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PQI Management of Suppliers Case Solution
Classification of PQI’s suppliers was done at a geographic level. The first tier of suppliers was international. This includes high-power suppliers that the company needed to build strategic relationships with. The reason is that these international suppliers were sources of technology information for the company. Their rapid development of technology helped PQI to cope up and change its products according to the change in technology. The second tier of suppliers included those at geographical levels. These were general suppliers rather than strategic because they supplied general parts to the company. The third tier comprised of local suppliers. These suppliers dealt with supplies to activities such as packaging and housing which were also strategic for the company. The reason was that these suppliers adjusted their operations according to PQI products. These suppliers changed packaging for the products based on the changes in product designs. These suppliers provided the company with essentials that helped it to make itself distinct. Therefore, at an in-depth level, this classification is not geographic. Rather, this classification is based on the level of distinctiveness that each supplier provides to the company. Tier 1 suppliers provided it with technological knowledge that enabled it to distinguish itself from other firms in the same industry. Tier 3 suppliers provided the company with packaging that was distinct making them strategic partners also. Tier 2 suppliers were classified as general suppliers because they only provided the company with general parts and not distinctiveness.
Following questions are answered in this case study solution
Analyze how PQI classifies its suppliers. What transaction costs and hazards are associated with each type?
Analyze and comment on the biannual score sheets for the three suppliers in Exhibit 4. Based on the score sheets, what kind of action is recommended?
Should PQI share its assessment results with its suppliers? How would doing so impact its management of suppliers and its relationships with them?
The purchasing manager has narrowed its choice of potential supplier for the rush order from the new customer to A, B and C. If you were Wang, which supplier would you recommend that the purchasing manager place the order with?
Case Analysis for PQI Management of Suppliers
With type 1, the hazards were that other companies also gained technology information from these suppliers. This included big companies such as Intel that were suppliers to various other firms in the industry. Because these suppliers were dominant players in the market, they held immense bargaining power and the company could not reduce costs at the tier 1 level.
At tier 2, the company faced the transaction costs of having general suppliers that supplied the same parts to other competitors. This meant that these components of the products were the same as other competitors, and there was no difference in quality and performance of these parts. One factor that is a hazard in tier 2 suppliers is that the products cannot be customized according to the requirements of the company. Also, the product offering cannot be changed significantly. For example, as shown in Exhibit 4, some suppliers would be categorized as relatively better in some factors, while scored low on others. Since these suppliers hold bargaining power, they would not agree to change their offerings substantially.
The tier 3 suppliers had to be very responsive to the changes in the company. If these suppliers were not responsive and fast in changing along with the changes in PQI, they would not result in giving the company a strategic advantage. Also, these companies were strategic partners to the firm because they engaged in new product development with the firm. Therefore, they were supposed to be protected by IP rights. However, this meant long-term relationships with these suppliers. Some of these suppliers who engaged in new product development could not be changed too often because they provided the company with distinctiveness.
2. Analyze and comment on the biannual score sheets for the three suppliers in Exhibit 4. Based on the score sheets, what kind of action is recommended?
These score sheets showed that even though the companies at a cumulative level scored almost equal to the others, but their evaluations were different. This meant that each supplier was distinct on different levels, and the main scoring and evaluation needs to be done on a category basis. This means that the factors that are a priority for the company need to be weighted more than the rest. This would give the scores a more realistic approach. This is because, for tier 2 suppliers, ability to pioneer in new product development is not a priority. This is because these products are fairly standardized, and any changes in the technology of these products can be catered to by a change in suppliers. This is because the tier 2 suppliers do not have a developed relationship with the company, and these suppliers can be changed if they do not perform up to the mark. Unlike tier 1 and tier 3 suppliers, they are not strategic partners to the company. Therefore, the relationship is at a contractual level only which can be shifted if the company is not satisfied with the performance. In this case, this factor is also being evaluated with the same weight as other important components such as price competitiveness. This is because, for standardized components, the company requires low prices because the value added to the company with the products is low. The score grading is general for all suppliers inconsiderate of the priority and importance that each factor has to each supplier. For example, 90-70 were graded as normal suppliers regardless of the score on the important factors. This shows that the evaluation criteria is highly standardized. This should be changed, and each supplier needs to be evaluated based on the factors that are most important to their operations. Even though the company has about a hundred suppliers, they need to be assessed strategically as well if the company wants to develop strategic relationships with these suppliers.
Another assessment is that the companies should be classified according to the material type and the main product that they supply to the company. This would also change the prioritization of the factors that are scored on these sheets. This is because suppliers that provide carton packaging would be tier 3 suppliers. They would not be expected to display the capability to pioneer in new product development. Also, all the suppliers, A, B, and C, were stated to have a median score on maintaining a relationship with PQI. This shows that the suppliers are not fully satisfied with the company or the relationship. If the relationship were strategic for the company, then it should be strategic for the other suppliers as well. This is because otherwise, it cannot be termed as a strategic partnership.
3. Should PQI share its assessment results with its suppliers? How would doing so impact its management of suppliers and its relationships with them?
PQI should not share the assessment results with its suppliers. This is because sharing these results would not lead to these suppliers performing well or further relationships to be developed. This is mainly because at the tier 3 level; these suppliers are small-scale. They would not have the investment to make in improving their operations. If the company regards these suppliers as their strategic partners and contributing to value addition in the business, the company should invest in the operations of these suppliers. This would not only help in developing the operations of these suppliers but also increase supplier satisfaction and help develop strategic partners to the company. This is important because these suppliers help the company with developing new products. Therefore, it would be important to build relationships with them. This investment in the relationship would result in an increase in supplier’s desire to further work with PQI. In this case, it can be observed that none of the three suppliers were rated a maximum on this aspect.
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