TCO (total cost of ownership)

    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 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”,
    http://en.wikipedia.org/wiki/Original_design_manufacturer
    (accessed 13 November 2010).
    2
    US$1 = NT$32.(November 2010).
    HKU9
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    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.

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