Samsung Electronics takes top spot in Gartner’s annual ranking of APAC supply chains

Research firm, Gartner, recently published its ranking of top Asia-Pacific supply chains. Not surprising, high tech and automotive companies made up the majority of the list.  In ranking the companies, Gartner research director, Debashis Tarafdar noted trends of “mixed economic performance, volatility of demand, rising costs, a tighter labor market, a shortage of talent and regulatory pressures” facing Asia-Pacific companies. Indeed, these trends are evident in the recent ranking.

For the second year in a row, Samsung Electronics received top ranking.  According to Gartner, it first achieved its first place ranking in 2012 because of its smartphone and global mobile phone sales. The same holds true for 2013. The company’s supply chain is a combination of outsourcing and in-house production – a major difference from its main competitor, Apple which relies entirely on contract manufacturers.  Samsung has indicated its approach as a competitive advantage for the company. According to a Samsung spokesperson "Manufacturing is the backbone of Samsung's growth and we put very much emphasis on improving manufacturing competitiveness,”. The spokesperson also noted "Samsung manufactures more than 90% of our products internally and only relies on contractors for peripheral products such as components, feature phones and handset cases."  As a result, Samsung believes this approach allows it to adapt quickly to changing market conditions.

Indeed, Apple’s supply chain may incur greater risk than that of Samsung’s model. For example, in 2012 with the launch of its iMac and iPad mini, suppliers were not prepared for the high demand and as a result, a shortage of supplies occurred and shipments were constrained. The aftermath of the 2011 Japanese earthquake also caused disruptions and supply shortages in Apple Inc.’s iPad 2, which depended on several components manufactured in Japan—including a hard-to-replace electronic compass, the battery and possibly the advanced technology glass in the display

On the other hand, by keeping the majority of production in-house, costs may be higher for Samsung. Still, industry analysts cite Samsung’s vertical integration as a competitive advantage for the company.  It designs and manufactures four of the most valuable components in handsets: application processors, DRAM, NAND flash and displays – which together constitute about two-thirds of a phone’s bill of materials.

While Samsung retains the top spot for the second year in a row, other companies are moving quickly up Gartner’s list.  Haier entered the top ten for the first time at number 3 while Lenovo moved up two places to the second spot. With almost half of its revenue deriving from Asia-Pacific along with its “hybrid supply chain” model, it will be interesting to see if Lenovo or even Haier surpasses Samsung next year.