PQI - Management of Suppliers

Group 5, Section B
1. Analyze how PQI classifies its suppliers. What transaction costs and
hazards are associated with each type?
Tier 1
Basis for classification • Geographical span- International
• Product focus- IC (Intel, Samsung)
• Management focus- Product and
market information
• Frequency of meeting- Weekly to
keep abreast of new technology
Tier 2
• Geographical span- Regional
• Product focus- Standard (Resistors
& Capacitors)
• Management focus- Price
monitoring
• Frequency of meeting- Monthly (
Evaluation half yearly)
Tier 3
• Geographical span- Local
• Product focus- Low end and structural
components (Housing)
• Management focus- Product and service
quality
• Frequency of meeting- Monthly( Focus on
technical and production capability and B-
S relationship

Transaction cost involved • Strategic partners search, R&D and • Strategic partners search, R&D and • Strategic partners search, R&D and
information cost- High information cost- Low information cost- High
• Review and Evaluation cost- High • Review and Evaluation cost- Lower • Review, Evaluation cost and Quality control
because senior authorities were than that of Tier 1 because of cost- High because of heavy involvement
involved on a weekly basis infrequent involvement of senior of quality control and engineering
• Contract renewal cost- High supervisors department
• Contract renewal cost- Low • Contract renewal cost- Medium

Hazards • Balance of power shift towards the • Less focus on quality control could • Since PQI was involved in almost every
suppliers lead to stain on PQI’s reputation stage of these suppliers, they might feel
• Less room for negotiation • Price monitoring can also lead to stifled leading to problems.
• Any change in the contract can oversights in quality • This relationship was primarily built on
lead to high cost trust which can be fragile
2. Analyze & comment on the biannual score sheets for the three
suppliers in Ex. 4. Based on the score sheets, what kind of actions is
recommended?
The assessment forms shown in exhibit 4 are used by PQI for evaluating and selecting both tier 2 & 3 suppliers.
But this list includes factors some of which are more relevant for tier 2 and others for tier 3. Judging both based
on an aggregated list of factors might not yield satisfactory or reliable results.

Hence , the following suggested procedure can be followed for a better and more accurate evaluation of the
suppliers:

• Segregation of factors for tier 2 and 3.

• Prioritization of factors
• Assigning weights to the factors
• Finding the total weighted score for each suppliers
• Selection

Inclusion of R&D especially in the evaluation of tier 3 suppliers because of their involvement in preparing trial
prototype.
3. Should PQI share its assessment results with its suppliers? How would
doing so impact its management of suppliers & its relationship with
them?

Impact of sharing the assessment result -

• By sharing the result the suppliers will be aware of the expectations of PQI and can work on
improving those areas.

• Feedback from suppliers and their viewpoint regarding the current assessment procedure
followed by PQI to improve and refine the process.

• Since most of the big firms around the globe follows this sharing of results with their
suppliers.
4. The Purchasing Manager has narrowed its choice of potential supplier for the
rush order from the new customer to A, B & C. If you were Wang, which
supplier would you recommend that the purchasing manager places order
with?
Relevance of the Assessment parameters

Parameter Reasons for selection

Capability in synthesizing primary Die casting- New order involves die casting which is an important parameters for Tier
material 3 suppliers

Cost down initiatives as the order Die casting involves high fixed cost and also cost management is critical for the firm
quantity changes to stay competitive

Competitiveness of pricing in primary Competitive quotes for new orders are important
material
Rush order
Responsiveness to short delivery cycles

This order will open up for the potential for future business. (Better relationship)
Wish to maintain relationship with PQI

The supplier needs to be in line with the technical innovations to be ahead of

Capability in improving product quality competition
4. The Purchasing Manager has narrowed its choice of potential supplier for the
rush order from the new customer to A, B & C. If you were Wang, which
supplier would you recommend that the purchasing manager places order
with?
Description Weight as per priority Supplier A Supplier B Supplier C

Capability in synthesizing primary material 6 3 3 3

Cost down initiatives as the order quantity
changes
4 5 5 3

Competitiveness of pricing in primary material

1 5 3 3
Responsiveness to short delivery cycles 5 3 3 5
Wish to maintain relationship with PQI 3 3 3 3
Capability in improving product quality 2 5 5 3
77 75 73

Based on the total score Supplier A is the choice for placing the order.