Case Summary

By Group 1
Shubham Gupta
Rahul Sadhu
Kaushal Seth
Avneesh Bansal
Suraj Kandoi
Ameya Shire
Suman Sarkar

Sun Microsystem: Managing the Supplier Relationship

Company Background

• It is the leading supplier of enterprise computing products and network

workstations etc.
• It has 34% market share worldwide and some of its competitors include HP,
IBM, DEC, etc.
• They are highly cost focused company and is growing at a rapid pace
• There is significant pressure on SUN because of continuous technological
advances of personal computers

Business model

• They use a mix of standard industry components and 2 to 3 key differentiators

on which they are leading edge
• Standardization leads to lower cost due to economies of scale
• key product differentiators are: Scalability, Open System and Proprietary Sun
Technologies
• They use leverage model for manufacturing
• Buy components/ Systems; assemble in house
• Make and buy components/systems; assemble in house
• Buy fully finished systems
Supplier Management

• Supplier management side comprises of VP of supplier management, GCM,

CM
• GCM heads multiple commodity managers and have 10-30 years of industrial
experience
• CM are responsible for managing relationship with suppliers, understand
there technological and manufacturing capacity
• CM’s are also responsible for maintaining score card of suppliers, act as point
of contact and internal advocate of the suppliers

Supplier Management Process

Identification of Supplier Supplier Logistics

Negotiation Supplier Liaison
needs Identification communication Management

Identification of needs:
• Establish product requirements & Understand technical direction
• Formulate 3-5 years strategy
• Work closely with their Tier-1 Suppliers (major partners) to develop
new technology and components

Supplier Identification
• Determine make vs buy
• Pick sole-vs.-multiple suppliers
• Understand supplier capabilities; technical & manufacturing

Supplier communication
• Document product requirement
• Formulate an RFQ
Negotiation of Terms
• Philosophy of Sun Micro is to develop close ties with their suppliers

Supplier Liaison
• Manage the scorecard
• Communicate with suppliers

Logistics Management
• Convey forecasts
• Control inventory costs
• Manage end-of-life cycle

Balance Scorecard

Leading Rating Scheme

The delivery Leadtime rating scheme compares the supplier’s demonstrated time to
the committed Leadtime(agreed by the supplier)

Demostration lead time Award points for lead time (max = 10)
At or below committed lead time 10
Less than 5% above committed lead time 6.6
5% to 9.9% above committed lead time 5
10% to 14.9% above committed lead time 3.3
15% to 24.9% above committed lead time 2
25% or more above committed lead time 0

Lead time rewards and site roll-up score

The GCM performs the global roll-up procedure for Leadtime by weighting the
individual site scores.
 Difference
Average Award point of Site roll up
Sun Part Number of compared to % above target
demonstrated lead time (Max score for lead
Number line items comittment of 30 of 30 days
in days = 10) time
days
17560 20 30 0 0% 10 0.95
17575 70 30 0 0% 10 3.33
17585 10 45 15 50% 0 0
17590 30 37 7 20% 2 0.29
17595 80 30 0 0% 10 3.81
Total 210 8.4

Price Index

Here the factor of price is included in the scorecard where (Target Price)/(Actual
Price) is compared within the range.

(Target Price)/(Actual Price) is (Target Price)/(Actual Price) is

Greater than or equal to less than Price Index
1.00 n/a 1.00
0.99 1.00 0.99
0.98 0.99 0.97
0.97 0.98 0.94
0.96 0.97 0.91
0.95 0.96 0.88
0.94 0.95 0.85
0.93 0.94 0.83
0.92 0.93 0.81
0.91 0.92 0.80
0.90 0.91 0.79
0.89 0.90 0.79
0.88 0.89 0.78
0.87 0.88 0.77
0.86 0.87 0.76
0.85 0.86 0.75
0.84 0.85 0.74
0.83 0.84 0.73
0.82 0.83 0.72
0.81 0.82 0.71
0.80 0.81 0.70
0.00 0.80* Target/Actual - 0.12
* Minimum price index is 0.50

Calculation of Final Scorecard

Finally scorecard is calculated by taking the product of Price Index with the sum of
the scores for the four factors.
 Category Global Scores
Quality 27
Leadtime/ Delivery/ Flexibility 26
Technology 20
Support 15
Total for Performance Matrix 88
Price Index 0.98
Score Score 86.24

Total Cost of Ownership

After the calculation of the scorecard, total cost of ownership (TCOO) is calculated by
the formula
Total Cost of Ownership (TCOO) is calculated:
TCOO= [(100 – Score)/100]+1
TCOO denotes that the cost Sun Microsystem has to pay the supplier for the
product of value $1. Therefore, the closer TCOO is to the 1 the better it is for the
Sun Microsystem.

SMCC Scorecard- Electrical Components

Quarter:
SUMMARY - SUPPLY UNIT or GLOBAL RESULTS

Scorecard for: Commodity Rated:

Data or Max Actual
Category Subcategory Comment Points Points Score
Receiving
Inspection   -8.00    
Total Failure Rate
(RPM/DPM)   20.00    
Failure
Vertification/
Quality Retest   2.00    
FA/ Corrective
Action   8.00    
Purge or Stop Ship   -10.00    
PPA, DOA, or Field
Problem   -10.00    
Quality Subtotal:   30.00   pts
Lead/ Delivery/ Leadtime   10.00    
Flexibility
On-time delivery   15.00    
Flexibility   5.00    
 L/D/F Subtotal:   30.00   pts
Product   9.00    
Manufacturing   16.00    
Technology
Technology
Subtotal:   25.00   pts
Materials/
Purchasing   10.00    
Support Sustaining
Technical   5.00    
Support Subtotal:   15.00   pts
Performance Matrix Total 100.00    
Price Index 1.00    
Score = performance matrix*price index 100.00    
Total Cost of Ownership = [(100- Score)/100]+1
Goal: 1.00  
Prior Performance Matrix Score:
Prior Price Performance:
Prior Total Cost of Ownership: