PQI: Management of Suppliers Harvard Case Solution & Analysis

Background of the Company

PQI, a Taiwan-based company, specialized in electronics started operations in 1997 as a manufacturer of memory modules. The company expanded with the passage of time in terms of product line and included many new memory modules into its product line. These modules included flash memory cards and USB flash drives while DRAM, solid-state disks, portable hard drives, and multimedia players and disk on modules also became part of PQI’s product line. In 2003 after getting listed on the Taiwan stock exchange, the company opted for global expansion and opened its subsidiaries in the US, Netherlands and some of the Asian powerhouses like Japan, China, Korea and Hong Kong. The company was following an assemble-to-order model for its manufacturing and its inventory was adjusted according to the market situation. The company has over 100 suppliers who were categorized into three different tiers depending on their ability.

Purchasing department was responsible for selecting and assessing the suppliers that were picked on the basis of their supplying capability, commercial performance along with quality and product performance as well. Strategic and Product development were also included in the parameters to assess the suppliers. The contract renewal was based on the assessment of the supplier. Unlike other companies PQI never shared its assessment with the suppliers. The company’s recent assessment saw many big suppliers getting average scores, and the company was looking forward for improving its supplier management system by sharing the results with the suppliers. The company was of the view that this will help the suppliers to improve and will eventually benefit the company to cope with the increasing competition.

Problem Diagnosis

The current completion of the supplier's assessment showed the many suppliers despite good and strong performances both technically and commercially, received average scores in the biannual evaluation of the suppliers by PQI. The suppliers are mostly tier 3 suppliers. The company is under real considerations about the evaluation process after looking at the results. One of the suggestion was to consider sharing the results with the suppliers, but due to this the relationship with them was suspected to get affected. The company was also in confusion in selecting a supplier for a new order of die casting from a new customer.

Relationships with the suppliers have always been a strength for PQI, and sharing results of evaluations with the suppliers might help the suppliers to improve, but the concerning factor was the relationship with the suppliers. The manager of PQI needs to focus on communicating the results with the suppliers while maintaining the relationships and on the basis of their results the company has to select a supplier for the new order.

Recommendations

PQI should use a more quantitative approach while evaluating the suppliers. The evaluation done currently is assessing the suppliers on the same criteria that is why the results indicate the average performance of every suppler. The evaluation criteria need to be reviewed, and every supplier must be assessed on the basis of their capabilities along with the importance of the criteria for PQI. The technical abilities are different of every supplier so is their commercial performance. The main focus should be given to tier 3 suppliers as the main concerning factor is their results. The tier 3 suppliers should be divided into two categories fast and responsive and cost effective.

The assessment done at the start should separate the tier 3 supplier into these two broad categories and then evaluated on their commercial and technological performance. The evaluation should also further take into account the technological capacity and quality of the supplier, and the intensity of the relationship with a supplier.  After evaluating the suppliers in these broad terms, the important criteria for PQI must be made clear to the suppliers and on the basis of importance the decision should be made by PQI.

The second recommendation for PQI is to translate the results of the evaluation with the suppliers through effective communication. The results should not only be shared, but also be discussed with the suppliers in order to get their feedback and viewpoints as well. The result sharing of the evaluation with the suppliers is the practice followed by most of the companies around the globe. By sharing results, companies can help suppliers improve on delivering quality and performance. The translation of results should be carried in a very effective manner and environment emphasizing on not affecting the relationship with a supplier. This strategy is beneficial in the long run as sharing results will make the suppliers aware of the expectations of PQI. The importance of the relationship with each supplier should be assessed before communicating the results. The suppliers that are of huge........................

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Taiwanese company memory manufacturer Power Factor International Ltd. (PQI) was established system of selection, evaluation, and supplier management. Point system that evaluation of suppliers in areas ranging from the technical expertise of the quality of service and efficiency have made it easy for management to identify suppliers of strengths and weaknesses, and decide whether to keep the supplier at arm's length, or to develop strong relationships with suppliers. PQI has just completed a two-year evaluation of suppliers, some of which require further investigation. These suppliers have received only average, despite a strong performance both technically and economically. Meanwhile, the management asked whether to share their evaluation openly with suppliers can help improve your relationship with them. "Hide
by Neil O'Connor, Grace Lo Source: University of Hong Kong, 16 pages. Publication Date: February 7, 2011. Prod. #: HKU918-PDF-ENG

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