This is a quick clarification on how the assignment works:
•
•
•
Read the Harvard Business Publishing case entitled "Strategic Performance Measurement of Suppliers at HTC"
Then, in the Blackboard assignment posted in Session #9 folder, read attachments labeled Part-1 (the instructions)
and Part-2 (the supply market analysis for the case).
For your assignment submission, you will fill out a copy of "Part-3 Category Strategy Template" and upload it to
Blackboard assignment.
We will do Q&A in today's class.
STRATEGIC PERFORMANCE
MEASUREMENT OF SUPPLIERS AT HTC
Since 1997, HTC (formerly High Tech Computer) Corporation had been
manufacturing smartphones and personal digital assistants (“PDAs”) as an
original design manufacturer (“ODM”) for mobile operator brands, including
Orange, T-Mobile, Sprint, Cingular, Verizon, and NTT DoCoMo.1 More
recently, with its shift to own-brand manufacturing, HTC had built its
reputation as one of the top five global brands in smartphones. By 2009, HTC
had sales of NT$144 billion (equivalent to US$4.5 billion).2 It was ranked
fourth in the first quarter of 2010 in market share by shipments [see Exhibit
1].
To serve its global customer base, HTC had built a network of close
relationships with component suppliers around the world. There were
approximately 250 to 300 components in each smartphone, and HTC needed
to manage over 1,000 suppliers. Selecting and monitoring a large network of
suppliers required a well developed management programme. HTC’s
scorecard system had played a key role in helping HTC’s supplier
management team select and monitor its suppliers.
On the first day of July 2010, K.H. Tung (KH), head of global supply chain
management at HTC, was meeting with his team of engineers at his Taoyuan
office in Taipei, Taiwan and evaluating scorecard reports done on five
routine component suppliers of batteries for the first and second quarters of
2010. Because the company was expecting strong demand over supply in the
third quarter of 2010 and this component was in particularly short supply, KH
needed to decide quickly how to allocate the next quarter’s orders among
these five suppliers so that customer orders could be met with consistent
quality and timeliness.
1
An ODM was a company that designed and manufactured a product specified and eventually branded by
a customer for sale. Such companies allowed customers to manufacture products without having to
engage in the organisation or running of a factory. See: Wikipedia (2010) “Original Design
Manufacturer”, http://en.wikipedia.org/wiki/Original_design_manufacturer (accessed 13 November
2010).
2
US$1 = NT$32.(November 2010).
Yu Chen prepared this case under the supervision of Dr. Neale O’Connor, Professor Shannon Anderson
and Professor Anne Wu for class discussion. This case is not intended to show effective or ineffective
handling of decision or business processes. We acknowledge the support of the Hong Kong Government
Research Fund ((#749609H)
© 2011 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication
may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise (including the internet)—without the permission of The University of Hong
Kong.
Ref. 11/482C
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HKU950
NEALE G O’CONNOR SHANNON ANDERSON ANNE WU
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11/482C Strategic Performance Measurement of Suppliers at HTC
The Smartphone Industry
The smartphone industry, also known as the converged mobile device
industry, in which HTC had been a player since 1997, produced mobile
communication devices with: 1) operating systems running as platforms; 2)
the ability to handle multiple applications simultaneously; 3) the ability to
install and remove third-party software; and 4) extensible memory through
external flash memory.3 Smartphones facilitated voice communications and
primarily targeted customers seeking phones that doubled as multimedia
devices with functions for music, photos, gaming, text messaging, email and
web browsing.4
With an increasing number of businesses and consumers adopting mobiles
with advanced features, smartphone shipments continued to grow in many
regions. Email was one of the major drivers of growth in converged mobile
services. With the prices for data usage falling, demand for data was
increasing, making it more attractive for both business users and consumers
to use mobile devices with email and browser functions. IDC, one of the
industry’s leading market data analysis companies, forecasted that overall
mobile phone shipments would grow at a cumulative annual growth rate
(“CAGR”) of 6.6% between 2009 and 2014, while the sub-sector of
smartphones would grow at 20.4% to reach 439 million unit per year.
Smartphone shipments were expected to reach 28.2% of total mobile phone
shipments by 2014, up from 15.3% in 2009 [see Exhibit 2].
Within the smartphone industry, there were many large players dominating
each part of the value chain [see Exhibit 3]. There were between 250 and 300
components in a smartphone— key examples of which were CPUs, display
screens and memory chips—and Texas Instruments, Infineon and Qualcomm
dominated these spaces. These semiconductor suppliers and other component
suppliers supplied their products to original equipment manufacturers
(“OEMs”) and ODMs, an area dominated by Nokia, Apple, Motorola, RIM
and HTC. These players would then sell their products to wireless operators
around the world such as AT&T, Vodafone, Orange and Cingular with either
their own brand names (in the case of OEMs) or brands owned by the
operators (in the case of ODMs).
Smartphones had a very short product lifecycle, with operators demanding a
new generation of products every 12 to 18 months.
Operating System
All smartphones needed to be backed by an operating system. There were
many operating systems in the market for manufacturers to choose from. The
top operating systems used by smartphones were Google’s Android, RIM’s
Blackberry OS, Apple’s iOS, Symbian and Microsoft’s Windows Mobile.
HTC’s product portfolio included both Android and Windows Mobile.
According to IDC, the Symbian operating system had a 44.9% market share
worldwide in terms of shipments by operating system, ranking number one in
2009. Symbian’s partnership with Nokia was one of the main reasons
Symbian had held its top ranking. Windows Mobile was ranked number four
with a 9.4% market share in 2009 and was expected to maintain this position
throughout IDC’s forecast period, until 2014. Even though Android was only
ranked number six, with a 4.1% market share in 2009, it was expected to
grow the fastest among the top 10 smartphone operating systems, with 65.4%
CAGR between 2009 and 2014, climbing to number two in market share by
2014 [See Exhibit 4].
3
IDC (7 May 2010) “Worldwide Converged Mobile Device (Smartphone) Market Grows 56.7% Year
Over Year in First Quarter of 2010, Says IDC”, Press Release, http:// www.idc.com (accessed November
13, 2010)
4
Chan, W.B.K. (2007) “High Tech Computer: Initiating at Buy (1H), $650 Target Price; Worst Case
Already Discounted”, Citigroup.
2
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11/482C Strategic Performance Measurement of Suppliers at HTC
HTC
Since 1997, HTC had been manufacturing smartphones and PDAs as an
ODM for mobile operator brands including Orange, T-Mobile, Sprint,
Cingular, Verizon, and NTT DoCoMo. The company had started as an ODM
designing and building innovative PDAs.5 These PDAs used Microsoft’s
Windows Mobile operating system exclusively. HTC had worked closely
with Microsoft ever since its inception, producing Windows Mobile PDAs
for such companies as Compaq, Dell and Hewlett-Packard.
In 1999, HTC started designing its first touch-screen smartphone, and when it
shipped in 2002 it was the first colour touch-screen smartphone in the
industry. HTC initially made smartphones based exclusively on Microsoft’s
Windows Mobile software and sold them as operator-branded devices in the
market. In 2006, HTC became an OEM when it started selling its products
under its own brand name, hTc. Geographically, Europe and North America
were the two major regions for HTC, with its shares in Asia increasing
gradually. Over the years, HTC had established many key relationships with
its customers, including the leading five mobile operators in Europe, the top
four in the US and many fast-growing Asian operators.6 Since 2009, with the
emergence of other operating systems, it had begun shifting its focus to
devices based on Google’s Android operating system, given not only its
increasing market penetration but also better customisation capabilities and
lower cost than other operating systems.
In recent years, responding to the rapid growth of the smartphone market,
HTC had been shifting its focus to smartphone design and production. HTC
essentially became a pure smartphone player. Its key competitors were
mainly large OEMs such as Nokia, Apple, Motorola and RIM, who produced
smartphones in addition to other mobile devices.
Supplier Management
We do not consider short term suppliers. We want suppliers who not only
provide product with competitive cost, but also have the capability to develop
the component to match with our demand in the future. We consider supplier
who has the capability to develop together with us with our product roadmap.
- HTC Vendor Management Team7
HTC had over 1,000 suppliers, and managing them was critical to ensuring
that HTC’s products met customer requirements through continuous
innovation. HTC’s supplier management involved four different teams. The
sourcing team was responsible for searching for new suppliers that might
qualify to become HTC’s long-term suppliers. The component team was
responsible for evaluating whether a supplier could provide the appropriate
parts for HTC’s various product models and monitored suppliers’ consistency
in production once they were selected. The R&D team focused on evaluating
suppliers’ capabilities to provide appropriate product designs. The quality
assurance team conducted rigorous testing to ensure such aspects as the
quality, consistency and efficiency of suppliers. Collectively, these four
groups were called the Vendor Management Team.
Supplier management was divided into two areas: supplier selection and
supplier monitoring. HTC had strategic suppliers that supplied key
components such as integrated circuits, memory chips and display screens.
Each of these key components usually had only one or
5
PDAs differed from smartphones in that PDAs mainly focused on business users, offering such
functions as email, scheduling and data processing.
6
For details, see HTC’s website: www.htc.com 7 Company interview on October 21, 2009.
3
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11/482C Strategic Performance Measurement of Suppliers at HTC
two suppliers who dominated the space. However, because a smartphone had
over 250 routine components, suppliers of such components made up the vast
majority of HTC’s suppliers. Some routine components had as many as five
suppliers. The supplier selection and monitoring process applied mainly to
the management of these routine component suppliers. HTC was very
strategic when it came to looking for a new supplier [see Exhibit 5].
Supplier Selection
The first step of supplier selection was the identification of potential suppliers
by the sourcing team. According to KH, when the team was sourcing,
engineers were judged based on a three- year product roadmap and specific
requirements demanded by the market in the future, not just the current year’s
product.
Once there was a list of candidates, members from procurement, quality and
engineering, R&D, and component engineering would conduct an audit of
each candidate’s quality system, manufacturing process, financial situation,
and manufacturing capability and capacity. If a candidate passed the audit,
then members from the engineering team, which included the quality
assurance team and component engineering team, would ask the candidate to
submit sample products for quality, reliability and safety testing.
The final step in supplier selection was to enter into a contractual agreement
with the selected supplier. The contract would indicate HTC’s forecast of
orders needed, though such an amount would not be set definitively because
HTC would not want to be 100% committed to a particular amount in the
event of a sudden drop in market demand. If demand was more than what
HTC had ordered, then HTC would push suppliers to deliver more or find
new suppliers to fill the gap. Similarly, HTC did not specify any prices for
orders in its contracts. This was to maintain flexibility for HTC to ask
suppliers to reduce their production or materials costs as it deemed
appropriate. According to KH: “In case I have an issue with high material
cost, I would tell a supplier to reduce its cost because all the customers are
complaining. Therefore, such supplier will cut its material cost and overhead
expenses. It will come back to us with a 13% reduction. So normally we do
not specify the volume, the pricing and some of the term conditions in the
contract to retain flexibility.”8 One item that was specified in the contract was
the delivery date. Suppliers had to deliver the products on the exact date
specified in their contracts. “If you commit then you must deliver,” said KH.
HTC had been maintaining suppliers on a long-term contractual basis. There
were virtually no short-term suppliers under HTC’s management.
Supplier Monitoring with a Scorecard
If some of the suppliers receive an excellent or perfect score—we may
consider offering them another allocation of the order. For example, we have
a product that requires 100,000 pieces every month. We have two suppliers.
One supplier has performed extremely well. We may consider sourcing 80%
from this supplier. The other one underperformed. I will give them 20%. If
the underperformed one improves in the next quarter, then I will adjust this
allocation again.
- HTC Vendor Management Team9
The second area of supplier management was the continuous monitoring of
suppliers’ performance. Once suppliers started delivering, the component
team would visit these suppliers every month or two. The team would
monitor the consistency of process parameters,
8
Ibid. 9 Ibid.
4
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11/482C Strategic Performance Measurement of Suppliers at HTC
components and materials used. More importantly, KH and his team used a
scorecard system to evaluate all suppliers on a quarterly basis using five
categories of performance measurement: technology, quality, response,
delivery and cost (collectively known as the TQRDC index). Quality was the
most important metric, accounting for 35% of the total score. Cost, at 30% of
the total, was the second most important. HTC continuously asked suppliers
to reduce the costs of various components. Delivery, technology and response
made up 20%, 8% and 7% of the total, respectively. HTC used scorecard
results to make decisions on future order allocation. “In reality, we look at
each product’s special needs to choose its suppliers. It is not always
necessary that higher score gets larger amount of order,”10 said KH. HTC
would also offer help to suppliers to improve their performance in terms of
these dimensions.
Scorecard data were collected monthly. Then, every quarter, the supplier
management team would hold a business review meeting to look at the trends
of the past three months to determine whether to put a supplier on a watch list
(in which case they might work with the supplier if the supplier was deemed
important) or cease purchasing from the supplier.
Problem Solving
If there is a problem, HTC may come to our place two to three times a day.
There is not only audit, but also a lot of discussion, especially on those new
components. We need to revise those new components and improve them.
- Supplier to HTC11
HTC and its suppliers maintained very close communications. If there were
issues regarding a component, suppliers would “invite application
engineering to visit to find whether it is related to their process or related to
their component or delivery,” according to KH.12 Suppliers were usually
expected to respond to and resolve issues within 24 hours. HTC called this
“corrective action response” (“CAR”). CAR was an essential component of
the TQRDC scorecard index. In addition to quick response in solving
problems (measured under the response category of the scorecard system),
suppliers were expected to share product component roadmap information
with HTC if they forecasted some new component designs for the coming
year or two. Such sharing was helpful for HTC in doing its own forecasts.
Product Roadmap Forecast
Demand forecast is one of the major challenges in supplier management,
especially in consumer electric industry. Improve forecast capability and
increase common parts in design phase would be helpful for supplier
management.
- HTC Vendor Management Team13
According to KH, even though “sometimes it is very difficult to predict
volume that can be sold in the market”14 HTC conveyed its forecasts to its
suppliers so that they could plan ahead. For example, some of the driver
integrated circuit suppliers asked HTC for its forecast of 2011 capacity
during the first half of 2010. HTC had maintained good communication with
them on the forecast request. One of the suppliers to HTC commented,
“Normally HTC has a
10
Ibid. 11 Ibid. 12Ibid. 13 Ibid. 14 Ibid.
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yearly forecast. Then HTC may revise them from time to time. But it is just a
reference. HTC requires us to keep the capacity, but won’t guarantee full
orders for that capacity.”15
HTC needed to consider other factors aside from the scorecard system in
managing suppliers. For example, the need to keep inventory levels low,
which reduced carrying and redundancy costs, meant that HTC needed to
have very good relationships with its suppliers so that it could call on them
for quick delivery. According to KH, “Sometimes in a critical situation, we
may change the allocation in the next month. But we will consider the
inventory level before we do that. We will consider the long term relationship
to keep our inventory level low. Not just the allocation.”
In summary, HTC’s supplier management process required heavy
involvement of the teams in both supplier selection and monitoring. The
scorecard system provided a good platform for the teams to measure
suppliers’ performance in various areas on a regular basis. The top
management of HTC was also strongly committed to supplier management
and met with key suppliers on a regular basis.
Issues Surrounding the Scorecard
In the case where one supplier’s score is much lower than others, we will
request them to review. If they can not improve in three months, we will
consider recommend our engineers not to select this supplier in the future.
- HTC Vendor Management Team16
As smartphones increased in size and number of functions over the years,
their battery usage requirements also increased. A battery’s lifecycle, usage
capacity and power management capability had become key focuses among
battery suppliers. Each phone battery cost around US$5 to US$6,
approximately 3% of a smartphone’s total bill of materials.17 Almost all the
batteries used by Taiwan smartphone producers were supplied by Taiwanese
battery producers, according to a report done by the Market Intelligence &
Consulting Institute, based in Taipei.18 Main battery suppliers included
Phihong, DynaPack, Simplo and Celxpert [see Exhibit 3].
There were five different combined scores for the five different suppliers KH
and his team were evaluating. Each supplier had a different size and market
share, as well as its own type of relationship and issues, if any, with HTC.
Supplier A performed well in almost every category, with an overall grade A
(scoring at least 85), and had received consistent scores in the previous three
months. Suppliers B, C and D had received B grades, scoring between 70 and
85. Supplier B had declined in quality performance but improved in delivery
performance over the previous three months. Supplier C had improved in
quality performance but declined in cost and delivery performance during the
same period. Supplier D had unstable quality performance and declining
delivery performance. Finally, Supplier E had scored a C grade, with scores
of 70 and below [see Exhibit 6 and Exhibit 7].
15
Interview with supplier on October 21, 2009 16 Company interview on October 21, 2009.
17
A bill of materials was a list (along with quantities and descriptions) of all raw materials, parts,
intermediates, sub-assemblies, etc., required to construct, overhaul or repair something. See: Business
Dictionary (2010) “Bill of Materials (BOM)”, www.businessdictionary.com. (accessed 13 November
2010).
18
7 2010 ( 2010 11 13 ). [MIC Advisory and Intelligence Service Program (July 2010) “Taiwan
Smartphone Industry Component Suppliers Analysis” (accessed November 13, 2010).]
6
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11/482C Strategic Performance Measurement of Suppliers at HTC
KH and his team needed to make two decisions: 1) how to allocate the next
quarter’s orders among these five suppliers for the same component; and 2)
what to do with suppliers receiving grades lower than A—whether to drop
them or help them to improve to grade A. Their decisions for each supplier
would be based not only on each one’s performance measurements, but also
considerations beyond what the scorecard had captured.
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11/482C Strategic Performance Measurement of Suppliers at HTC
EXHIBIT 1: TOP FIVE SMARTPHONE VENDORS’ SHIPMENTS AND MARKET
SHARE Q1 2010
(Units in Millions)
1Q10
Vendor
Volumes
1 Nokia 21.5
2 Research in Motion 10.6 (RIM)
3 Apple 8.8 4 HTC 2.6 5 Motorola 2.3 Others 8.9 Total 54.7
1Q10
1Q09
1Q09 Market Share
39.3%
20.9%
10.9% 4.3% 3.4%
21.2%
100.0%
Market
Volumes Share
39.3% 13.7
19.4% 7.3
16.1% 3.8 4.8% 1.5 4.2% 1.2
16.2% 7.2
100.0% 34.7
Source: IDC (May 2010) “Worldwide Quarterly Mobile Phone Tracker”, http://
www.idc.com (accessed November 13, 2010).
EXHIBIT 2: WORLDWIDE MOBILE PHONE AND SMARTPHONE SHIPMENTS
2009–2014 (000)
Source: IDC (March 2010) “Worldwide Converged Mobile Device 2010–2014 Forecast
and Analysis”, http://www.idc.com (accessed November 13, 2010)
Mobile Phone Converged mobile device
Share of total mobile phone (%)
2009
1,133,185.2 173,472.6
15.3%
2010
1,258,129.5 226,759.0
18.0%
2011
1,371,220.4 277,223.6
20.2%
2012
1,433,730.0 332,916.4
23.2%
2013
1,498,477.0 385,676.3
25.7%
2014
1,557,857.2 439,353.5
28.2%
Cumulative Annual Growth Rate (09-14)
6.6% 20.4%
8
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EXHIBIT 3: SIMPLIFIED SMARTPHONE INDUSTRY VALUE CHAIN
Strategic Performance Measurement of Suppliers at HTC
Component Suppliers
Original Equipment Manufacturer AND Original Design Manufacturer
Operators
Individual Consumers
Source: 7 2010 ( 2010 11 13 ). [MIC Advisory and Intelligence
Service Program (July 2010) “Taiwan Smartphone Industry Component Suppliers
Analysis” (accessed on November 13, 2010).]
9
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EXHIBIT 4: WORLDWIDE SMARTPHONE SHIPMENTS BY OPERATING
SYSTEM 2009-2014
Shipments (million)
2009-2014 2014 CAGR (%)
87.3 65.4% 72.1 15.9% 8.1 -5.1% 51.8 15.6% 7.9 165.1% 0.0 0.0% 151.5 14.2% 6.7 33.8% 54.0
27.0% 0.0 0.0% 439.4 20.4%
2009 2010 2011 2012 2013
Android Blackberry Linux Mac OS X Maemo/Meego Palm OS Symbian webOS Windows
Mobile Other 0.0 Total 173.5
7.1 28.6 42.5 57.6 71.5 34.5 42.0 49.8 58.4 65.7 10.5 8.4 7.9 7.8 8.0 25.1 32.3 36.7 42.6 47.5
0.1 0.7 2.1 3.7 5.7
0.5 0.1 0.0 0.0 0.0 78.0 89.0 101.4 117.9 134.4 1.6 3.4 4.3 5.0 6.0 16.3 22.2 32.6 40.1 47.1 0.0
0.0 0.0 0.0 226.8 277.2 332.9 385.7
Growth
Operating system mix (%)
Android 4.1 Blackberry 19.9 Linux 6.0 Mac OS X 14.5 Maemo/Meego 0.0 Palm OS 0.3
Symbian 44.9 webOS 0.9 Windows Mobile 9.4 Other 0.0 Total 100.0
30.7% 22.3% 20.1% 15.8% 13.9%
2010 2011 2012 2013 2014
12.6 15.3 17.3 18.5 19.9 18.5 18.0 17.5 17.0 16.4 3.7 2.8 2.3 2.1 1.8 14.3 13.2 12.8 12.3 11.8 0.3
0.8 1.1 1.5 1.8 0.0 0.0 0.0 0.0 0.0 39.3 36.6 35.4 34.8 34.5 1.5 1.5 1.5 1.6 1.5 9.8 11.8 12.0 12.2
12.3 0.0 0.0 0.0 0.0 0.0 100.0 100.0 99.9 100.0 100.0
2009
Source: IDC (March 2010) “Worldwide Converged Mobile Device 2010–2014 Forecast
and Analysis”, http://www.idc.com (accessed November 13, 2010).
10
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EXHIBIT 5: SUPPLIER SELECTION AND MANAGEMENT PROCESS AT HTC
Supplier Selection and Management Process at HTC
Step 1
a
b
cd
Step 2
a
bcd
e
Supplier Selection
Source potential supplier
Conduct supplier audit of:quality system, manufacturing process, financial situation and manufacturing
capability/capacity
Provide sample to conduct quality and reliability (including safety) tests
Develop contract agreement
Supplier Monitoring
Visit suppliers every month or every other month to monitor consistency in process prarameters and
materials used
Scorecard system for regular evaluation
Convey forecasts
Control inventory costs
Determine allocation of orders based on scorecard performance
Teams Involved
Sourcing department
Members from Procurement, Quality & Engineering, R&D, Component Engineering
Engineering team (including the product assurance team)
Teams Involved
Component team
All teams All teams All teams
All teams
Source: Company interview on October 21, 2009.
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EXHIBIT 6: SAMPLE SCORECARD FROM HTC
Scorecard Weighting (%) at HTC
Quality 35% Cost 30% Delivery 20%
January
Supplier A
February
March
Weighted 88 30.8 88 26.4 85 17 85 6.8 85 5.95
87.0
Grade A
Technology Service Total
Quality Cost Delivery Technology Service Total
Quality Cost Delivery Technology Service Total
Quality Cost Delivery Technology Service Total
Quality Cost Delivery Technology Service Total
8%
7% 100%
35% 30% 20%
8%
7% 100%
35% 30% 20%
8%
7% 100%
35% 30% 20%
8%
7% 100%
35% 30% 20%
8%
7% 100%
87.0
87.0
Supplier B
February
Score 88
88 85 85 85
Weighted 30.8 88 30.8 26.4 88 26.4
17 85 17 6.8 85 6.8 5.95 85 5.95
Score
Score Weighted
Grade B
January
March
Score 80
85 70 85 85
Weighted 28.0 75 26.3 25.5 85 25.5 14.0 75 15.0
6.8 85 6.8 6.0 85 6.0
Score
Weighted 70 24.5 85 25.5 80 16.0 85 6.8 85 6.0 78.8
March
Weighted 85 29.8 75 22.5 75 15.0 85 6.8 85 6.0 80.0
March
Weighted 75 26.3 80 24.0 70 14.0 70 5.6 70 4.9 74.8
March
Weighted 70 24.5 75 22.5 65 13.0 65 5.2 65 4.6 69.8
Score Weighted
Grade B
January
80.3
79.5
Supplier C
February
Score 75
85 85 80 80
Weighted 26.3 80 28.0 25.5 80 24.0 17.0 80 16.0
6.4 82 6.6 5.6 82 5.7
Score
Score Weighted
Grade B
January
80.8
80.3
Supplier D
February
Score 70
80 80 70 70
Weighted 24.5 80 28.0 24.0 80 24.0 16.0 75 15.0
5.6 70 5.6 4.9 70 4.9
Score
Score Weighted
Grade C
January
75.0
77.5
Supplier E
February
Score Weighted 65 22.8 65 19.5 65 13.0 65 5.2 65 4.6 65.0
Score
Weighted 70 24.5 70 21.0 65 13.0 65 5.2 65 4.6 68.3
Score
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EXHIBIT 7: BRIEF DESCRIPTION OF SUPPLIERS A TO E
Supplier A had maintained a close relationship with HTC for over seven
years. It was one of HTC’s longest-serving suppliers of this particular
component. Over the years, Supplier A had worked closely with HTC to
develop new designs and products for HTC’s various smartphone models. It
was also one of the five largest manufacturers in its sector. Approximately
50% of HTC’s batteries were supplied by A.
Supplier B Supplier B had started its relationship with HTC three years
before. Its scorecard performance had been quite consistent. It had been
fulfilling approximately 20% of HTC’s overall battery orders. However, over
the previous six months, B had started having financial problems resulting
from a large legal scandal and overspending on construction of a new factory.
It had been cutting costs by firing workers at the factory, particularly those
with higher salaries who had been working there for a long time.
Supplier C Supplier C had started its relationship with HTC one and a half
years back. Its scorecard performance had been gradually improving since
joining HTC’s supplier list. Its share of HTC’s orders had increased from 5%
at the beginning to approximately 15%. In the previous six months, C had
introduced a new technology to its manufacturing lines which helped to
improve quality. However, costs had also increased. HTC and C had been
working together to solve the problem. As a step to cut costs, C recently cut
its delivery team and outsourced product delivery to an outside firm.
Supplier D Supplier D had a three-year relationship with HTC and had
performed consistently. It had been supplying about 10% of HTC’s batteries.
In the previous six months, Supplier D was spun off from its parent company,
which had maintained a strategic relationship with HTC since its inception.
The spin-off meant that D had to restructure and reshuffle its organisation to
run as an independent company.
Supplier E Supplier E had just started its relationship with HTC in the
previous six months. Its performance was similar to that of other suppliers
who had started around the same time, with much more improvement needed.
E was a rising star in this sector, with strong financial backing from a large
conglomerate that had promised to commit a good management team and
resources to help E grow. E had been given 5% of HTC’s total battery orders
thus far.
Note: scorecard examples are much more simplified than actual scorecard records. Note:
Grading system at HTC: A = score of 85 and above; B = score between 70 and 85; C = score
below 70. A very good supplier score is 85 or above (i.e. A). Cut off for dropping supplier is
continually below 70. But it depends in part on HTC’s need for capacity. In terms of the
individual items, the critical dimensions include supplier capacity, quality and cost.
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This document is authorized for use only by Ahmad Abualsaud in Fall-2016 Procurement and Supply Chain
Integration taught by Elzie, Matthew, Boise State University from August 2016 to December 2016.
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