Project description
Part 1- Please read the case very carefully before you write anything. I will attache a templet that you can follow while writing.
MY PART IS Section III B(2) which is Risk. So you will write about Risk; physical, environmental, natural, terrorism, etc with doing business with 5 suppliers. Also i need you to answer this question: What other considerations may effect future allocations of orders with these 5 suppliers?
Part 1- Please read the case very carefully before you write anything. I will attache a templet that you can follow while writing.
MY PART IS Section III B(2) which is Risk. So you will write about Risk; physical, environmental, natural, terrorism, etc with doing business with 5 suppliers. Also i need you to answer this question: What other considerations may effect future allocations of orders with these 5 suppliers?
Part 2- I also need you to write about future considerations/TCO and answer this question: What is TCO (total cost of ownership) calculation apply to HTC case? What are the five categories would you use to score TCO?
Each part has to be 1.5 long.
If you have any question please ask me? Please do your best. I really need to get a good grade.
Yu Chen prepared this case under the supervision of Dr. Neale O’Connor, Professor Shannon Anderson and Professor Anne Wu
for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. We
acknowledge the support of the Hong Kong Government Research Fund ((#749609H)
© 2011 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the
internet)—without the permission of The University of Hong Kong.
Ref. 11/482C
1
NEALE G O’CONNOR
SHANNON ANDERSON
ANNE WU
STRATEGIC PERFORMANCE MEASUREMENT
OF SUPPLIERS AT HTC
Since 1997, HTC (formerly High Tech Computer) Corporation had been manufacturing
smartphones and personal digital assistants (“PDAs”) as an original design manufacturer
(“ODM”) for mobile operator brands, including Orange, T-Mobile, Sprint, Cingular, Verizon,
and NTT DoCoMo.
1
More recently, with its shift to own-brand manufacturing, HTC had built
its reputation as one of the top five global brands in smartphones. By 2009, HTC had sales of
NT$144 billion (equivalent to US$4.5 billion).
2
It was ranked fourth in the first quarter of
2010 in market share by shipments [see
Exhibit 1
].
To serve its global customer base, HTC had built a network of close relationships with
component suppliers around the world. There were approximately 250 to 300 components in
each smartphone, and HTC needed to manage over 1,000 suppliers. Selecting and monitoring
a large network of suppliers required a well developed management programme. HTC’s
scorecard system had played a key role in helping HTC’s supplier management team select
and monitor its suppliers.
On the first day of July 2010, K.H. Tung (KH), head of global supply chain management at
HTC, was meeting with his team of engineers at his Taoyuan office in Taipei, Taiwan and
evaluating scorecard reports done on five routine component suppliers of batteries for the first
and second quarters of 2010. Because the company was expecting strong demand over supply
in the third quarter of 2010 and this component was in particularly short supply, KH needed
to decide quickly how to allocate the next quarter’s orders among these five suppliers so that
customer orders could be met with consistent quality and timeliness.
1
An ODM was a company that designed and manufactured a
product specified and eventually branded by a customer for sale.
Such companies allowed customers to manufacture products without
having to engage in the organisation or running of a
factory. See: Wikipedia (2010) “Or
iginal Design Manufacturer”,
Yu Chen prepared this case under the supervision of Dr. Neale O’Connor, Professor Shannon Anderson and Professor Anne Wu
for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. We
acknowledge the support of the Hong Kong Government Research Fund ((#749609H)
© 2011 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the
internet)—without the permission of The University of Hong Kong.
Ref. 11/482C
1
NEALE G O’CONNOR
SHANNON ANDERSON
ANNE WU
STRATEGIC PERFORMANCE MEASUREMENT
OF SUPPLIERS AT HTC
Since 1997, HTC (formerly High Tech Computer) Corporation had been manufacturing
smartphones and personal digital assistants (“PDAs”) as an original design manufacturer
(“ODM”) for mobile operator brands, including Orange, T-Mobile, Sprint, Cingular, Verizon,
and NTT DoCoMo.
1
More recently, with its shift to own-brand manufacturing, HTC had built
its reputation as one of the top five global brands in smartphones. By 2009, HTC had sales of
NT$144 billion (equivalent to US$4.5 billion).
2
It was ranked fourth in the first quarter of
2010 in market share by shipments [see
Exhibit 1
].
To serve its global customer base, HTC had built a network of close relationships with
component suppliers around the world. There were approximately 250 to 300 components in
each smartphone, and HTC needed to manage over 1,000 suppliers. Selecting and monitoring
a large network of suppliers required a well developed management programme. HTC’s
scorecard system had played a key role in helping HTC’s supplier management team select
and monitor its suppliers.
On the first day of July 2010, K.H. Tung (KH), head of global supply chain management at
HTC, was meeting with his team of engineers at his Taoyuan office in Taipei, Taiwan and
evaluating scorecard reports done on five routine component suppliers of batteries for the first
and second quarters of 2010. Because the company was expecting strong demand over supply
in the third quarter of 2010 and this component was in particularly short supply, KH needed
to decide quickly how to allocate the next quarter’s orders among these five suppliers so that
customer orders could be met with consistent quality and timeliness.
1
An ODM was a company that designed and manufactured a
product specified and eventually branded by a customer for sale.
Such companies allowed customers to manufacture products without
having to engage in the organisation or running of a
factory. See: Wikipedia (2010) “Or
iginal Design Manufacturer”,
http://en.wikipedia.org/wiki/Original_design_manufacturer
(accessed 13 November 2010).
2
US$1 = NT$32.(November 2010).
HKU9
50CLICK HERE FOR MORE INFORMATION ON THIS PAPER…
2
US$1 = NT$32.(November 2010).
HKU9
50CLICK HERE FOR MORE INFORMATION ON THIS PAPER…
For the exclusive use of A. ALSHERYANI
This document is authorized for use only by Abdulla Alsheryani in Purchasing SCM Fall 2013 taught by Daniel Wong
from October 2013 to December 2013.
11/482C Strategic Performance Measurement of Suppliers at HTC
2
The Smartphone Industry
The smartphone industry, also known as the converged mobile device industry, in which HTC
had been a player since 1997, produced mobile communication devices with: 1) operating
systems running as platforms; 2) the ability to handle multiple applications simultaneously; 3)
the ability to install and remove third-party software; and 4) extensible memory through
external flash memory.
3
Smartphones facilitated voice communications and primarily targeted
customers seeking phones that doubled as multimedia devices with functions for music,
photos, gaming, text messaging, email and web browsing.
4
With an increasing number of businesses and consumers adopting mobiles with advanced
features, smartphone shipments continued to grow in many regions. Email was one of the
major drivers of growth in converged mobile services. With the prices for data usage falling,
demand for data was increasing, making it more attractive for both business users and
consumers to use mobile devices with email and browser functions. IDC, one of the
industry’s leading market data analysis companies, forecasted that overall mobile phone
shipments would grow at a cumulative annual growth rate (“CAGR”) of 6.6% between 2009
and 2014, while the sub-sector of smartphones would grow at 20.4% to reach 439 million unit
per year. Smartphone shipments were expected to reach 28.2% of total mobile phone
shipments by 2014, up from 15.3% in 2009 [see
Exhibit 2
].
Within the smartphone industry, there were many large players dominating each part of the
value chain [see
Exhibit 3
]. There were between 250 and 300 components in a smartphone—
key examples of which were CPUs, display screens and memory chips—and Texas
Instruments, Infineon and Qualcomm dominated these spaces. These semiconductor suppliers
and other component suppliers supplied their products to original equipment manufacturers
(“OEMs”) and ODMs, an area dominated by Nokia, Apple, Motorola, RIM and HTC. These
players would then sell their products to wireless operators around the world such as AT&T,
Vodafone, Orange and Cingular with either their own brand names (in the case of OEMs) or
brands owned by the operators (in the case of ODMs).
Smartphones had a very short product lifecycle, with operators demanding a new generation
of products every 12 to 18 months.
Operating System
All smartphones needed to be backed by an operating system. There were many operating
systems in the market for manufacturers to choose from. The top operating systems used by
smartphones were Google’s Android, RIM’s Blackberry OS, Apple’s iOS, Symbian and
Microsoft’s Windows Mobile. HTC’s product portfolio included both Android and Windows
Mobile. According to IDC, the Symbian operating system had a 44.9% market share
worldwide in terms of shipments by operating system, ranking number one in 2009.
Symbian’s partnership with Nokia was one of the main reasons Symbian had held its top
ranking. Windows Mobile was ranked number four with a 9.4% market share in 2009 and was
expected to maintain this position throughout IDC’s forecast period, until 2014. Even though
Android was only ranked number six, with a 4.1% market share in 2009, it was expected to
grow the fastest among the top 10 smartphone operating systems, with 65.4% CAGR between
2009 and 2014, climbing to number two in market share by 2014 [See
Exhibit 4
].
3
IDC (7 May 2010) “Worldwide Converged Mobile Device (Smart
phone) Market Grows 56.7% Year Over
Year in First Quarter
of 2010, Says IDC”, Press Release, http://
www.idc.com
(accessed November 13, 2010)
4
Chan, W.B.K. (2007) “High Tech Computer: Initiating at Buy (1H), $650 Target Price; Worst Case Already Discounted”,
Citigroup.
For the exclusive use of A. ALSHERYANI
This document is authorized for use only by Abdulla Alsheryani in Purchasing SCM Fall 2013 taught by Daniel Wong
from October 2013 to December 2013.
11/482C Strategic Performance Measurement of Suppliers at HTC
3
HTC
Since 1997, HTC had been manufacturing smartphones and PDAs as an ODM for mobile
operator brands including Orange, T-Mobile, Sprint, Cingular, Verizon, and NTT DoCoMo.
The company had started as an ODM designing and building innovative PDAs.
5
This document is authorized for use only by Abdulla Alsheryani in Purchasing SCM Fall 2013 taught by Daniel Wong
from October 2013 to December 2013.
11/482C Strategic Performance Measurement of Suppliers at HTC
2
The Smartphone Industry
The smartphone industry, also known as the converged mobile device industry, in which HTC
had been a player since 1997, produced mobile communication devices with: 1) operating
systems running as platforms; 2) the ability to handle multiple applications simultaneously; 3)
the ability to install and remove third-party software; and 4) extensible memory through
external flash memory.
3
Smartphones facilitated voice communications and primarily targeted
customers seeking phones that doubled as multimedia devices with functions for music,
photos, gaming, text messaging, email and web browsing.
4
With an increasing number of businesses and consumers adopting mobiles with advanced
features, smartphone shipments continued to grow in many regions. Email was one of the
major drivers of growth in converged mobile services. With the prices for data usage falling,
demand for data was increasing, making it more attractive for both business users and
consumers to use mobile devices with email and browser functions. IDC, one of the
industry’s leading market data analysis companies, forecasted that overall mobile phone
shipments would grow at a cumulative annual growth rate (“CAGR”) of 6.6% between 2009
and 2014, while the sub-sector of smartphones would grow at 20.4% to reach 439 million unit
per year. Smartphone shipments were expected to reach 28.2% of total mobile phone
shipments by 2014, up from 15.3% in 2009 [see
Exhibit 2
].
Within the smartphone industry, there were many large players dominating each part of the
value chain [see
Exhibit 3
]. There were between 250 and 300 components in a smartphone—
key examples of which were CPUs, display screens and memory chips—and Texas
Instruments, Infineon and Qualcomm dominated these spaces. These semiconductor suppliers
and other component suppliers supplied their products to original equipment manufacturers
(“OEMs”) and ODMs, an area dominated by Nokia, Apple, Motorola, RIM and HTC. These
players would then sell their products to wireless operators around the world such as AT&T,
Vodafone, Orange and Cingular with either their own brand names (in the case of OEMs) or
brands owned by the operators (in the case of ODMs).
Smartphones had a very short product lifecycle, with operators demanding a new generation
of products every 12 to 18 months.
Operating System
All smartphones needed to be backed by an operating system. There were many operating
systems in the market for manufacturers to choose from. The top operating systems used by
smartphones were Google’s Android, RIM’s Blackberry OS, Apple’s iOS, Symbian and
Microsoft’s Windows Mobile. HTC’s product portfolio included both Android and Windows
Mobile. According to IDC, the Symbian operating system had a 44.9% market share
worldwide in terms of shipments by operating system, ranking number one in 2009.
Symbian’s partnership with Nokia was one of the main reasons Symbian had held its top
ranking. Windows Mobile was ranked number four with a 9.4% market share in 2009 and was
expected to maintain this position throughout IDC’s forecast period, until 2014. Even though
Android was only ranked number six, with a 4.1% market share in 2009, it was expected to
grow the fastest among the top 10 smartphone operating systems, with 65.4% CAGR between
2009 and 2014, climbing to number two in market share by 2014 [See
Exhibit 4
].
3
IDC (7 May 2010) “Worldwide Converged Mobile Device (Smart
phone) Market Grows 56.7% Year Over
Year in First Quarter
of 2010, Says IDC”, Press Release, http://
www.idc.com
(accessed November 13, 2010)
4
Chan, W.B.K. (2007) “High Tech Computer: Initiating at Buy (1H), $650 Target Price; Worst Case Already Discounted”,
Citigroup.
For the exclusive use of A. ALSHERYANI
This document is authorized for use only by Abdulla Alsheryani in Purchasing SCM Fall 2013 taught by Daniel Wong
from October 2013 to December 2013.
11/482C Strategic Performance Measurement of Suppliers at HTC
3
HTC
Since 1997, HTC had been manufacturing smartphones and PDAs as an ODM for mobile
operator brands including Orange, T-Mobile, Sprint, Cingular, Verizon, and NTT DoCoMo.
The company had started as an ODM designing and building innovative PDAs.
5
These PDAs
used Microsoft’s Windows Mobile operating system exclusively. HTC had worked closely
with Microsoft ever since its inception, producing Windows Mobile PDAs for such
companies as Compaq, Dell and Hewlett-Packard.
In 1999, HTC started designing its first touch-screen smartphone, and when it shipped in
2002 it was the first colour touch-screen smartphone in the industry. HTC initially made
smartphones based exclusively on Microsoft’s Windows Mobile software and sold them as
operator-branded devices in the market. In 2006, HTC became an OEM when it started selling
its products under its own brand name, hTc. Geographically, Europe and North America were
the two major regions for HTC, with its shares in Asia increasing gradually. Over the years,
HTC had established many key relationships with its customers, including the leading five
mobile operators in Europe, the top four in the US and many fast-growing Asian operators.
6
Since 2009, with the emergence of other operating systems, it had begun shifting its focus to
devices based on Google’s Android operating system, given not only its increasing market
penetration but also better customisation capabilities and lower cost than other operating
systems.
In recent years, responding to the rapid growth of the smartphone market, HTC had been
shifting its focus to smartphone design and production. HTC essentially became a pure
smartphone player. Its key competitors were mainly large OEMs such as Nokia, Apple,
Motorola and RIM, who produced smartphones in addition to other mobile devices.
Supplier Management
We do not consider short term suppliers. We want suppliers who not only
provide product with competitive cost, but also have the capability to develop
the component to match with our demand in the future. We consider supplier
who has the capability to develop together with us with our product roadmap.
– HTC Vendor Management Team
7
HTC had over 1,000 suppliers, and managing them was critical to ensuring that HTC’s
products met customer requirements through continuous innovation. HTC’s supplier
management involved four different teams. The sourcing team was responsible for searching
for new suppliers that might qualify to become HTC’s long-term suppliers. The component
team was responsible for evaluating whether a supplier could provide the appropriate parts for
HTC’s various product models and monitored suppliers’ consistency in production once they
were selected. The R&D team focused on evaluating suppliers’ capabilities to provide
appropriate product designs. The quality assurance team conducted rigorous testing to ensure
such aspects as the quality, consistency and efficiency of suppliers. Collectively, these four
groups were called the Vendor Management Team.
Supplier management was divided into two areas: supplier selection and supplier monitoring.
HTC had strategic suppliers that supplied key components such as integrated circuits,
memory chips and display screens. Each of these key components usually had only one or
5
PDAs differed from smartphones in that PDAs mainly focused on
business users, offering such functions as email, scheduling
and data processing.
6
For details, see HTC’s website: www.htc.com
7
Company interview on October 21, 2009.
For the exclusive use of A. ALSHERYANI
This document is authorized for use only by Abdulla Alsheryani in Purchasing SCM Fall 2013 taught by Daniel Wong
from October 2013 to December 2013.
used Microsoft’s Windows Mobile operating system exclusively. HTC had worked closely
with Microsoft ever since its inception, producing Windows Mobile PDAs for such
companies as Compaq, Dell and Hewlett-Packard.
In 1999, HTC started designing its first touch-screen smartphone, and when it shipped in
2002 it was the first colour touch-screen smartphone in the industry. HTC initially made
smartphones based exclusively on Microsoft’s Windows Mobile software and sold them as
operator-branded devices in the market. In 2006, HTC became an OEM when it started selling
its products under its own brand name, hTc. Geographically, Europe and North America were
the two major regions for HTC, with its shares in Asia increasing gradually. Over the years,
HTC had established many key relationships with its customers, including the leading five
mobile operators in Europe, the top four in the US and many fast-growing Asian operators.
6
Since 2009, with the emergence of other operating systems, it had begun shifting its focus to
devices based on Google’s Android operating system, given not only its increasing market
penetration but also better customisation capabilities and lower cost than other operating
systems.
In recent years, responding to the rapid growth of the smartphone market, HTC had been
shifting its focus to smartphone design and production. HTC essentially became a pure
smartphone player. Its key competitors were mainly large OEMs such as Nokia, Apple,
Motorola and RIM, who produced smartphones in addition to other mobile devices.
Supplier Management
We do not consider short term suppliers. We want suppliers who not only
provide product with competitive cost, but also have the capability to develop
the component to match with our demand in the future. We consider supplier
who has the capability to develop together with us with our product roadmap.
– HTC Vendor Management Team
7
HTC had over 1,000 suppliers, and managing them was critical to ensuring that HTC’s
products met customer requirements through continuous innovation. HTC’s supplier
management involved four different teams. The sourcing team was responsible for searching
for new suppliers that might qualify to become HTC’s long-term suppliers. The component
team was responsible for evaluating whether a supplier could provide the appropriate parts for
HTC’s various product models and monitored suppliers’ consistency in production once they
were selected. The R&D team focused on evaluating suppliers’ capabilities to provide
appropriate product designs. The quality assurance team conducted rigorous testing to ensure
such aspects as the quality, consistency and efficiency of suppliers. Collectively, these four
groups were called the Vendor Management Team.
Supplier management was divided into two areas: supplier selection and supplier monitoring.
HTC had strategic suppliers that supplied key components such as integrated circuits,
memory chips and display screens. Each of these key components usually had only one or
5
PDAs differed from smartphones in that PDAs mainly focused on
business users, offering such functions as email, scheduling
and data processing.
6
For details, see HTC’s website: www.htc.com
7
Company interview on October 21, 2009.
For the exclusive use of A. ALSHERYANI
This document is authorized for use only by Abdulla Alsheryani in Purchasing SCM Fall 2013 taught by Daniel Wong
from October 2013 to December 2013.
