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SUN Microsystems Case Analysis

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Introduction

SUN Microsystems Case Analysis Sun Microsystems had an extremely tough decision to make in regards to its procurement strategy. They had to decide if they were going to take on an "E-sourcing" or "dynamic bidding" auction-type strategy with making purchases from their suppliers. Taking on this type of procurement strategy would benefit Sun with cost-savings on procurements, but may jeopardize their supplier relationships and quality of inputs for Sun products. After reviewing the enclosed financial data for Sun from 1996-1999, it is apparent that some trends are consistent. Sun's cost of goods sold has consistently been around half of their revenue for prior fiscal years, resulting in an approximate gross margin of 50%. ...read more.

Middle

This would raise competition between suppliers and allow Sun to reduce their procurement costs. Sun would have to take many factors into consideration when bidding on suppliers such that quality and integrity are not affected, thus tampering with their relationships with their suppliers. Advantages: A dynamic bidding system has the potential to reduce costs through price flexibility; it is fast and conveniently transacted through the Internet, and allows for expanded competition among suppliers. Disadvantages: With so much focus on lower prices, initial quality would be affected, current supplier relationships would deteriorate, collusion of suppliers could result, and the possibility of an Internet security threat could arise. Sun prides itself on strategic supplier relationships. ...read more.

Conclusion

I actually was involved in a similar situation at General Motors. We had a part-quality issue on tailgate straps. There was a 600,000 vehicle recall for faulty tailgate straps. We had to order 2 Million new, reliable straps immediately at our plant and an auction was setup locally (not over the Internet) among several area suppliers. I did not attend the auction, but I remember looking at some of the requirements of the contract. One requirement that stated the supplier would be responsible for any and all costs associated with future faulty parts, costs related to lost production due to material shortages, and costs related to repair associated with initial quality. This may not be completely related to my personal experience, but it definitely provided me with some background as to what issues Sonia was dealing with in the case. ...read more.

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