E Sourcing at Sun Microsystem

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CASE: OIT-34
DATE: 03/25/04

ESOURCING STRATEGY AT SUN MICROSYSTEMS
Introduction

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In May 2000, Sonia Syngal, director of procurement strategy and supplier relations at Sun Microsystems, needed to make a critical decision. Under Sonia’s leadership, the company had just completed its first “dynamic bidding” pilot tests and as a result, cut its sourcing costs by 30 percent. Given these results, the potential for cost cutting via the implementation of a dynamic bidding system on a widespread scale at Sun was enormous; on an annual basis, the company was currently spending about $9 billion in direct materials procurement.

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While the potential to significantly cut costs was clear, Sonia had several other issues to consider. First, Sun had invested heavily in developing strong relationships with its suppliers. How would these suppliers respond if Sun were to begin awarding its contracts via online auctions? Could Sun potentially damage its relationships with key suppliers? Also, at the time, the market demand for servers was extremely high, but the supply of the key direct materials Sun needed to produce its servers was so scarce that suppliers literally were choosing which customers to satisfy. Sonia worried that if the suppliers were unhappy, they would walk away from Sun’s business and elect to work with other server manufacturers. In addition to its suppliers, Sonia also wondered how Sun’s internal constituents would react. Most of the commodity directors at Sun had spent years trying to identify the most effective way to work with the company’s suppliers. Would they be resistant to such an abrupt change and/or would they feel that their jobs were threatened by this new technology? Finally, Sonia knew that if she were to push for dynamic bidding on a broader scale, she would need to ensure she selected the best software vendor. Given that the market for applications in this space was so crowded, she knew this would be a difficult task.

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Research Associate Andrea M. Higuera, MBA 2001, prepared this case under the supervision of Charles A. Holloway, Kleiner, Perkins, Caufield and Byers Professor of Management, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Some individual and company names have been disguised for reasons of confidentiality.

Sun makes no warranties or representations, express or implied, with respect to the Case Study, including but not limited to any warranties of merchantability, fitness for a particular purpose, or non-infringement of intellectual property. Sun, Sun Microsystems and the Sun logo are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and other countries.

Copyright © 2000 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.

This document is authorized for use only by Hassan Chaudhry until March 2013. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

Supplier Management at Sun

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eSourcing Strategy at Sun Microsystems OIT-34

As the director of procurement strategy and supplier relations, Sonia Syngal was a highly influential member of the Worldwide Operations team at Sun Microsystems. Worldwide Operations was the functional group responsible for supporting all lines of business at Sun through its...
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