Tuesday, February 7, 2012

LG Supply Chain

            In today’s business world, many companies focus on profit.  Companies can obtain profit through the increase of their sales or by the decrease of their costs.  In an article in Bloomburg Businessweek, LG focuses on decreasing their costs by innovating its supply chain.

            Even with the increase in sales of their new products, such as the LG Cookie, LG truly cut costs in their supply chain.  In LG’s former supply chain, divisions within the company made their own deals with suppliers.  This means that information was not being shared between managers within the same company.  In the new supply chain, LG created a 50-page procurement list of suppliers to create more centralized purchases.  Moon Ihlwan writes, “By centralizing purchases, LG has cut more than $2 billion from it annual $30 billion shopping bill” (Moon).

            This scenario shows a classic case of a company moving from a silo structure to more of a matrix structure.  In a silo structure, each division controls its own function.  No collaboration runs across the different units.  This creates difficulties in obtaining price advantage, as one does not know the price that other divisions are obtaining.  A matrix structure allows for collaboration throughout all of the divisions.  For example, in a matrix structure, different divisions are able to know the price that each paid to their suppliers.  This gives the company the ability to lock in premium prices due to cooperation along the divisions.

            Other articles support LG’s move of focusing on the supply chain by innovating horizontally.  Greater profits do not always have to come from the innovation of a new product.  Sure, a new iPhone or laptop would increase sales and profits, but it is not the only solution.  Success can come from the integration of existing capabilities within the company.  Breaking down silos and thinking horizontally provides collaborative innovation within the company.  The CIA, Central Intelligence Agency, found success in integrating horizontally.  Saul Kaplan writes about CIA turning to more of a matrix structure:
With no security risk, disruption of agency activities, or incremental cost, the CIA has opened up a treasure trove of valuable data to scientists from academia, government, and industry for environmental research.  To replicate the capture of this information would be silly and cost-prohibitive, and I was encouraged that the data were being shared to make progress on an important social issue.  (Kaplan)   
This shows how success does not always have to be measured in profit.  The CIA used information technology principles of integrating horizontally to protect the United States.  The free sharing of information allows the different divisions of the CIA to be on the same page.  This gives the CIA an advantage in protection as they are not barred from any information within the CIA.

            These two cases prove how information technology exists throughout many fields for many different purposes.  LG did not use information technology to innovate in product design, but they also used it in the supply chain.  The CIA used IT principles to help protect the United States through horizontal information sharing.  With its many uses, information technology is important in today’s world.

Word Count: 519


Ihlwan, Moon.  “Innovation Close-up: LG Electronics.”  Bloomberg Businessweek.  Bloomberg, 15 Apr. 2010. Web. 6 Feb. 2012. <http://www.businessweek.com/magazine/content/10_17/b4175037784791.htm>.
Kaplan, Saul.  “Innovators, Break Down Those Silos.”  Bloomberg Businessweek.  Bloomberg, 8 Feb. 2010.  Web. 6 Feb. 2012. <http://www.businessweek.com/innovate/content/feb2010/id2010028_390003.htm>.
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