The document contains questions and responses related to a case study on sourcing DVD drives from suppliers for Pacific Systems Corporation. Key points addressed include: - Recommending single sourcing from supplier E-Drive Systems due to their excellent on-time delivery performance and ability to meet quality and capacity requirements. - Identifying potential sources of supplier financial data and factors that could impact obtaining such data. - Clarifying that not all sourcing decisions require the same level of analysis as a component critical to the product, and identifying examples of less critical sourcing needs. - Developing a process for supplier evaluation and selection involving market research, supplier evaluation, contract negotiation, and ongoing monitoring.

1. Purchasing
INTM 543
Pacific Systems Corporation Case
Instructor: Prof Herbert Shields
By,
Jose Sosa – A20313080
Niket Panchal –A20365666
Billy McFarland – A20078959
Ismail Bouaida –A20387720
Prateek Mishra – A20381901

2. Questions
Que. 1: What is your recommended sourcing strategy in this case? Please support your
decision with quantitative and qualitative evidence gathered during the case analysis. Also,
present your plan to reduce any risks associated with your sourcing decision.
Pacific Systems can single source their DVD drives and try to build a good relationship with the supplier.
DVD’s are new in market and not only computer industry but also other electronic industries are looking
forward for this product. For uninterrupted supply, leverage the Just in time, it will be better to have a
single supplier with a long term contract.
Sourcing strategy is a practical approach to collect data and to use it to find the best possible values in
the market. As a quantitative analysis, we placed all 4 suppliers with their offering under the below
drawn table
Detailed analysis of above data, we came to conclusion that E-drive Systems is the best supplier choice
according to our requirements. E-drive commits excellent on time delivery performance stands them
out from other suppliers. E – Drive Systems meets the highest quality metric of 99.5% with on time
delivery and with facility capacity that enable a lead time of 2 weeks. Even though their Quote unit price
is a bit higher compared with other two suppliers but their local presence is given priority over the price
because as in some cases Low price does not guarantee success.
Plan to reduce risk in sourcing decision: The biggest step to reduce risks in supply to show belief on
your supplier and make him understood that we are with you and will do a great business together, this
faith will increase supplier’s confidence and they will try to exceed its limits. Other than this we can
work with our supplier and can do the cross functional risk planning for such situations. A
demand/supply forecast will also help to understand supplier’s capability and whether supplier can cop
up with us if at times demands exceed their limits and according to that we can plan our financials for
the situations where we might have to face situations like customer penalties.
Reference- https://scm.ncsu.edu/scm-articles/article/risk-reduction-mechanisms-a-managerial-
framework-for-reducing-the-impact-of
Factors Elecom Sure Tech E-drive Park
Quoted price(per
unit)
$127 $144 $140 $132
Delivery Lead time 8 weeks 3 weeks 2 weeks 10 weeks
Supplier Quality 9500 PPM
defects
10,500 PPM
defects
7500 PPM
defects
4000 PPM
defects
On time delivery
record
95% 97% 99.5% 99%
Tooling cost $2.73 $3.18 $2.95 $1.20
Frequency of
Shipment
Monthly Weekly Every other
day
Monthly
Ramp up time 4 months 5 months 4 months 4 months
Denomination of
Contract
Yen Dollars Dollars Dollars

3. Que. 2: This case provided the data necessary to perform a cursory supplier financial analysis.
In reality, cross-functional sourcing teams must often obtain this data during their
assessment of potential suppliers. Discuss possible sources of supplier financial information.
What may impact a purchaser's ability to obtain supplier financial data?
Our case provides us with all the required data to do a financial analysis [Appendix-3], but every time
the case will not be the same.
 There are number of websites which provides companies financial standings, such kind of
databases are rich sources for collecting data.
 Purchasers can refer to eclectic companies with whom suppliers had worked or working and ask
for performance review.
 Buyer can refer B2B resources which are a good source of information for such situations.
 With all above solutions purchasers should try to maximize their reach and look for as many
sources as possible to gather information about supplier with whom they are looking forward
for a deal
The most critical factor which affects a purchaser’s capability to obtain supplier’s financial data is the
kind of relationship they have. If Purchaser has good terms with supplier they can work on the things
which suppliers usually do not prefer like sharing (Financial Data).
Que. 3: A sourcing decision of the magnitude highlighted in this case requires a serious
commitment of resources and time. Do all sourcing decisions require similar commitments of
time and effort? If not, describe the types of sourcing decisions that justify this effort.
Describe the types of sourcing decisions that do not justify or require the level of effort and
analysis required in this case.
We feel that not all sourcing decisions require similar commitments of time and effort due to the
variety of suppliers that are available locally and globally. Something like a DVD drive and monitors or
printed circuit boards that are key components to the finished product do take more time and resources
to procure. You have to take into account if they are financially stable to supply consistent high quality
and reliable material with zero defects. A company whose strategic goals match closely what you intend
to do usually helps in building a long term relationship in which it is mutually beneficial. The type of
sourcing for this company that does not justify the level of effort and analysis are fasteners for the
computer, poly bags to keep the product protected from dust or one time buys that are not critical to
the end user.
Que. 4: How important is the issue of supplier capacity in this case? How did your group
evaluate supplier capacity? What level of attention or importance should supplier capacity
receive during the sourcing decision? Why?
This is a booming market and is on the verge of increasing demand due to the revitalized economy
and end of the recession. Technology is a big area that quickly changes either in demand or innovation.
We need a supplier that has the capacity not only to source spikes in demand but have capacity to take
on new projects and prototypes. They need to be stable enough to absorb increase in demand or a new

4. product line that will need a quick response to be able to capitalize and gain market share. If a supplier
does not have capacity then they do not have the type of structure we are looking for to grow which
plays a big part in our decision, regardless if they can supply, we are losing out of potential customers
due to not having enough DVD drives to build our PC’s. There should be a high level of importance when
reviewing the supplier and deciding who to source from.
Que. 5: Supplier selection decisions, such as the one presented in this case, usually require
many weeks or months of analysis and discussion before reaching final agreement with a
supplier(s). Creatively identify ways that the buying company can shorten the time from
recognition of a purchase need to reaching agreement with the selected supplier. (Hint:
Consider performing certain required activities concurrently or in anticipation of a purchase
requirement).
This is also necessary due to the time to market we are looking to achieve, in order for our supplier to be
ready to ramp up and give us a full shipment by July in order for us to start production on the 55,000
units forecasted to be sold in August launch is critical. While a team is working on negotiating the price
and contract for the units, an engineering team has to work on getting a prototype approved for
production and see what materials are required to manufacture that DVD drive. What type of metal
should be used what type of characteristics does the DVD need, what type of speed and capabilities?
How well is the supply chain back up to our vendor’s suppliers? Are the components able to be sourced
or will there be issues that can cause a shortage. This can all happen prior to a purchase requirement
being agreed upon. This is why the price of the unit can change, it can get pricier or it can get cheaper
but the work must be done concurrent to the negotiation and bidding of each supplier.
Que. 6: The issue of single versus multiple sourcing is an important consideration during
supplier selection. Using the following table, identify the potential advantages and
disadvantages of single and multiple sourcing (not only as they relate to this case).
Single Sourcing:
Potential Advantages
1).Sole sourcing helps
in optimizing the
company’s supply
chain.
2).Lower production
cost and product
better value for
shareholders and
customers.
3). Downtime and
inefficiencies caused
by interoperability
issues can be reduced.
Single Sourcing:
Potential Disadvantages
1). Greater power to
the supplier
2). Failure of supplier
may cause a total
shutdown to our
production, and as a
result our customer
service may suffer very
badly.
3). Supplier may not
cop-up sudden spike or
decline in the demand.
Multiple Sourcing:
Potential Advantages
1). Drives up
competition within the
supplier base.
2). Drives down prices.
3).Display your
company’s interest and
commitment to the
economic growth of
your community.
Multiple Sourcing:
Potential Disadvantages
1). Different suppliers
need to be managed
and monitored. A
critical job for
purchasing people.
2). Low cost cannot be
leveraged as there is
no economies of scale
in production for your
suppliers.
Sources: https://scm.ncsu.edu/scm-articles/article/benefits-and-risks-of-single-sourcing

5. Case requirements
Que. 1: Develop a process that provides a logical order evaluating the market data and reach
recommendations regarding how to proceed with the supplier selection process. Present this
process in the form of a flow chart with key decisions points clearly identified.
The flow chart shows the necessary sequential steps to be performed for making decisions through the
supplier selection process. We’ve identified 7 key steps of decisions making.
I. Develop a cross-functional team: Cross-functional team can generate better results in
identifying and analyzing the market data. For planning the whole process and determining the
scope of project, cross-functional team can be very helpful.
II. Supplier market research and Supplier preferencing: Based on our product specification and
requirements, an initial RFI can be sent to different suppliers in the same market niche. Supplier
preferencing is basically placing the product and supplier in purchasing criticality matrix to add
better visibility in supplier selection process.
III. Solicit supplier’s info. (Bid): Based on the suppliers’ willingness and response to RFI and RFQ, a
very few supplier can be selected for bidding process (Request for proposal). Where the precise
drawing and specification are submitted to short-listed suppliers. Detailed information is
requested on payment and Inco-terms from suppliers.

6. IV. Conduct the thorough evaluation: There’re some techniques like AHP (Analytical hierarchy
process) and DCA (Discrete choice analysis), where suppliers’ attributes can be pair wise
compared to make the decision. These processes helps to understand what proportion of
business should be offered to a specific supplier based on its capacity analysis.
V. Contract negotiation with selected suppliers: Based on the analysis conducted, negotiation can
be done with selected suppliers. Payment terms, Inco-terms, Quality, Quantity, Delivery window
can be negotiated.
VI. Final supplier selection, monitoring and feedback: Based on the negotiation, best supplier(s)
can be selected for contract. After selecting the supplier(s), continuous monitoring of
performance is very important. Supplier relationship management (supplier reward and score-
card) plays an important role for maintaining long-term strategic relations.
Que. 2: perform the analyses designed to support the supplier evaluation and selection
decisions.
 Financial Risk Analysis (Que. 3)
Selected Financial Ratios Elecom SureTech E-Drive Park
Asset Utilization:
Asset Turnover =
Sales/Assets 1.32 1.57 1.64 1.38
Inventory Turnover = Cost
of Sales/Average
Inventory
5.20 5.43 9.06 7.005
Receivable days= Account
receivable/Sales *365 49.92 29.86 60.30 47.00
Payable Days = Accounts
payable/Sales *365 29.53 49.77 35.70 33.67
Capitalization:
Leverage = Assets/Equity
2.58 2.03 2.28 2.10
Return on Equity = Net
Income/Equity = Profit
Margin X ATO X Leverage 0.065 0.217 0.168 0.099
Long-term Debt to Equity =
Long-term Debt/Equity 0.649 0.318 0.39 0.35

7. Long-term Debt to Assets
= Long-term Debt/Assets 0.251 0.157 0.172 0.168
Current Ratio = Current
Assets/Current Liabilities
1.21 1.338 1.348 1.129
Quick Ratio = (Cash +
Short-term Inventory +
Accounts Receivable)/
Current Liabilities
0.62 0.73 1.05 0.74
EBIT Coverage = Earnings
Before Interest and
Taxes/Interest Expenses
0.75 5.46 2.62 1.85
Profitability Ratios:
Profit Margin = Net
Income/Sales
0.019 0.068 0.045 0.034
Conclusion and Interpretations:
 E-drive does have a good inventory turnover ratio. In more, a company’s Asset turnover is also
good. Company has good payment terms for their customers. On the other hand, company has
moderate profit margin and return on equity.
 Elecom has poor Asset turnover in compared to other suppliers. His ability of quickly paying to
his suppliers indicates its financial strength. Lacks in the profit margin and return on equity.
 Low long term debt to equity in case of Park technologies confirms that company will perform
well financially in future as they don’t have long-term loans. Company’s financial strength in
foreseeable future is very important in deciding long-term strategies.
 In short, suppliers’ long-term, &short –term debt, equity, profit margin and return on
investments are the factors need to be considered for deciding long-term business partner.
Que. 4: Total Cost Analysis. Identify the relevant additional costs beyond the unit price for
each supplier. Calculate the estimated per unit total cost from each supplier for year one.
The forecasted demand of 9000x is 500,000 units for the first year (Aug. 2003-july 2004). As demand of
DVD drive is dependant over the product 9000x, we referenced 500,000 units of DVD drive, for
calculating the estimated unit total cost from each supplier for year one.

8. For simplification, we’ve shown the equation for finding out tooling cost and cost of non-conformance
per unit for first year.
 Tooling cost per unit for first year =[{ Total cost of tooling (2-year contract)* total demand of
DVD drive for 2 years (forecasted)}/demand of DVD drive for 1st
year (forecasted)]…Eq.4.1
 Quality non-conformance cost per unit for first year= [defects per million*300], where $300 is
cost of non-conformance that Pacific system may end-up bearing…Eq.4.2
 Carrying cost calculation:
For domestic suppliers: Safety stock= 2 weeks, 2*9615(Stock of one week) =19,230 Units
Carrying cost per unit for domestic supplier = [{19,230 Units*Unit price*18}/ {100*500,000}]
For International suppliers: Safety stock = 4.28 weeks, 4.28*9615= 39,440 Units.
Carrying cost per unit for international supplier = [{39,440 units*Unit price*18}/ {100*500,000}]
Cost Category Elecom SureTech E-Drive Park
Quoted Unit Price $127 $144 $140 $132
Transportation 18 6 14 18
Tooling (Based on Eq.4.1) 2.73 3.18 2.95 2.5
Quality non-conformance
costs(Based on Eq.4.2)
(9500/100000
0) *300=2.85
(10,500/1000
000)
*300=3.15
(7500/100000
0) *300=2.25
(4000/100000
0) *300=1.20
Duties/customs, insurance, and
tariffs
11.50 1.50 3.00 13
Inventory safety stock carrying
charges:
1.80 0.996 0.97 1.87
Ordering, inbound receiving and
inspection costs
4.5 4 3.25 2.25
Estimated Per Unit Total Cost $168.38 $162.83 $166.42 $170.82

9. Conclusions and Comments:
 Even though Sure Tech has very small market share and less experience, they are offering the
lowest price from all 4 suppliers.
 The expected unit price of DVD drive should be in the range of $125-150 according to the Pacific
corporation. Knowing the fact that Sure Tech is a small supplier trying to expand its market
share, Pacific corp. can have better price deal with Sure Tech. Yet, their ability to respond the
spike in demand is questionable.
 E-Drive has second best offering. They are domestic supplier and have obtained a good market
share. They also could be a potential supplier from cost perspective.
Que. 5: Supplier Evaluation and Selection Analysis. Using the GE Scorecard as a model, create
and complete a scorecard for your each supplier.
The GE Scorecard for all different 4 suppliers is drawn as below. Based on the final score, we narrowed
our supplier selection process on E-Drive Systems. We considered total 8 different categories. Then
subdivided the categories in sub-categories and assign the weight to each sub-category.
Supplier: ELECOM
Category
Total/Sub
Weight
Weighted
Score
Sub-total
Quality performance 20 12,75
Total quality commitment 11 8,25
Defect performance (PPM) 9 4,5
Financial condition 10 2
Asset turnover 4 0,8
Debt structure 4 0,8
Profitability 2 0,4
Process capability 15 7
Research and development 5 3
Volume capacity 5 1
Process innovation 5 3
Management capability 10 8
Labor relations 5 3
Management and personal 5 5
Delivery performance 20 8,2

10. Performance to promise 7 4,2
Lead time 6 1,2
Responsiveness 7 2,8
Total costs 20 18
Costs competitiveness 10 10
Cost control 5 3
Flexibility 5 5
EDI 3 3
Others risks 2 0,6
Exchanges rates 1 0,2
Country security 1 0,4
TOTAL 59,55
Supplier: Sure Tech
Category
Total/Sub
Weight
Weighted
Score
Sub-total
Quality performance 20 16
Total quality commitment 11 13,75
Defect performance (PPM) 9 2,25
Financial condition 10 6,8
Asset turnover 4 4
Debt structure 4 1,6
Profitability 2 1,2
Process capability 15 10
Research and development 5 5
Volume capacity 5 2
Process innovation 5 3
Management capability 10 10
Labor relations 5 5
Management and personal 5 5
Delivery performance 20 15,8
Performance to promise 7 5,6
Lead time 6 6
Responsiveness 7 4,2

11. Total costs 20 7
Costs competitiveness 10 2
Cost control 5 3
Flexibility 5 2
EDI 3 0,6
Others risks 2 2
Exchanges rates 1 1
Country security 1 1
Total 68,2
Supplier: E-Drive
Category
Total/Sub
Weight
Weighted
Score
Sub-total
Quality performance 20 15,5
Total quality commitment 11 11
Defect performance (PPM) 9 4,5
Financial condition 10 6
Asset turnover 4 2,4
Debt structure 4 2,4
Profitability 2 1,2
Process capability 15 9
Research and development 5 3
Volume capacity 5 2
Process innovation 5 4
Management capability 10 6
Labor relations 5 3
Management and personal 5 3
Delivery performance 20 20
Performance to promise 7 7
Lead time 6 6
Responsiveness 7 7
Total costs 20 12
Costs competitiveness 10 6
Cost control 5 3

12. Flexibility 5 3
EDI 3 0,6
Others risks 2 2
Exchanges rates 1 1
Country security 1 1
Total 71,1
Supplier: Park Technologies.
Category
Total/Sub
Weight
Weighted
Score
Sub-total
Quality performance 20 22,25
Total quality commitment 11 11
Defect performance (PPM) 9 11,25
Financial condition 10 7,6
Asset turnover 4 3,2
Debt structure 4 3,2
Profitability 2 1,2
Process capability 15 13
Research and development 5 4
Volume capacity 5 4
Process innovation 5 5
Management capability 10 7
Labor relations 5 4
Management and personal 5 3
Delivery performance 20 6,8
Performance to promise 7 2,8
Lead time 6 1,2
Responsiveness 7 2,8
Total costs 20 12
Costs competitiveness 10 8
Cost control 5 2
Flexibility 5 2
EDI 3 0,6 0,6
Others risks 2 1,6

13. Exchanges rates 1 1
Country security 1 0,6
TOTAL 70,85
Que. 6: Sourcing risk Management plan. 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.
Sourcing Risk Management Plan
Supplier: E-Drive Systems.
Potential
Concern Area
Risk or Concern Risk Reduction Plan
Management
Capability
 Internal communication between
the production and quality
departments
 Product were shipped to the
buyer, having quality issues in
past.
 Measure, manage and monitor
improvements in all
departments.
 Understand the value of the
team reports to the
organization.
 Show executive management
the impact of improvements
on the organization’s bottom
line.
Delivery
Performance
E – Drive Systems commits the highest
on-time delivery (95%) with a very short
lead time (2 weeks) and best quality.
Continuous monitoring metric must be
established and shared between both
parties.
Quality
Performance
Quality = 7,500 PPM Defects Establish a Critical to Quality
characteristics check list.
Process
Capability
Lapse in monitoring control limits Establish Lean six Sigma into all
processes
Utilization of Statistical Process
Controls
Capacity E – Drive Systems operates nearly at full
capacity (96%). Scale of our growth may
exceed their ability to meet our future
needs.
Develop a long-term relationship with
Sure Tech – Young company that has
potential to grow with us and leads in
technology.
Cost  Transportation cost are high in
regards to locality (10 miles)
 PCS - controls its own
transportation. Establish a new

14. shows inefficiency in logistics
 Inventory cost is a concern
$165,000,000 at 18% inventory
per unit.
rate negotiated prior to
purchase.
 Lock down date to enact JIT
delivery and mitigate inventory
levels required.
Technical Ability E- Drive Systems states that it will work
with company in future product
development.
Collaboration between both companies
R & D departments with transparent
goals and technical capacity.
Logistics None
----- ---- --- ---- --- ---- --
Financial Issues Cost of inventory – Total current
Liabilities – Long Term Debt
Constant monitoring of balance sheet.
Nurture relationships with other
suppliers to be agile.
Other
Commercial
Issues
None
Sources:
http://www.talentalign.com/it-hrknowledge-base/capability-managementcapability-index/
https://www.moresteam.com/resources/metrics.cfm
https://www.isixsigma.com/tools-templates/capability-indices-process-capability/competently-use-
capability-analysis/
Que. 7: The issue of short versus long-term contracts is also an important consideration
during supplier selection. Using the following table, identify the potential advantages and
disadvantages of short and long-term contracts.
Short-Term Contracts:
Potential Advantages
1). Greater flexibility in
terms of taking
advantage of
advancement of
technology from other
emerging and potential
suppliers.
2). It drives
competitiveness for
the supplier base. They
try to enhance their
Short-Term Contracts:
Potential Disadvantages
1). Supplier may not
be able to offer good
price because of the
uncertainty of future
business and income
stream.
2). Less likely the
suppliers are to
commit their capital
for design, build and
finance the special
Longer-Term Contracts:
Potential Advantages
1).Suppliers can be
involved during early
product development
process to get the cost-
reduction suggestions.
2). Strong relations
with supplier help
during spike and
decline of demand in
the market. Supplier
remains flexible in this
Longer-Term Contracts:
Potential Disadvantages
1). Supplier volume
uncertainty.
2).Selection of wrong
supplier.
3).Supplier volume
uncertainty
4).Buyer is
unreasonable.

15. own performance for
getting future
business.
demands of buyer.
3). It takes time and
effort to analyze and
evaluate different
suppliers. Increases
administration cost for
buyer.
4). Supplier
relationship
management and
vendor development
process cannot be
executed properly.
case.
3).Continuous
improvement. Joint
ventures and JIT can be
implemented.
4). Optimized and
streamlined supply
chain.
Sources: http://www2.westsussex.gov.uk/ds/cttee/ses/ses060711i6b.pdf
Purchasing and Supply Chain management book by Robert M. Monczka, Robert B Handfield.
Que. 8: Consider the following statement: Supplier evaluation and selection, which is really a
process of risk management, is one of the most important activities performed today. If your
group agrees with part or all of this statement, provide arguments and evidence as to why
your group agrees. If your group disagrees, provide arguments and evidences as to why your
group disagrees.
Our group agrees with the statement that supplier evaluation and selection; a process of risk
management that is most important activities performed today. As we know this ear is of Globalization.
To leverage the cheap labor, many buyers have started looking forward in developing nations for cheap
suppliers to remain competitive in the market. Suppliers from country like china, India, Indonesia have
gone globally, and it became impossible to compete in price by American suppliers in the same market.
On the dark side, because of the longer lead time, sourcing the material internationally is uncertain
inherently. There, the supplier risk management comes into the picture. Buyer prepares contingency
plan (risk mitigation plan). They assume bearing the calculated risk and prepare risk mitigation
techniques.
All the multi-national companies, who do have global suppliers, have developed these risk mitigation
techniques with time. And thus we believe that it is very common business practice now in the field of
supply chain.
Que. 9: Instead of conducting evaluations through formal assessment, some firms rely on
product samples as a means to validate supplier capability. What are the risks associated with
relying only on supplier samples when making a supplier selection decision? How can a
company minimize this risk?
Relying on mere sampling may not be as accurate as formal assessment, for validating supplier
capability. Samples may only indicate the quality.

16. Furthermore, Supplier samples do not provide holistic approach of supplier selection process. Only
quality of products can be determined. In the absence of suppliers’ major attributes like delivery
performance, payment terms, capacity utilization, Inco-terms, contractual agreement should not be
done.
To minimize such risks, a company should have cross-functional team, who can do the systematic
analysis of gathered market information. Based on the DCA (Discrete choice analysis) and AHP
(Analytical hierarchy process) techniques, a company can do the pair wise comparison of 2 suppliers at a
time over the different attributes. After that, a company can narrow their choice down to filtered
supplier for final negotiation. A visit of supplier’s company is very significant. Considering all these
factors company can minimize such risks.