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AS and A Level ICT in Business
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 procurement.

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, 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,...
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