rule of thumb at LG is build it yourself and outsource excess capacity where a lot of other companies have gone the other way. Our competitive advantage in terms of supply is that we don’t outsourcemuch.”
Cluster source
Besidesmulti-tier sourcing, another strategic purchasing trend at LG is the use of ‘commodity cluster leaders’ whomonitor big picture supply issues concerning commodities. For example, LG has a semiconductor cluster leader. Commoditymanagers for memory ICs,microprocessors, linears and other semiconductors report to the semiconductor cluster leader.
The cluster leadermonitors trends in the overall semiconductor
industry and, as Linton explained: “Ties those commodities together so commoditymanagers thinkmore intelligently aboutwhat is going in demand and supply, in price, and in long-termindustry trends.”
The cluster leader would keep commodity managers appraised
about trends in various industries such as automotive, consumer electronics and computing and offer analysis on how the trends can affect semiconductors. They talk to industry analysts, understand what market intelligence firms are saying about semiconductors and changes in semiconductor technology. There is also a cluster leader for other electronics such as printed circuit boards and raw materials. Other cluster leaders may be added in the future.
Linton said: “If you look at copper, gold, steel and othermetals
used in electronics, they tend to follow the same paths. The cluster leader for rawmaterials can help commoditymanager for copper and gold to have a deeper understanding of what is going on in theirmarkets.”
Linton has transformed purchasing at LG
helping to reduce cost. Butmore importantly, he says, his initiatives have helpedmake LG more competitive. He notes that LG in recent years has gainedmarket share withmany products. It is now the second largest manufacturer of LCD televisions. It was the fifth largest in 2007. It is also the third biggestmaker of cell phones, up from number four in 2007.
Linton concluded: “What I am
interested in is how much better are we than the competition. Are we doing better than Samsung, Sony and Bosch? Are we doing a better job getting our costs down?We are. The proof is we are able to sell our products for less than the competition because we have better material costs.”
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