Deliverables
• 8 (max!) pages, double‐spaced, 12‐pt Times New Roman, 1‐inch margins
Page count does not include mathematical work, graphs, etc.
Graphs, figures, tables may be attached to write‐up (as appendix) or
integrated in write‐up
I expect an error‐free, perfectly formatted submission!
FORMAT (Important: Answer all questions within this format (please no ‘question – answer’ structure)!
1.Brief Executive Summary
- Should contain all relevant recommendations
- NO LONGER THAN HALF
A page
2.Background:
Brief introduction of company and key issue (essence of the case)
Don’t paraphrase (max. half a page)
3.Analysis:
Quantitative (show analysis) and Qualitative (explain it)
Explain relevant variables, constraints and assumptions
Use tools: SWOT, Kraljic, Sensitivity analysis, etc.
Helps to derive alternative strategies
4.Derive Alternatives:
Identify different alternatives
Identify/discuss key decision variables
Compare alternatives and discuss trade‐offs
Criteria for accepting/rejecting solutions
5. Final Recommendation(s)
Present final strategy and expected contribution/benefit
Discuss recommended implementation (e.g., timeline, necessary investments)
Case Study Questions (1/4)
1. Develop a process that provides a logical order to the critical activities and decisions involved in the supplier evaluation and selection process. For example, the first step of this process may include recognizing (or anticipating) that a supplier selection need exists. Subsequent steps should follow from the actual or anticipated need. Present this process in the form of a flow chart with key decision points clearly identified.
Case Study Questions (2/4)
2. Discuss possible sources of supplier financial information. Which factors influence the ability of Systems Technologies to obtain supplier financial data? (Hint: Think of supplier characteristics, etc.)
Case Study Questions (3/4)
3. What is your recommended sourcing strategy for Systems Technologies? Perform various analyses (see below) to support your decision. Also, make sure to discuss the advantages and disadvantages of single and multiple sourcing.
-Assume you have used several of these sources to collect supplier financial data (data provided in the case). Perform a supplier financial analysis. Provide a brief interpretation of each financial ratio. (See supporting worksheet)
-Perform a total cost analysis. (See supporting worksheet)
-Perform a supplier capacity analysis. How important is supplier capacity in
-Develop a supplier evaluation and selection tool with relevant performance categories for the sourcing decision under consideration (See supporting worksheet).
this case? Why?
-Develop a sourcing risk management plan. For this task, (1) identify the potential risks associated with a sourcing decision, (2) assess the possible magnitude of each risk to operations, and (3) identify ways to manage or reduce risk exposure. (See supporting worksheet) .
Deliverables • 8 (max!) pages, double‐spaced, 12‐pt Times New .docx
1. Deliverables
• 8 (max!) pages, double‐spaced, 12‐pt Times New Roman,
1‐inch margins
Page count does not include mathematical work, graphs, etc.
Graphs, figures, tables may be attached to write‐up (as
appendix) or
integrated in write‐up
I expect an error‐free, perfectly formatted submission!
FORMAT (Important: Answer all questions within this format
(please no ‘question – answer’ structure)!
1.Brief Executive Summary
- Should contain all relevant recommendations
- NO LONGER THAN HALF
A page
2.Background:
Brief introduction of company and key issue (essence of the
case)
Don’t paraphrase (max. half a page)
3.Analysis:
Quantitative (show analysis) and Qualitative (explain it)
Explain relevant variables, constraints and assumptions
Use tools: SWOT, Kraljic, Sensitivity analysis, etc.
Helps to derive alternative strategies
4.Derive Alternatives:
2. Identify different alternatives
Identify/discuss key decision variables
Compare alternatives and discuss trade‐offs
Criteria for accepting/rejecting solutions
5. Final Recommendation(s)
Present final strategy and expected contribution/benefit
Discuss recommended implementation (e.g., timeline, necessary
investments)
Case Study Questions (1/4)
1. Develop a process that provides a logical order to the critical
activities and decisions involved in the supplier evaluation and
selection process. For example, the first step of this process
may include recognizing (or anticipating) that a supplier
selection need exists. Subsequent steps should follow from the
actual or anticipated need. Present this process in the form of a
flow chart with key decision points clearly identified.
Case Study Questions (2/4)
2. Discuss possible sources of supplier financial information.
Which factors influence the ability of Systems Technologies to
obtain supplier financial data? (Hint: Think of supplier
characteristics, etc.)
Case Study Questions (3/4)
3. What is your recommended sourcing strategy for Systems
3. Technologies? Perform various analyses (see below) to support
your decision. Also, make sure to discuss the advantages and
disadvantages of single and multiple sourcing.
-Assume you have used several of these sources to collect
supplier financial data (data provided in the case). Perform a
supplier financial analysis. Provide a brief interpretation of
each financial ratio. (See supporting worksheet)
-Perform a total cost analysis. (See supporting worksheet)
-Perform a supplier capacity analysis. How important is supplier
capacity in
-Develop a supplier evaluation and selection tool with relevant
performance categories for the sourcing decision under
consideration (See supporting worksheet).
this case? Why?
-Develop a sourcing risk management plan. For this task, (1)
identify the potential risks associated with a sourcing decision,
(2) assess the possible magnitude of each risk to operations, and
(3) identify ways to manage or reduce risk exposure. (See
supporting worksheet)
Case Study Questions (3/4)
4. Based on your previous analyses, make your final
recommendations for Systems Technologies!
In-Store
Sales
Associate
Catering
Sales
Associate
Maintenance
Associate
5. Staff
Ingredients
Buyer
Operations
Manager
HUMAN RESOURCES:
Hello,
Head of HR here, providing you a bit more insight into our
process. I’ve included a flow chart on the high level process
(see below) but also wanted to provide a more detailed
explanation.
Our HR cycle begins with our recruiting department. We have
campus recruiters who attend career fairs and develop
relationships from select universities around the country. We
also do a substantial amount of recruiting through LinkedIn,
targeting professionals further along in their career with the
backgrounds we look for. We then conduct phone screens with
qualified candidates, followed by rigorous in-person interviews.
We hire approximately 10% of the candidates we interview in-
person.
RECRUIT
HIRE
MANAGE
EXIT
EVALUATE
COMPENSATION
ADJUSTMENT
Once an employee comes on-board, our performance
management system begins.
Employees are required to write out goals and objectives after
their first 30 days on the job. They have regular ongoing
conversations with their direct managers, as well as with
8. struggling and needs to make changes in order to remain
profitable. Such consultants are often highly educated in the
field of business and have experience in managerial roles.
Instructions
Step 1: ORGANIZATIONAL STRUCTURE
Take a look at the Organization Chart provided by the company.
· Based on your knowledge of hierarchies, would you say that
this team has tall structure or flat structure?
Underline your selection:
Tall Structure
Flat Structure
Explain your answer.
Step 2: HUMAN RESOURCES
The company would like to improve the culture of its team and
the quality of its work. Its leadership has provided you with a
Process Chart detailing how it currently applies Human
Resources best practices.
· What step of the Human Resources Cycle is missing? Explain
why it is important to include this part of the process.
Note: You should complete Steps 3 & 4 after reading the
material in Week 9.
Step 3: LEADERSHIP STYLE
You have been asked to help improve the leadership style of the
team leader in order to meet the team’s performance goals. The
team leader has given you a description of what is most
comfortable in terms of leading others.
Identify this leader’s style of leadership. Underline your
9. selection:
Pacesetting
Visionary
Affiliative
Coaching
Coercive
Democratic
Explain your reasoning and list two benefits and two drawbacks
to the style of leadership you identified as it relates to the
performance of the team.
Provide advice to the team leader on how to overcome the
drawbacks of this leadership style.
Step 4: REAL-WORLD APPLICATION
Apply the thinking in Steps 1-3 as if you were a Leadership
Consultant hired by the company where you work or for a
previous employer.
· Review the organization chart for your company. Based on
your knowledge of hierarchies, would you say that your
company’s team has a tall structure or flat structure? How does
this affect the way your team works? Explain your answer.
· Consider the work conducted by the Human Resources team at
your company. What steps of the Human Resources Cycle do
they implement well? What steps of the Human Resources Cycle
might be missing from your company or are not implemented as
well as they could be? What is the effect of this on you and
your team? Explain your answer.
10. · Lastly, reflect on the leadership style of either yourself or
your supervisor. What leadership style do you have, or what
leadership style does your supervisor have? What are the
benefits and drawbacks of this style for your team? What might
you or your supervisor do to improve leadership? Explain your
answer.
1 BUS100: INTRODUCTION TO BUSINESS
What Is a case study?
Description of a real‐world business situation involving a
problem to be analyzed/solved and a decision to be made.
Case studies are usually complex with incomplete information
and constraints.
Case studies place students in the role of a decision makes.
There are no simple solutions, but in‐depth analysis, exchanges
of perspectives, critical thinking help to make difficult
decisions
Case study Analysis
1. Short Cycle Process
– Quickly read the case to get an overview
– Also, take the following steps:
• Review the case subtitles
• Look at exhibits and figures provided
• Read the case questions (if any)
– Identify:
• Decision maker in the case and its
11. position/responsibilities/role
Main issue and importance for the organization
Reasons for issue and level of urgency
Case Study Analysis
2. Long Cycle Process
– Detailed reading of the case (summarize paragraphs,
background information, core problems, alternatives, etc.)
– In‐depth case discussion:
• Step 1: In‐depth analysis
• Step 2: Analyze case data
• Step 3: Generate alternatives
• Step 4: Key decision criteria
• Step 5: Evaluate alternatives
• Step 6: Derive recommendation(s)
Step 1: In‐depth analysis
• Define the issue(s)
– What is/are the issue(s) that need to be resolved within the
context of the case?
• Symptoms vs. Root‐cause
– Differentiate the symptoms of the problem (what is visible)
from the problem itself
– Understand the cause‐effect link
– Identify the root cause(i.e., key‐problem that causes
problems)
• Characterize issue(s) based on:
– Importance/Relevance
– Urgency
– Solvability
Step 2: Analyze case data
12. Analyze and understand the data
Understand limitations and opportunities of provided data
– Content: What information is provided?
– Completeness: If data is incomplete, what assumptions are
necessary and reasonable?
– Usefulness: Can the data support my analysis? How can I use
the data to derive better alternatives?
Step 2: Analyze case data
• Use Decision support tools to...
– analyze the problem,
– identify potential solutions.
• Some tools/frameworks/techniques:
-Kraljic’s Matrix
-SWOT Model
-Porter’s Five Forces Model
-Total Cost Analysis
-Sensitivity Analysis
-Analytical Tools (simulation, forecasting, optimization, ...) ...
‐ be creative
Step 3: Generating alternatives
Be practical, realistic and relevant
– Relevant: Do alternative help to solve the key problem?
– Practical: Are proposed alternatives feasible?
– Realistic: Make reasonable assumptions where necessary.
Avoid unrealistic alternatives that are beyond the scope of the
case and lead to more questions than answers
13. Step 4: Key decision criteria
• Key decision variables help to identify alternatives that solve
key problem (and symptoms) effectively/efficiently
• Potential key decision variables
– Profitability, RoA, RoI
– Sales, market share
– Customer satisfaction, corporate image
– Employee morale, safety, turnover, etc.
– Improve flexibility, resilience, sustainability
• Choice of one or more key decision variables depends on case
study
Step 5: Evaluating alternatives
• Ways to compare alternatives:
– Pros and cons analysis
– Ranking method
– Financial analysis (e.g., net present value)
– Weighted‐point system (if you have more than one decision
variable)
• What else to consider:
-Compare long‐ vs. short‐term effects
-Consider required investments, organizational changes, etc.
-Think of obstacles when implementing your decision
- Reflect on unintended consequences that haven’t been
considered before
Step 6: Deriving recommendations
• Present plan with your recommendations:
-Support recommendation with key decision variable.
- Explain how recommendations solve problem (root‐cause) and
address symptoms
14. -Explain necessary steps necessary to implement solution, e.g.,
timeline and required investments
-Make sure to be convincing (“sell” your proposal)!
Case Study Analysis
Important Figures
Unit Cost Analysis
Asia-Pac: $437.22 (Rank 1/4)
CanDo: $437.28 (Rank 2/4)
Davis: $439.92 (Rank 4/4)
Dihachi: $437.51 (Rank 3/4)
Supplier Performance Scores
Asia-Pac: 61.80% (3/4)
CanDo: 49.00% (4/4)
Davis: 71.80% (1/4)
Dihachi:71.60% (4/4)
Financial Analysis Scores (Weighted)
Asia-Pac: 50.4% (3/4)
CanDo: 84.2% (1/4)
Davis: 64.6% (2/4)
Dihachi: 40% (4/4)
Calculated Safety Stock
Asia-Pac
CanDo
Davis
Dihachi
Year 1
2227
1560
2327
3905
Year 2
15. 2717
1903
2839
4764
Calculated Reorder Points
Asia-Pac
CanDo
Davis
Dihachi
R* (Year 1)
78940
30327
31094
99796
R* (Year 2)
94520
36329
37265
119518
Calculated Total Cost (Year 1 and Year 2, including calculated
Safety Stock Costs)
AP
$169,060,000
CD
$168,770,000
DI
$171,705,000
DT
$169,410,000
Alternatives:
1. Davis
a. Best supplier performance scores
a. Second best financial analysis scores
a. Very close to second in safety stock
16. a. Second lowest need for reorder points
a. Second highest current installed capacity for monitor
production
a. Tied shortest lead times (shortest for transportation)
a. Shortest frequency of shipment by far
a. Shortest ramp up time
a. Highest calculated total cost (and unit cost) but other factors
make up for cost
1. CanDo
b. By far lowest safety stock costs, lowest reorder points
b. Lowest total cost
b. Second best unit cost
b. Tied shortest lead time
b. Best financial analysis score
b. Highest ramp up time
b. Worst supplier performance score
Priorities in Supplier and Definition
· Supplier Quality- Confidence in a supplier's ability to deliver
a good or service that will satisfy the customer's needs
· Process and Technological Capability- amount of resources,
facilities, and equipment to manage full production of our
contract and business relationship
· Percentage of Business Devoted to PC Production- volume in
units, sales, and percentage of business done exclusively in PC
production
· Management and Personnel Capability- strength of
management and personnel expertise, experience in their field
· IT Systems Capability- strength of IT infrastructure
· Long-term Partnership Potential- ability to visualize, develop,
and improve relationship with supplier
· History / Reputation- long-term reputation of positive business
reviews
· Supply Management Effort- effort devoted to relationship
management
· Product Quality- degree to which product meets customer
17. demand
· Product Quality Track Record
· Tolerance for Defects
· Delivery Reliability- Demonstrates 100 percent on-time
delivery performance and is capable of participating in your
organization's automatic ordering systems
· History of on-time delivery- reputation for delivering on-time
· Frequency of Shipment- how quickly we can expect to receive
a shipment of product
· Lead time- length of time to deliver after production
· Supplier Responsiveness to Demand and Customers Needs-
ability to adjust production of output by product, volume and
delivery, in response to an external stimulus, e.g. a customer
order
· i.e. 25% in four weeks
· Demand Flexibility- ability to produce or increase production
demand depending on demand fluctuation
· Customization Flexibility- ability to improve design of
product quickly to accommodate customer needs
· Cost Competitiveness- ability to produce quality of
competition while maintaining low costs
· Product Cost Competitiveness- unit price comparative to
competitors
· Total Cost Competitiveness- total unit cost comparative to
customers
· Potential to Negotiate Lower Costs- potential to lower prices
over course of relationship based on business relationship and
available space in profit margin
What We Know About Systems Technologies”
Marketing
· Marketing- rapid growth in home sector
· Emphasizes state-of-the-art technology
· “Selling high-quality computers at affordable prices
· No tolerance for poor quality- $250 plus loss of goodwill per
18. defect
· Launch new PC line in August- 7 months
Service
· Ship directly to customers
Production
· Pull system
· Willing to take on component inventory (monitors)- safety
stock
· Assembly in facility
· Approximately 500,000 units, expect 20% growth in year 2
(600,000)
· Expected rapid depreciation in product value
· Monitors unit price- $125 - 150
· Systems controls transportation link (responsibility for
transportation) from supplier to facility
· Systems does not assume responsibility for ownership of
inventory from the supplier’s facility
SWOT Analysis- Systems Technologies
Helpful
Harmful
Internal
Strengths
· Manufacturing high-quality products with on-time customer
delivery
· State-of-the-art technology in its production, information, and
delivery systems
· Customer reputation
· Introducing new products and being successful
Weaknesses
· Weak bargaining power as buyer with larger PC suppliers
· Lack of experience in PC sector
External
Opportunities
· Personal computer (home use) market forecasted to grow
19. faster than any other sector (i.e. business sector)
· With excellent execution, potential to make serious revenue
Threats
· New, small player in the market
· Same make-to-order business model as giants Dell and
Gateway
· More major PC producers expected to move towards same
business model
· Recent trends indicated that maintaining this level of pricing
over an extended period would be difficult
· The market price of the technology embedded in the personal
computer will undoubtedly decrease in the future
Kraljic Matrix- Systems Technologies PC Components
High
Leverage
· 16 GB memory
· 800 GB hard drive
· CD-ROM Drive
· Pentium i7 microprocessor
Strategic*
· Standard 17” color monitors
Profit Impact
Non-Critical
Bottleneck
Low
Low
Supply Risk
20. High
*explain why the monitors are strategic products
Systems Technologies:
Supplier Evaluation and Selection
1
OVERVIEW
Systems Technologies (ST) is a medium-sized high technology
company located north of San
Francisco. The company has traditionally produced component
parts and subsystems for
personal computers and CAD/CAM workstations, but recently
has decided to expand its product
line directly into fully assembled personal computers (PCs). The
company, recognized as a well-
established component and subsystem manufacturer, has grown
from a single product
manufacturer with annual sales of $2.5 million, to a multi
product $3 billion firm in just ten years.
Systems Technologies has a strong reputation for manufacturing
high quality products with on-
time customer delivery. The company also emphasizes state-of-
the-art technology in its
21. production, information, and delivery systems.
While System Technologies is primarily a producer of work
stations, it has decided to enter the
personal computer market. All market forecast evidence
suggests that this sector will grow faster
than any other. In particular, the marketing department has
decided to focus on the home user.
The projected growth rate of U.S. PC shipments to the home
sector exceeds the business sector,
and should surpass the business sector in total share of
shipments. Although Systems
Technologies is a small player in this market, the company
decided to pursue an aggressive
strategy selling high quality computers at affordable prices. The
new line of computers, called the
9000x series, would come with a Pentium i7 microprocessor, 16
gigabytes of memory, 800
gigabytes of hard disk space, a CD-ROM drive, and a 17 inch
standard color monitor.
The company plans to ship computers directly to customers as
orders are received (make-to-
order). This production model is similar to the Dell and
Gateway model, and is the model that all
major PC producers will likely evolve toward. Because the
company does not plan to build finished
PC’s in anticipation of future sales, market demand forecasts,
supplier quality, lead time, and
delivery reliability are critical factors. The company is willing
to carry some level of monitors in
component inventory as safety stock as a buffer against missing
customer order commitments.
Systems Technologies will assemble the computer in its own
facilities, but intends to outsource
22. many of the key product components and subassemblies,
including the 17-inch color monitor.
The decision to outsource the monitor resulted from an
executive-level insourcing/outsourcing
study that concluded the cost to manufacture color monitors in-
house was highly prohibitive.
Marketing estimates that first year demand for the new PC, and
therefore the color monitor, would
be approximately 500,000 units, with 20% annual growth
expected for year two. Exhibit One
details the monthly sales forecast for the 9000x series.
However, given the volatility of the
computer market and ST's limited experience with marketing
directly to end users, marketing
estimates, with 95% confidence that actual demand will likely
be between 400,000 and 600,000
units. As with most high technology companies, adequate
supplier capacity is a critical issue.
Taking a lesson from the demands placed on it by its customers,
Systems Technologies will seek
some assurance from supplier(s) that it can increase the supply
of monitors by 25% within four
weeks notice of changing market conditions. Supplier
responsiveness to Systems Technologies
volume requirements will be critical.
Systems Technologies is targeting the price of its high end
computer line from $1300-$1800,
depending on the model and configuration. This means that the
monitor's unit price would need
to be in the $125-$150 range. However, recent trends indicated
that maintaining this level of
pricing over an extended period would be difficult. As pointed
out in a recent business article,
"The new rules (in high tech industries) require more than
ingenuity, agility, and speed. They call
23. 2
for redefining value in an economy where the cost of raw
technology is plummeting toward zero.
Eventually, this plunge will obliterate the worth of almost any
specific piece of hardware or
software." The market price of the technology embedded in the
personal computer will
undoubtedly decrease in the future.
Another key consideration in this decision is that Systems
Technologies wants to control the
transportation link from the supplier(s) to its facility in
California. The company has decided to
assume responsibility for transportation, but not ownership of
inventory, from the supplier's facility.
The company plans to support its inbound logistics with carriers
that offer corporate-negotiated
rate discounts. If the monitor originates from a U.S. facility,
then shipping terms F.O.B. Shipping
Point will apply. For shipments originating from foreign
facilities, then INCOTERMS will apply.
While early PC monitors (and also the computer) were notorious
for quality-related problems,
today's customer demands defect-free products. With intense
price competition and narrow profit
margins, a single product defect, particularly when the PC is in
the customers' hands, can "wipe
out" any profit from the sale. Poor quality will also adversely
affect market reputation and future
24. sales. Although exact numbers are difficult to obtain, financial
analysts at Systems Technologies
calculate, based on experience and assumptions, that each
monitor with a defect will result, on
average, in $250 in non-conformance costs that Systems
Technologies must bear (including lost
customer goodwill).
The company plans to introduce the new line of computers
directly to the marketplace in August
2018. This target date coincides with back-to-school sales,
which is the busiest time of year for
PC makers. It is now January 2018.
Systems Technologies relies on cross-functional commodity
teams to develop sourcing strategies
for key purchased items. Executive management views the PC
monitor decision to be the most
important sourcing decision supporting the 9000x series.
Commodity team responsibilities
include:
1. Identifying potential suppliers
2. Developing an in-depth analysis of each supplier based on
plant visits.
3. Recommending a sourcing strategy for the PC monitor
contract. The team will present
its recommendation to a corporate-level review board, which
usually accepts commodity
team recommendations.
The commodity team has visited four PC monitor suppliers, and
is currently evaluating its supply
25. options.
3
Exhibit One
Two-Year 9000x Demand Forecast
August 2018 55,000 units August 2019 66,000 units
September 2018 50,000 units September 2019 60,000 units
October 2018 40,000 units October 2019 48,000 units
November 2018 40,000 units November 2019 48,000 units
December 2018 45,000 units December 2019 54,000 units
January 2019 35,000 units January 2020 42,000 units
February 2019 35,000 units February 2020 42,000 units
March 2019 40,000 units March 2020 48,000 units
April 2019 40,000 units April 2020 48,000 units
May 2019 40,000 units May 2020 48,000 units
June 2019 40,000 units June 2020 48,000 units
July 2019 40,000 units July 2020 48,000 units
THE SUPPLY ALTERNATIVES
Six suppliers responded to the commodity team's Request for
Proposal, which was forwarded to
suppliers twelve weeks previously. A review of these proposals
revealed that four of the six
26. suppliers were cost competitive given Systems Technologies
initial target cost. Engineering
supported the commodity team's preliminary efforts by
purchasing off-the-shelf monitors for
testing. This helped determine if the suppliers had a product
that initially satisfied the expectations
of System Technologies. Relying on product samples, while
providing preliminary insight into
each suppliers’ capability and technology, was not sufficient to
support a final supplier selection
decision. Hence, the need for direct visits by the commodity
team became apparent.
The team visited each supplier directly to collect additional
information. The visits ranged from
one to two days each, with all four visits concluded within a
three week period. These visits were
a time-consuming and exhausting effort, particularly since two
suppliers were located in Asia.
Unfortunately, Systems Technologies does not have an
International Purchasing Office (IPO) to
support its overseas purchase requirements. Furthermore, no one
on the team spoke Korean or
Japanese. Fortunately, the other two suppliers, located in the
U.S., were much easier to visit. In
fact, one supplier was located only ten miles from Systems
Technologies. The following sections
summarize data and information gained during the commodity
team's visits to the four suppliers.
4
27. Asia-Pacific Technologies
Asia-Pacific Electronics, located in Nagasaki, Japan, was the
largest supplier the team visited
(sales of $6.5 billion). The plant covered four acres, with a wide
variety of computer and electronic
components produced in the facility. Monitors were a fairly
large segment of Asia-Pacific's
production (Asia-Pacific commits 50% of total capacity to
monitors and derives 60% of its
revenues from monitors). Because of its size, however, the
company seemed most interested in
large contracts ($150 million or more annually). Geographic
distance from California, along with
the need to accommodate the needs of some large customers,
made Asia-Pacific's quoted lead
time the longest of the four suppliers being evaluated. In fact,
the team felt a bit "snubbed" at the
facility, particularly the group's female members. The plant
manager was too busy to meet with
the team, so they had to meet with a sales manager who took the
team to visit various
departments. The facility was efficient, spotless, and modern.
When the team visited engineering, they spoke with a manager
in monitor design. The engineer
estimated that the ramp-up time to begin production that
satisfied ST's specifications would be
about 4 months. Furthermore, tooling costs would likely be $2.5
million.
The sales manager was particularly proud of Asia-Pacific's new
electronic data interchange (EDI)
system. This system allowed direct communication with
customers. He was also proud that Asia-
Pacific was "the price leader" for the industry, and was
28. producing monitors for several large brand
name computers. He also bragged about the company's
extensive investment in R&D. When the
sales manager heard that the monitor order, based on 500,000
units in year one, would likely not
exceed $75 million per year, he hesitated, saying that he would
need to discuss the order with
top management. Moreover, he indicated that the company
typically was not interested in orders
of less than $150 million per annum, but that exceptions might
be possible. The economics
associated with large orders is what made Asia-Pacific a low-
cost producer. Relevant data
include:
is
transportation
-time delivery record = 95% on-time (for large customers)
-Pacific to Systems
Technologies = $17 per unit
nd customs = $9.50 per unit
$3 per unit
-up time = 4 months
Yen
29. 5
CanDo Technologies
Another candidate for the monitor contract is CanDo
Technologies, a small manufacturer located
in Colorado Springs, Colorado. The company exclusively
designs and produces PC monitors. The
team discovered this company almost by accident. A team
member was browsing a trade journal
and saw CanDo's advertisement. When the team visited the
facility, the team was surprised at its
small size and location in an old warehouse. CanDo's president
met the team in person, who
explained that he was a graduate of Stanford in electrical
engineering and had decided to start
his own company after working for IBM for 15 years. The
company entered the color monitor
market four years ago. During this time, however, CanDo has
established a reputation for delivery
reliability and innovation. The president explained that CanDo's
success was based largely on its
commitment to develop new screens, especially in the area of
advanced liquid crystal technology
and flat screen technology. He also claimed that he knew every
customer personally. PC Week
had recently highlighted in recent editions the company’s
products.
Everyone in the plant seemed highly motivated, and, except for
the president, the team did not
see any person who appeared over the age of 35. The president
was particularly excited about
the possibility of working with Systems Technologies, and
30. promised that he would be willing to
work with them closely on this contract and for any new product
lines. In particular, he emphasized
that liquid crystal technology was improving for laptop
computers, and that the laptop market was
another sector that would continue to expand in the future.
Ramp-up time for the new monitor
would be approximately 5 months. When asked if his firm
would have any problem in meeting
demand should they receive the contract, he hedged before
answering. He admitted that the size
of this contract would be the largest in CanDo's relatively short
history. However, he assured the
team that he would do whatever it took to maintain reliable
delivery schedules. Interestingly, it
appeared that the production lines were experiencing some
problems during the team's visit,
which were shut down for four hours!
e = 3 weeks, of which 1 week is
transportation
-time delivery record = 97% on-time
Technologies = $5.50 per unit
%
$4.50 per unit
-up time = 5 months
of contract = Dollars
31. 6
Davis Industries
The third supplier, a fairly large and reputable manufacturer of
computer equipment, including
color monitors, was located less than ten miles from ST's
facilities. About half the company’s $2
billion sales came from the sale of monitors. The firm was the
second largest producer of monitors
worldwide. In addition, the plant manager pointed out that the
company has committed significant
resources to setting up a JIT production system for the color
monitor line. Indeed, the team was
impressed by the kanban signals and flow-through work
stations. The plant manager also
emphasized that because of their close proximity to Systems
Technologies, they would have no
problem delivering the monitors in two-day lot sizes, "just-in-
time," to ST's facilities. The manager
was able to show the team reports that backed this claim. Davis
Industries also had a solid
reputation for working with its customers.
Upon visiting the quality department, the quality manager
seemed particularly preoccupied and
"on edge." When the plant manager left for a few minutes to
answer a phone call, the group asked
the quality manager if the company had experienced any
significant problems recently. He
32. confessed that the last shipment of monitors had several quality
problems, and the number of
returns from large distributors had increased dramatically. This
was creating some fairly severe
disruptions to production scheduling and delivery. The most
serious problem had to do with a
constant annoying "buzz" made by the monitors that seemed to
begin after they had been turned
on for an hour or so. However, he assured the team that the
design engineers were working full-
time on the problem and that it would be solved well before
ST's placed an order. When the plant
manager returned, the quality manager made no further mention
of the problem. The plant
manager estimated that the ramp-up time for monitors would be
very short, approximately 3
months.
transportation
-time delivery record = 99.5%
Technologies = $12 per unit
(due to frequent deliveries of small quantities)
ction costs =
$2.50 per unit
-up time = 3 months
33. 7
Dihachi Technologies
The fourth supplier, Dihachi Technologies, is a Korean
company. Dihachi provided the second
lowest bid at $132 per unit. During the team's visit the plant
manager claimed capacity was not
an issue, and that the company would be willing to commit the
required production capacity to the
Systems Technologies contract. Monitors account for about half
of Dihachi's $1.3 billion in 1998
sales.
The commodity team felt much more comfortable at Dihachi
than at Asia-Pacific. While this
supplier has had minimal experience doing business with North
American firms, the company
seemed quite anxious for the contract. The company has several
large Taiwanese and Japanese
PC makers as customers. At this time Dihachi has no U.S.
facilities or support staff. The team
was not quite sure how they felt about becoming Dihachi's first
major North American customer.
The company's monitor was excellent. Every monitor went
through an extensive burn-in
procedure that assured few quality problems would occur. In
34. fact, Dihachi's process control and
burn-in were more thorough than any other supplier the team
visited. However, the combination
of the burn-in process and geographic distance meant that
delivery cycle times were much longer,
up to 10 weeks per order, although the on-time delivery
performance for the facility was excellent.
The team was not sure if current delivery performance would be
indicative of delivery performance
to the U.S. The company, which receives half of its revenues
from monitors, maintained a clean
and orderly plant. The team noticed that the monitor facility
was extremely busy and wondered if
the plant manager's claim about adequate capacity was true. All
employees worked closely
together in work cells and knew each other by name. Industry
experts viewed Dihachi as one of
the most promising and dynamic companies in the industry.
The ramp-up time for the monitor
was quoted as 4 months.
transportation
-time delivery record = 99.0%
Technologies = $16 per unit
ion costs =
$1.50 per unit
-up time = 4 months
35. 8
SUPPLIER FINANCIAL DATA
The team also gathered financial data for each supplier. While
the team believes the data for the
U.S. suppliers to be reliable, several assumptions and estimates
had to be made regarding the
Asian suppliers. The team had to convert Japanese and Korean
currency into dollars. In some
cases, the desired figures were not available, or the supplier
showed no interest in providing the
team with the figures. In particular, this was an issue with
Asia-Pacific. Exhibits 2 and 3
summarize selected supplier financial data, which is required
for performing a financial analysis
for each supplier.
9
Exhibit 2
Selected Supplier Balance Sheet Data (in millions $)
For Period Ending December 31, 2011
49. -year
life-cycle. The commodity
team will allocate all supplier-related production costs, such as
tooling, on a per unit basis
over a two-year period. The company fully expects to introduce
the next generation of
personal computers at the end of two years.
stock inventory for the
monitors, at least for the first year. Due to long material
pipelines, Systems Technologies
expects to maintain one month safety stock inventory if it
selects Asian suppliers. For
domestic suppliers, the company expects to maintain two weeks
worth of demand as
safety stock.
andling,
risk of obsolescence, taxes, and
cost of capital, are 18% of the inventory's unit cost. The
company assumes carrying costs
for safety stock material.
supplier is what Systems
Technologies would pay for the monitor from each supplier.
Subsequent negotiations
could alter the quoted price.
case does not consider
depreciation.
ing inbound
50. transportation shipments, company
policy states that ST will not assume title to material until the
material arrives at the
company’s receiving dock.
11
Appendix 1: Supplier Financial Analysis
Purchasers assess supplier financial health for several reasons.
The most important reason
involves managing supply base risk. The analysis may highlight
difficulties that will interfere with
the smooth and timely flow of material. A supplier may be
experiencing capacity constraint
problems, have difficulty meeting its payables, have too many
receivables, have poor inventory
management as revealed by low inventory turns, or have cash
flow problems as noted by current
liabilities exceeding current assets.
A supplier financial analysis is likely whenever a purchaser is
attempting to reduce a pool of
potential supply sources. If a supplier does not meet certain
thresholds as defined by the
purchaser, then the supplier will likely not move to the next
level of consideration.
Financial ratios are a key part of a supplier financial analysis.
Of course, the key to a supplier
financial analysis is a purchaser's ability to obtain reliable and
complete financial data, which can
51. be a challenge when evaluating closely or privately held
corporations.
Besides calculating and attempting to interpret the meaning of
financial ratios, comparing ratio
data can provide even greater insight into a supplier's financial
condition. While no correct
answers exist for financial ratios, a comparison of a supplier's
ratios to published industry norms
can help identify if further financial analysis is necessary. An
analyst should also compare several
years of supplier financial data, if available, to identify
favorable or unfavorable trends. Another
comparison involves comparing a supplier's ratios with specific
competitors, which is likely when
a purchaser has collected data from more than one supplier.
Supplier Financial Analysis
Please use the following template to calculate selected financial
ratios for the four suppliers
being considered for the PC monitor contract.
12
Supplier Financial Analysis Worksheet
Selected Financial Ratios
53. Capitalization:
Leverage = Assets/Equity
Return on Equity = Net Income/Equity
Long-term Debt to Equity = Long-term Debt/Equity
Long-term Debt to Total Assets = Long-term
Debt/Total Assets
Current Ratio = Current Assets/Current Liabilities
Quick Ratio = (Current Assets-Inventory)/ Current
Liabilities
EBIT Coverage = Earnings Before Interest and
Taxes/Interest Expenses
Profitability Ratios:
Operating Margin = EBIT/Sales
54. Profit Margin = Net Income/Sales
Return on Assets=Net Income/Total Assets
Note: Shareholders equity includes stock and retained earnings.
This value is also referred to as Net Worth.
13
Appendix 2: Total Cost Analysis
This template requires each group to quantify costs that are in
addition to the quoted unit price.
Using cost information provided in the case for each supplier,
calculate the estimated per unit
total cost from each supplier for year one.
Total Cost Analysis Worksheet--Year One
Cost Category
57. 14
Appendix 3: Supplier Evaluation and Selection Analysis
The development of a supplier evaluation and selection analysis
follows a sequence of steps:
pplier Evaluation Categories
Supplier evaluations must include those performance categories
that are relevant to the
sourcing decision under consideration. Examples of supplier
evaluation categories that a
team or individual may evaluate include (but are not limited to):
• Management and personnel capability • Cost competitiveness
• Information systems capability • Quality performance
• Process and technological capability • Environmental
compliance
• Delivery performance • Longer-term partnership potential
• Flexibility • Volume capacity
• Previous history and performance • Supplier's supply
management efforts
• Responsiveness to customer needs • Information system
capability
While including the relevant performance categories is critical,
58. each additional category adds
a greater degree of assessment complexity.
The performance categories included within the analysis receive
a weight proportional to the
relative importance of that category. With any combination of
weights, the weights must sum
to 100%.
Step 2 defines the broad performance categories included within
the evaluation. This step
requires the user to identify performance subcategories, if they
exist, within each broader
performance category. Each subcategory receives a weight, the
total of which equals the
weight of the broader performance category. For example,
assume that supplier quality
performance is 20% of the total score. Within that category, a
team may create
subcategories related to process control systems (5%), total
quality commitment (8%), and
parts per million defect performance (7%). Please note that the
subcategories sum to 20%.
Subcategories
59. This step involves defining what each score means within a
performance category. A clearly
defined scoring system takes criteria that may be subjective and
develops a quantified scale
for measurement. The scoring metrics are reliable if different
individuals interpret and score
similarly the same performance categories under review.
This step requires that a review team or individual visit a
supplier's facilities to assess supplier
performance capabilities. It is common for a reviewer to meet
with a supplier shortly after
the initial evaluation to discuss findings, and to point out
opportunities for improvement. The
visit may also help identify future supplier development
opportunities.
15
Decision
The primary output from this step is a recommendation
concerning which supplier(s) should
60. receive a purchase contract. As with any tool, the outcome
from this analysis is only as good
as the planning and effort put forth.
After supplier selection, a purchaser's emphasis must shift form
initial evaluation to evidence
of continuous supplier performance improvement.
When developing an instrument to support supplier evaluation,
keep in mind that effective
instruments have certain characteristics. Effective supplier
evaluation instruments should be
categories or criteria
considered important to the selection decision.
scoring system, such as a
weighted point scale, with the meaning of each value on the
measurement scale clearly
defined. Objectivity requires the creation of quantitative scales
to evaluate performance
items and categories, some of which may be inherently
subjective.
ble Reliability refers to the degree to which different
61. individuals or groups reviewing
the same supplier performance category using the same
measurement scales would
arrive at the same conclusion. Evaluated items and scales must
be clearly defined and
unambiguous so users understand what each means.
performance categories,
subcategories, and assigned weights depending on the sourcing
decision. For example,
selecting a supplier to provide a key jet engine component may
require a higher emphasis
or weight placed on quality compared with other performance
categories. On the other
hand, an evaluation of a distributor that provides industry-
standard items (with well
accepted quality standards) will likely emphasize performance
categories such as depth
of inventory, cost, and delivery.
points during the evaluation
should be simple enough so that those involved in the
assessment (including suppliers)
understand the mechanics of the scoring and selection process.
Weighted-Point Supplier Evaluation Assignment
Using this as a model, create and complete a scorecard for each
62. supplier that your group can use
as an evaluation tool.
16
Appendix 4: Sourcing Risk Management Plan
Please complete this exercise after the group has made its
selection decision. For the selected
supplier, identify any concerns by Potential Concern Area and
make note of your plan to reduce
the potential risk.
Sourcing Risk Management Plan
Supplier: __________________
Potential Concern
Area
Risk or Concern
Risk Reduction Plan
Management Capability
65. Risk or Concern
Risk Reduction Plan
Logistics
Financial Issues
Other Commercial Issues
66. SCM 355, Spring 2018
Systems Technologies
Case Analysis Questions
The team realized this supplier selection decision, which was
one of the most critical
involving the 9000x product line, was also going to be difficult.
Until the team analyzed
the numbers and discussed the findings from the field visits, it
was clear that no consensus
existed among team members concerning which supplier(s) to
select. To reach a
decision, answer the following questions:
1. Develop a process that provides a logical order to the critical
activities and decisions
involved in the supplier evaluation and selection process. For
example, the first step
of this process may include recognizing (or anticipating) that a
supplier selection
need exists. Subsequent steps should follow from the actual or
anticipated need.
Present this process in the form of a flow chart with key
decision points clearly
identified.
2. Discuss possible sources of supplier financial information.
Which factors influence the
ability of Systems Technologies to obtain supplier financial
67. data? (Hint: Think of
supplier characteristics, etc.)
3. What is your recommended sourcing strategy for Systems
Technologies? Perform
various analyses (see below) to support your decision. Also,
make sure to discuss the
advantages and disadvantages of single and multiple sourcing.
a. Assume you have used several of these sources to collect
supplier financial
data (data provided in the case). Perform a supplier financial
analysis.
Provide a brief interpretation of each financial ratio. (See
supporting
worksheet)
b. Perform a total cost analysis. (See supporting worksheet)
c. Perform a supplier capacity analysis. How important is
supplier capacity in
this case? Why?
d. Develop a supplier evaluation and selection tool with
relevant performance
categories for the sourcing decision under consideration (See
supporting
worksheet).
e. Develop a sourcing risk management plan. For this task, (1)
identify the
potential risks associated with a sourcing decision, (2) assess
the possible
magnitude of each risk to operations, and (3) identify ways to
manage or
reduce risk exposure. (See supporting worksheet)
68. 4. Based on your previous analyses, make your final
recommendations for Systems
Technologies!
Sheet1Financial Data (Numerical)Financial Data Interpretation
Relative to Industry Average (Unweighted) Financial Data
Interpretation Relative to Industry Average (Weighted)Asia-
PacCanDoDavisDihachiAsia-PacCanDoDavisDihachiAsia-
PacCanDoDavisDihachiWeightAsset UtilizationAsset
Utilization Asset Utilization 30%Asset Turnover
1.3161.5711.6431.383Asset Turnover 1452Asset Turnover
1.87.293.69%Inventory Turnover5.7816.4617.048.621Inventory
Turnover1253Inventory Turnover 2.24.4116.611%Receivable
Days49.2329.4564.1746.362Receivable Days2512Receivable
Days 25125%Payable Days31.16455.72738.02835.899Payable
Days5133Payable Days 51335%Unweighted
Total9121410Weighted
Total1117.62415.230%CapitalizationLeverage2.0452.0282.282.
095Capitalization Capitalization
30%ROE0.0930.2170.1680.099Leverage4513Leverage
45135%LTD to E0.3080.3180.3920.353ROE1542ROE
15425%LTD to A0.150.1570.1720.421LTD to E5412LTD to E
32.40.61.23%Current Ratio1.2151.3381.351.129LTD to
A5331LTD to A 31.81.80.63%Quick
Ratio0.620.7261.120.71Current Ratio*3551Current Ratio
3.6661.26%EBIT Coverage5.256.463.612.846Quick
Ratio*1353Quick Ratio 0.82.442.44%EBIT Coverage4521EBIT
Coverage 3.241.60.84%ProfitabilityUnweighted
Total23302113Weighted Total18.626.61911.230%Operating
Margin0.0080.0120.00160.002Profit
Margin0.03460.0680.0450.034Profitability Profitability
40%ROA0.0450.1070.0740.047Operating Margin4521Operating
Margin 9.6124.82.412%Profit Margin2532Profit Margin
7.21810.87.218%ROA2532ROA 4106410%Unweighted
69. Total81585Weighted
Total20.84021.613.630%ResultsResultsTotal Points (Out of
70)40574328Total Points (Out of 100)50.484.264.640Percentage
Score57%81%61%40%Percentage Score50.4%84.2%64.6%40%
Sheet2Performance Category Comparative Analysis
(Weighted)Performance Category Comparative Analysis
(Unweighted)Asia-PacCanDoDavisDihachiWeights (%)Asia-
PacCanDoDavisDihachiSupplier Quality25%Supplier
QualityManagement and Personnel
Capability23255%Management and Personnel
Capability2325Information Systems
Capability30.631.83%Information Systems
Capability5153Process and Tech. Capability63.6666%Process
and Tech. Capability5355Long-term Partnership
Potential1.63.23.23.24%Long-term Partnership
Potential2444Previous History and
Performance40.81.644%Previous History and
Performance5125Supply Management
Efforts0.631.82.43%Supply Management Efforts1534Weighted
Total17.214.217.622.425%Unweighted Total20172126Product
Quality20%Product QualityProduct Quality
Performance4.81.64.888%Product Quality
Performance3135Percentage of Business Devoted to PC
Production3.22.42.444%Percentage of Business Devoted to PC
Production4335Tolerance for Defects4.81.686.48%Tolerance
for Defects3154Weighted Total12.85.615.218.420%Unweighted
Total1051114Delivery Reliability20%Delivery
ReliabilityDelivery Performance7.25.495.49%Delivery
Performance4353Lead Time1.44.25.61.47%Lead
Time1341Frequency of Shipment0.82.440.84%Frequency of
Shipment1351Weighted Total9.41218.67.620%Unweighted
Total69145Responsiveness to Demand and Cust.
Needs20%Responsiveness to Demand and Cust. NeedsDemand
Flexibility7.85.210.410.413%Demand
Flexibility3244Customization
Flexibility4.25.64.22.87%Customization
70. Flexibility3432Weighted Total1210.814.613.220%Unweighted
Total6676Cost Competitiveness15%Cost
CompetitivenessProduct Cost Competitiveness51245%Product
Cost Competitiveness5124Total Cost
Competitiveness4.24.21.44.27%Total Cost
Competitiveness3313Potential to Negotiate Lower Costs
1.21.22.41.83%Potential to Negotiate Lower Costs
2243Weighted Total10.46.45.81015%Unweighted
Total106710ResultsResultsTotal Points (Out of
100)61.84971.871.6Total Points (Out of 85)52436061Percentage
Score61.8%49%71.8%71.6%Percentage Score61%51%71%72%
Sheet2Average Daily DemandAsia Pacific Year 1Asia Pacific
Year 2MonthYear 1Year 2LT (Days)56LT
(Days)56August1,7742,129Dd1369.8630136986Dd1639.344262
2951September1,6672,000σd180.889877873σd220.6555203046
October1,2901,548DLT76712.3287671233DLT91803.27868852
46November1,3331,600σLT1353.655896σLT1651.234715Dece
mber1,4521,742Z.951.645Z.951.645January1,1291,355SS2227S
S2717February1,2501,448R*78940R*94520March1,2901,548Ap
ril1,3331,600CanDo Year 1CanDo Year 2May1,2901,548LT
(Days)21LT
(Days)21June1,3331,600Dd1369.8630136986Dd1639.34426229
51July1,2901,548σd180.889877873σd220.6555203046St.
Dv.180.889877873220.6555203046DLT28767.1232876712DLT
34426.2295081967σLT828.941558σLT1011.170624Year 1 Cost
Analysis (Initial Safety Stock)Z.971.881Z.971.881Unit
priceTransportationOrderingD/C/I/TQNCSSToolingTotalSS1560
SS1903AP$129$17$3$12.50$1.73$23.22$5$95,722,500R*30327
R*36329CD$146$5.50$4.50$2$3.13$12.13$6$89,627,500DI$14
4$12$2.50$2$1.63$11.96$7$90,542,500Davis Industries Year
1Davis Industries Year
1DT$132$16$1.50$11.50$1.13$23.76$5.50$95,692,500LT
(Days)21LT
(Days)21Dd1369.8630136986Dd1639.3442622951Year 2 Cost
Analysis (Initial Safety