Sun Microsystems drives suppliers to success

James Carbone -- Purchasing, 10/20/2005

Most companies issue performance scorecards to suppliers and those ratings often are used to determine a company's "supplier of the year."

Sun Microsystems in Palo Alto, Calif. does the same, but scorecard performance also determines how much business suppliers are awarded and, in some cases, which suppliers get cut.

Kurt Doelling, vice president of supplier management at Sun, says suppliers are rated quarterly on cost, quality, availability (leadtime, delivery), and strategic and technical support. Sun's 10 commodity teams are responsible for supplier evaluations and weight the four criteria. Commodity teams manage a number of production materials and services, including memory chips, power supplies, third party logistics providers and contract manufacturers.

For instance, quality for one commodity may be 40 points out of 100. With another commodity quality may be 30. It depends on the nature of the commodity. In some commodities, cost or availability may be more important.

In addition, evaluation criteria for the different commodities may not be exactly the same.

"What you need from a contract manufacturer will be somewhat different than what you need from a commodity component supplier," says Doelling.

"A contract manufacturer's (CM) ability to manage materials and sub-tier suppliers is an important characteristic. But it is not as important for a memory supplier," says Doelling. Managing suppliers and materials is important for a contract manufacturer because CMs build finished products such as printed circuit boards, which have many parts from many suppliers. The CM has to build low-cost high quality products so management of suppliers is important.

However, with semiconductors there are fewer sub-tier suppliers and materials involved than with a finished assembly.

Doelling says within each commodity grouping the criteria are exactly the same. "That means we can compare Infineon's performance on DRAM to Sansung's performance on DRAM," says Doelling.

All commodity suppliers are rated on product quality.

Product quality encompasses factory yields including parts per million (ppm) defects, field performance and field failures and field failure analysis cycle time.

"If something fails in the field and we get it back to the supplier for analysis, suppliers are measured how long it takes them to certify the failure, do the root cause of the failure and the corrective action," says Doelling.

Parts quality also involve how well the part performs based on its specification, which would state what the ppm level of the part should be. Suppliers are also measured on how well they meet cost targets that the commodity team has set. "We have a best-in-class target for each part. The target is what we think the price for a part ought to be," Doelling says.

Sun also ranks its suppliers on how well they come up with cost savings ideas. That scoring occurs under strategic and technical support. The criteria also cover how well suppliers' technology roadmaps match up with Sun's technology direction.

Suppliers are also rated on availability which includes delivery and leadtime performance.

"A supplier has to deliver almost 100% of time to the exactly date when it said it would," says Doelling. However, Sun also expects suppliers to provide "competitive leadtimes" for parts even if Sun's forecast is not accurate.

"Any supplier can meet delivery requirements when the forecast is perfect. But we talk to them about how we can meet our customer requirements when the forecast is wrong," he says.

"Some suppliers may say to us 'you consumed your forecast by 140%.' Our response would be 'yes but our customer doesn't care about that.' Customers just want their orders filled in a competitive leadtime and they don't care about forecasts."

That's why Sun over the past 18 months has been exposing suppliers to its customers' orders in an effort to help suppliers improve leadtimes. Sun's suppliers see an order virtually as soon as Sun sees it. Suppliers don't have to wait for a formal purchase order but can ship the needed parts to fulfill the customer order.