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%. With this in
mind, Sun had to put together a team to try and reduce this amount.
Sonia Syngal was the leader of the team to investigate E-sourcing
strategies to reduce the $9 Billion spent annually by Sun on
The idea of reverse-auctioning appears to be a great strategy for
Sun. Online bidding for business would eliminate headcount at Sun,
since the Internet would do most of the work automatically. It would
allow Sun to choose their supplier by cost and match that with their
internal aggregated demand figures. 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,...