LG Electronics: Background

LG (Lucky Goldstar) is a globally spread company for different electronics such as home appliances, TV and other goods. It is present in 40+ countries with 114 subsidiaries currently and an employee network of more than 82,000 (Seth, 2018) and (Sikder, 2019). It is one of the most renowned companies for electronic manufacturing. This company is based in South Korea with its expertise on different fields such as transportation components and telecommunication devices as well (n.d, 2018) and (Essays, 2018). This LG group started off as a chemical company in 1947 later on diversifying themselves to be manufacturer in different areas ( Hoesel, 2013). Today LG envisioned itself to be the on the top 3 companies in the world and have strived really hard to maintain and sustain their business across the globe, this process was a 5 years process from 2006 to 2011, they achieved it with the help of Oracle. Oracle new ERP system the e-business suite R12 was the system implemented by LG in 2009 and after mapping and standardizing 440 critical business processes across global subsidiaries, the CIO of $44 billion LG Electronics is making his company the first ever to implement Oracle’s newest ERP platform (Evans, 2009).

Nature of LG’s enterprise system

According to ICT Integration in Business (2010), Companies must constantly innovate, sustain productivity and operate internationally to be competitive in the CE industry. To do so, they usually move production facilities and sales offices around the world to meet more effectively the local customers. While this form of expansion is critical to acquiring significant market share, business processes can be complicated. Connection with the parent offices between the various sales offices is also very necessary in order to function efficiently and effectively.

LG is a company dealing with multiple products all under one umbrella and for example LEGIL is one the biggest subsidiary of LG electronics set up in South Korea and they have their manufacturing factories in India set up in April 1998 with the expense of $31 million. Demand increased in the years 1998-2004, and the organization which had different tax and duty benefits used earlier third-party manufacturing base. But with increased demand Indian and foreign plants were set up in Pune in 2004. The LG setting up of their own shops to provide a good quality service to their customers, so they can teach them and give better understanding on their goods via these shops. LG business model is really complex and to monitor the entire system requires a customized ERP software. All ERP Package modules have been designed wither prior customization to a few i.e. approximately 30 percent customization (ICT Integration in Business, 2010). The few ERP features the company really need according to Yi (2016) are:

• product planning, purchase
• manufacturing or service delivery
• marketing and sales
• inventory management
• shipping and payment
• finance

Operational efficiency

According to Evans (2009), Seth (2018) and Essays (2018) to have the LG Company running smoothly the following things needed to be implemented by the enterprise system.

• 82,000 workers in 39 countries working in 110 offices operated by 83 independent companies across the world will be working together.
• It will remove a nightmare spaghetti platter of personalized ERP applications running on non-standard software systems at each of those 83 subsidiaries.
• 440 essential business processes across those 83 multinational subsidiaries need to be mapped, streamlined and standardized.
• Need to reduce the maintenance cost.
• You will ensure that the latest global one-instance business network will accommodate the 37 different currencies dealt with by the 50-year-old organization worldwide.
• Large and real time data hosting.
• One centralized system so the entire global infrastructure can be monitored while replacing the previous system used by subsidiaries.
• Distributed systems for production and marketing subsidiaries.

Before implementation of this oracle centralized system, LG company was running 8 different versions of ERP system on their subsidiaries which was making their communication difficult and often the data collected was inaccurate (Essays, 2018).

Improve customer/supplier intimacy

LG market depends on the service center’s attitude towards their customers. LG to provide a high-quality customer experience their ERP system needed to create a system that can be accessed by hundreds of these service centers and all integrated to one centralized system. The data was obtained from one module and then fed into the ERP CRM’s module. This also allowed them to gain control of the service levels of service engineers throughout the country. Also, LG released their customer delight campaign in which customers were provided with SMS services and voice of customer to take constant feedbacks. With the introduction of such service it boosts up the sales and benefitted them in long run (ICT Integration in Business, 2010).

Improve decision making

Decision making was enhanced by Single system centrally regulated, with low maintenance costs. Transparency in recruitment and employee assessment processes which recruit, engage and reward performance based on the right skills and demonstrated performance. Real-time data reporting makes it easier for better management and setting goals. HR is a key department and huge improvement is made to it by centrally controlling it of who to hire with locals having room to customize it (Seth, 2018), (Sikder, 2019) and (n.d, 2018).

With the new oracle ERP, they have eliminated other ERP system that were previously run and this reduced accounting closing and profitability analysis. The more reporting being generated on real time have made firm to make more decisive decisions. To ensure a smooth flow of information through the company, business processes and systems were integrated across four main business areas. By implementing identical processes worldwide, LG Electronics minimized uncertainty and allowed employees to collaborate on major projects such as global marketing initiatives and year-end account closures. Senior managers at the company’s headquarters in Seoul can now access all HR related information in real time from around the world. This gives them better insight into the numbers of the workforce and the details, qualifications and performance of individual employees, helping them to make informed decisions. (n.d, 2018).

Services

To provide a great service first the ERP must have complete control over its resources and projects to make sure scheduling is being done properly. There should be a billing system in the software as well as customers will have to be paid on various terms and billing rates should be carefully controlled and handled to ensure that the services provided are appropriately invoiced based on the time spent and the quality of service provided. Moreover there should be better visibility over its operations to make sure cost-effective decisions are made such as delivered a broken TV or wrong parcel, this causes extra surges hence ERP should be automated and fully controlled (A.P, 2018).

Create new product

According to Biswas (2018), these are the following features required in an ERP for seamless production of products:

Inventory Tracking		Distribution requirement planning
ERP system fully automated can help with keeping tracks of raw materials and track of finished goods such as delivery time. This will reduce the human error and the cost and keep the plant running smoothly.		This part requires some analytics and intelligence to see if the available raw product is available enough to support the current production with the specific scheduling.
Quality Control		Project life-cycle management
Quality control requires careful monitoring hence the ERP have pre-set values of certain product to have good quality that is constantly being matched. If the certain product does not match the standard then a message is given to the manager so it can be resolve.		Each product produced has a life-cycle. This involves a number of processes it is moving through, from conception to development to delivery. A company can track and control all these steps, resulting in better product quality, decreased prices, quicker detection of new market opportunities, optimization of production and decreased resource waste among other benefits

Business model

LG must have a software that provides flexibility as the scope of their business keeps increases hence it should be able to provide scalability and support further needs of the company. ERP software must bring mobility and compatibility which means the farewell to only desktop-based ERP and ERP software much be able to perform on platforms such as android, IOS and desktop as well. There must be openness in the software. System openness refers to the degree to which computer code can be viewed, used, and modified in a shared environment. It provides new opportunities to incorporate the physical world more directly into computer-based systems, resulting in improved performance, accuracy and revenues (Richter, 2018).

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Enterprise Risk Management

ERM, one of those internal control systems, is defined as ‘a process carried out by the board of directors, management and other staff of an entity, applied in the setting of strategies and throughout the enterprise, designed to identify potential events that may affect the entity and to manage risks within its risk appetite, to provide reasonable assurance as to the achievement of the objectives of the entity’ Proposed by the Treadway Commission’s Committee of Sponsoring Organizations (COSO) in 2004, ERM systems enable managers to detect and control plausible risk events internally that may interfere with achieving business goals in advance (McNamee and Selim 1998). In this sense, ERM systems play an effective role in managing uncertainty in the course of attaining entities’ strategic, operational, and financial goals. ERM thus integrates business-wide risks and supports organizations in setting an optimal strategy ( Kim & Yoo, 2017).

LG group sought to avoid recurrence of risk events triggered by the expenses of the business and intelligence asymmetries between the executives of associated businesses and the headquarters of corporations. Sometimes it led to considerable losses in performance of corporations as in distress of LG cards. Thus, the ultimate goal of Headquarters was to design advanced early warning systems that reported timely inherent plausible risk events of affiliated firms. IAS gradually worked to reduce corporation-level business costs and sought to eliminate the dead zone of internal management structures. However, each affiliated company has also expressed its customized requirements for ERM systems that are incompatible with those of LG headquarters.

ERM TFT did not neglect the concerns of affiliated businesses who pay consulting fees. Also, the project owners were affiliated firms that take control of ERM systems from embedding to routine operations. Dilemma was how ERM needs conflicts between the corporation headquarters and its affiliated firms could be coordinated. ERM TFT assumed that it would not be accepted as a sustainable management tool if the implemented ERM weren’t useful for each firm. Finally, TFT coordinated as follows the conflict interests. While affiliated companies could identify risk profiles of their own needs, the needs of headquarters could also be integrated in the assessment of risk events and in the selection of key risks. There were also some considerations to mitigate conglomerate-level agency costs, such as adjusting KRI monitoring intervals adapted to the needs of headquarters and carrying out IAS external auditing of whether or not the information provided by affiliated companies was reliable ( Kim & Yoo, 2017).

Identifying risks in supply chain

LG believes that the COVID-19 supply chain risk exceeds that of the Japanese export limitations. According to an LG official, LG’s production strategies were not affected by Japan’s export regulations, as the restrictions were limited to a few products. Furthermore, it was suggested regarding COVID-19, that it is an issue in China which accounts for 30 percent of the overseas production of LG Group. So this problem is taken seriously because it may affect the manufacturing operations at LG’s subsidiaries. This resulted in the company pursuing a general shift in its business policy to reduce its reliance on products and components from other countries or businesses, not only in the electronics sector but also in the chemicals and pharmaceuticals sectors. ( Herh, 2020)

The Democratic Republic of the Congo (DRC) is a large mineral-rich Central African region, including deposits of cassiterite (tin), columbite-tantalite (a tantalum source), wolframite (tungsten), and gold (known as 3TG). Armed groups have for many years financed their campaigns of insurgency by smuggling minerals from the DRC. LG set out to determine the origin of the materials within their supply chain. LG does not directly derive content from the DRC and cannot be assured that it is not implicitly funding controversy without proper due diligence. LG has explored the interaction between its core business and the dynamics of conflicts, specifically the flow of funds through its supply chain to ensure that armed groups are not supported in DRC. LG aims to harmonize its reporting of conflict minerals with SEC requirements (although LG is not a listed company in the United States). Suppliers need to develop policies to prevent the use of conflict minerals or derivative metals from armed-group controlled mines. LG asks its suppliers to classify the smelters which produce the metals. Identified smelters are asked to join the Conflict-Free Smelter (CFS) programme, which requires them to be certified. Furthermore, LG has cooperated with the Korea Electronics Association to promote awareness regarding these issues amongst other partakers, including the many tiers of suppliers (UN Global Compact, n.d).

Since you know that the consumer electronics industry is a very dynamic market and the models continue to change rapidly depending on the upgrades and expansion of the application, the major problems arise in making the newest model available to consumers as quickly as possible. Consumer perception is also changing and as regards advances they have become very demanding. The greatest challenge is to satisfy the demand of consumers and the supply of the product at the counter in the quickest manner, and how to accomplish the inventory turnover in no time so that the demands of consumers are fulfilled immediately. In this scenario, as our manufacturing units are spread throughout the country, the main seasonality issue is of transportability and handing of products while in transit. There are no proper regulations or a developed framework regarding transportation and due to poor infrastructure, LG are unable to stay on par with the demand that they receive. (Celerity Editorial Team, 2017)

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Success

The Oracle E-Business Suite R12 was implemented fully in January 2009 and after 18 months of this transformation LG electronics was able to increase productivity by 30%, reduce manufacturing time by 50% and this made them reduce their cost to the customers by 30-50%, this definitely means that they made a competitive market with lesser cost to the consumers (Oracle, 2013). With their greater visibility of their global sales, marketing, inventories and other management operations they were able to reduce their management cost by 50% and their IT budget was also cut down to 20%. Due to the openness of the software better quality of service was provided. Their supply chain management also improved due to readily availability of data and analytics that can be performed with the lesser timespan (Evans, 2009) and (Essays, 2018). The business introduced functions to handle LG Display’s historical data, such as data history audit management, hierarchy and relationship management, and data enrichment functions. In addition, the expansion framework does not require hard coding, so that the company can easily add more than 20,000 properties to support expansion (Oracle, 2013).

References

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Biswas, N. (2018). 5 Key Features Your Manufacturing ERP System Must Have. Focus. Retrieved from https://www.focussoftnet.com/erp-systems/blogs/5-key-features-your-manufacturing-erp-system-must-have

Celerity Editorial Team. (2017). Life’s Dynamic. 2017. Retrieved from https://www.supplychaintribe.com/magazine/may-june-2017/life-s-dynamic.html

Dessler, G., & Phillips, J. (2007). Managing Now. Cengage Learning, 278. doi:0618741631, 9780618741632

Essays, U. (2018). Oracle e business suite. Retrieved from https://www.ukessays.com/essays/information-systems/oracle-e-business-suite.php?vref=1

Evans, B. (2009). Global CIO: LG Transforms Global Operations With New Oracle ERP. Information Week. Retrieved from https://www.informationweek.com/it-leadership/global-cio-lg-transforms-global-operations-with-new-oracle-erp/d/d-id/1082503

Herh, M. (2020). LG Group Affiliates Reexamining Global Supply Chains amid COVID-19 Outbreak. Business Korea. Retrieved from http://www.businesskorea.co.kr/news/articleView.html?idxno=41405

Hoesel, R. v. (2013). New Multinational Enterprises from Korea and Taiwan. Routledge. doi:1134647670, 9781134647675

ICT Integration in Business. (2010). LGCSNet: Success story of the web-based system for service partners. Jaypee Business School.

Kim, S., & Yoo, J. (2017). How Does LG Group Embed Enterprise Risk Management (ERM) System In Its Conglomerate Governance To Control Its Affiliated Firms’ Risk Events? The Journal of Applied Business Research, 33(33).

n.d. (2018). Why did LG electronics company implement the the erp software ? college ERP. Retrieved from http://collegeerp14.zohosites.com/blogs/post/LG-case-study

Oracle. (2013). Oracle E-Business Suite Release 12 and 12.1 Customer Success Stories. Oracle. Retrieved from http://www.oracle.com/us/products/applications/ebusiness/ebs-r12-1-booklet-sept-2011-1355209.pdf

Oracle. (n.d). Oracle E-Business Suite | LG Electronics. Oracle. Retrieved from https://www.top10erp.org/oracle-e-business-suite-lg-electronics-case-studies-22

Richter, A. (2018). How ERP software is addressing the challenges of new business models. ERP Focus. Retrieved from https://www.erpfocus.com/erp-software-and-new-business-models-challenges.html

Seth, S. (2018). Case Studies of Successful Enterprise Resource Planning. Investopedia. Retrieved from https://www.investopedia.com/articles/investing/111214/lg-case-study-successful-enterprise-resource-planning-system.asp

Shores, R. (2008). ORACLE CORP : LG Electronics Adopts a Global Single Instance with Oracle E-Business Suite Release 12. Market Screener. Retrieved from https://www.marketscreener.com/ORACLE-CORP-4892/news/ORACLE-CORP-LG-Electronics-Adopts-a-Global-Single-Instance-with-Oracle-E-Business-Suite-Release-12-13092789/

Sikder, T. (2019). Businesses Using ERP Solution: Success Stories That You Can’t Afford to Miss Out. WP ERP. Retrieved from https://wperp.com/57388/successful-businesses-using-erp-solution-success-stories/

UN Global Compact. (n.d). LG Electronics and supply chain management in the Democratic Republic of Congo. UN Global Compact. Retrieved from https://www.unglobalcompact.org/take-action/action/case-example/114

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