Just In Time Marketing

Many people are familiar with Just in Time, or JIT, manufacturing. This is the strategy of having manufacturing materials show up at the assembly plant "just in time" to start the manufacturing process. For the manufacturer, it means holding less inventory and requiring less space for holding that inventory, thus releasing cash for more useful endeavors. JIT is now practiced by the vast majority of the world's manufacturers. I have even seen assembly sites where the manufacturer's supplier has warehouses on-site, with the components being moved less than 100 feet from the supplier to the manufacturer- the manufacturer is billed only after the component or raw material is moved that 100 feet.

Interestingly enough, it seems that Samsung doing something analogous in cellphone product development, sort of a Just in Time Marketing (a Google search of the term finds a few consulting companies using the name and a few "internet" marketing schemes, but I don't find this very obvious phrase being used in the way I am about to describe).

As noted before, cellphones are becoming as much a fashion accessory as communications tool. This makes the success of any given model hard to forecast. Samsung's strategy is thus to do the following:

1. Design as many models as possible

2. Do a limited production run for each model, shipping enough out to the channel to give consumers a "taste"

3. See which models take off

4. Quickly ramp into mass production the winners.

5. Don't create any more of the losers, selling off any inventory at fire-sale prices.

This strategy turns the standard product development process on its head. The typical electronic development cycle requires all sorts of volume forecasts, ROI (return on investment) analyses, bidding from suppliers, setting up the assembly line, and several other major steps. In this case, Samsung is borrowing a page from the fashion industry, putting as many designs out there as possible, even if it means eating the cost on the losers.

Unlike the fashion industry, however, there are vast capital expenditures, complicated components and other complications with creating a cellphone. This means that Samsung had to create a supply chain that is somewhat different than the standard manufacturing flow:

1. Common "Base" Design - Similar to different car lines using the same chassis, Samsung has to require that all phones have a "base design" that each model has in common. This means all the basic communication "chips" in the phone and how they are connected are the same between the different lines, creating a common supply chain for about 75% of each phone, no matter what its external design may be.

2. Quick Design Cycles - For this strategy to work, Samsung has to constantly put new models on the market, meaning it has cellphone design cycle is measured in months instead of half-years and longer for many of its competitors.

3. Flexible Suppliers - While the suppliers in the "base" design have a fairly steady demand forecast (some models will succeed and some will fail, but the overall volume will be fairly constant), those suppliers who supply the "non-base" features like cameras, GPS or other non-standard options have to contend with the possibility of being designed into a flop, meaning no further demand from Samsung, or the phone becoming a home run and having to immediately ramp to millions of units a month. While this might not sound like a big deal in theory, it is a very big deal in practice. If a vendor has to be able ramp to mass production immediately, the manufacturing capacity has to be reserved or inventory built. If the Samsung product is a flop, the result is idle capacity or excess inventory - something that can end careers. Obviously, this forces suppliers to be flexible and creative in supporting Samsung, which can be a differentiating feature in sales negotiations.

Strategically, this allows Samsung to try many different designs since this strategy has failure built into it. A possible extension of this strategy is "semi-custom" phones. Consumers can custom order a PC from Dell today, so why not allow consumers to specify the design and specifications of their cellphone?