Power Quotient International Co., Ltd.

(PQI) supply chain

management
Overview of PQI
Power Quotient International Co., Ltd. (PQI) is a global maker of
storage devices. It is operated under the brand name, PQI. Its operations
include design, production and marketing of computer memory modules,
flash memory storage devices and other peripheral memory-related devices.
PQI has complex supply chains through multiple subsidiaries in the United
States, Europe, China, Hong Kong and Japan, among others. It enjoys a
considerable volume of resources that helps it to create fresh cutting-edge
technology products in order to meet the needs of the rapidly changing
market, in addition to maintaining its market leadership position globally.
The company is listed in Taiwan Stock Exchange (TAISEC) since 2003. It is
ranked amongst the top ten DRAM and Flash leading producers across the
globe. The company was formed in 1997. In 2010, it was incorporated into
Foxlink. Its range of products includes PQI Storage, PQI Air, PQI Power, PQI
Audio, and PQI Mobility. Additionally, it offers an entire range of mobile
entertainment peripherals in order to enhance modern digital lifestyles.
Problem statement
For a company with a supply chain as complex as that of PQI, it is
important that suppliers are professionally managed. It is therefore
important that PQI not only understands how its supply chain is managed
but also be able to effectively grade its suppliers. This call for an in-depth
understanding of the potential of its suppliers, in addition to having an in-
depth of it assesses its suppliers and how the information is used. It is
important that there be a succinct protocol through which an appropriate
supply is identified.
Analysis
As evidenced in the Appendix attached, PQI grades its suppliers on
multiple areas. Supplier 1 and 2 score higher as compared to Supplier 3
that records low overall score; a score that can be attributed to three areas
where the recorded the supplier records unacceptable scores. It is
important to note that the company classifies its suppliers into 3 tiers based
on their capability and geographical area that the supplier covers.
What we should do make it better
In order to make assessment, it is important that PQI not only
develops a criteria for selection of the most suitable supplier but most
importantly, accords ranking points based a weighting criteria that gives
more weight to important factors rather than treating all factors as equal.
Recommendations
The following are recommended:
1. According respective factors points based on weighting criteria.
Important factors that are relevant and important to PQI should be
accorded more weight.
2. Criteria for selection of supplier should be made available.
How PQI classifies its suppliers. What transaction cost and hazards
are associated with each type?
PQI classifies its suppliers into tiers, that is, tier 1, tier 2 and tier 3.
The classification system was developed way back in the mid-1990s. The
aim was to develop a supplier management system that could satisfy audit
requirements of its customers. The system calls for regular categorization
of suppliers into the three aforementioned groups. Tier 1 suppliers consist
of international, high-power suppliers that have the capability to supply
goods globally. This group of suppliers has strong technological and
production capability, and tended to be dominant players in the market.
On the other hand, tier 2 suppliers are regional suppliers, primarily in
Europe and Asia. This group of suppliers mostly supplies standard goods,
primarily, resistors and capacitors. Tier 3 suppliers on the other hand
comprise of local suppliers whose products are primarily customer-
designed. These include suppliers such as the ones that manufacture
casing on behalf of PQI or those that manufacture PQI-designed portable
hard drives. In essence, multiple factors play out in the way PQI
categorizes its supply. However, supply capability and geographical
outreach seemingly play a major role.
1. Analyze and comment on the biannual score sheets for the
three suppliers in Exhibit 4. Based on the score sheets, what
kind of action is recommended?
The comments as presented in the supplier assessment form present
multiple areas that are of interest to PQI. Notably, it is not just about what
the company’s interest in the relationship but also that of the participating
supplier. It is also important to note that supplier assessment, as presented,
is carried out for the multiple participating areas including quality, logistics
and purchasing, among others. Additionally, attention is paid to the
competiveness of the respective suppliers. Based on the overall scores,
suppliers A and B qualify to be considered as normal suppliers while for
supplier C, based on the ratings, there are improvements that should be
suggested. The low score by supply C can largely be attributed to two areas
where it records unacceptable results. At this point, it is only advisable that
supply C be excluded from further consideration, not because it needs
improvement but because in two areas, it records unacceptable results.
Overall, a comparison of the scores can be shown in the graph below:
 2. Should PQI share its assessment with its suppliers? How would
doing so impact its management of suppliers and its
relationship with them?
Sharing information on supply information is a rather tricky affair. As
a matter of fact, it presents not just ethical issues but also significant
advantages and disadvantages. While some argue that as a supply, knowing
that you are trailing your competitor will motivate you to improve, others
are in favor of the argument that sharing such information. In the end, it
boils down to ethical management of supply chain. PQI should share with
respective suppliers, the assessment relating to the supply but not that of
other suppliers. This will ensure that each supplier understands area that
they need to improve on without compromising information related to the
other supplier. Sharing assessment information with suppliers helps the
suppliers to rely gain external assessment and as such improve the
relationship positively.
3. The purchasing manager had narrowed its choice of potential supplier
for the rush order from the new customer to A, B and C. If you were
Wang, which supplier would you recommend that the purchasing
manager place the order with? Support your recommendation with
analysis.
Choice of a supplier can be a tricky affair. While I would recommend
that elimination of supply C based on its unacceptable score in two areas,
that is, Quarterly Product Roadmap Meeting and monthly market
information meeting or provision of market information. Based on
company standards, the score in this respect is unacceptable and hence
supplier C is ruled. Between A and B, I would recommend that quality and
cost be accorded greater importance. In this respect, I would recommend
supplier A that scores highly in this respects as compared to B.
Conclusion
In conclusion, it is important to mention that PQI understand the
importance of maintaining a check on the integrity and ability of its
suppliers. Additionally, it should keep record of the respective supplier’s
willingness to continue working with the company. Supply 3 is eliminated
based on the 3 areas it records unacceptable results. It is only logical that if
in any area, even 1, a supplier posts unacceptable results, the supplier b
compelled to undertake improvements in the area before engaging with the
company. However, there are no clear selection criteria. Additionally, the
weighting criterion assumes that all aspects evaluated are of equal
importance to PQI. This assumption is ideal and most likely not true.
APPENDIX 1: EXHIBIT 4: PQI’S HALF-YEARLY SUPPLIER
ASSESSMENT FORM FOR TIER 2 AND TIER 3 SUPPLIERS

Supplier’s Half-year Assessment Form

Purchasing Department Supplier: A

Material type:
Date: 15 / 4 / 2010 .
Main product:
Assessment Remarks
No. Description Good Ave- Bad
rage
5 3 0
01 Capability in synthesizing primary material 3
02 Ability to pioneer in new product development 5
03 Industry assessment No info
04 Technical support capability 5
05 Competitiveness of pricing in primary materials 5
06 Cost down initiative as the order quantity changes 5
07 Initiating adjustments to reduce loss in response to market situation 5
08 Standardization capability 5
09 Management of delivery cycle 3
10 Production management capability 3
11 Ability to supply in a stable manner 3
12 Responsiveness to short delivery cycles 3
13 Ability to manage and label goods for delivery 3
14 Quarterly Product Roadmap Meeting 5
15 Monthly market information meeting or provision of market 3
information
16 Wish to maintain relationship with PQI 3
17 Speed in responding to substandard quality 3
18 Capability to guarantee against damage 5
19 Capability in improving product quality 5
20 Speed and capability in handling RMA (Returned Merchandize 3
Authorization)
Remarks on Assessment Results:

Remark: Good: reach standard or above standard; Average: standard acceptable; Bad: no standard or
standard unacceptable.
Grading: A. 100-90 priority suppliers. B. 90-70 normal suppliers. C. 70-60 suggests improvements. D.
Below 60 fail.

Total: _ 75
Supplier’s Half-year Assessment Form

Purchasing Department Supplier: B

Material type:
Date: 01 / 4 / 2010 .
Main product:
Assessment Remarks
No. Description Good Ave- Bad
rage
5 3 0
01 Capability in synthesizing primary material 3
02 Ability to pioneer in new product development 3
03 Industry assessment No info
04 Technical support capability 5
05 Competitiveness of pricing in primary materials 3
06 Cost down initiative as order quantity changes 5
07 Initiating adjustments to reduce loss in response to market situation 3
08 Standardization capability 5
09 Management of delivery cycle 3
10 Production management capability 5
11 Ability to supply in a stable manner 5
12 Responsiveness to short delivery cycles 3
13 Ability to manage and label goods for delivery 3
14 Quarterly Product Roadmap Meeting 3
15 Monthly market information meeting or provision of market 3
information
16 Wish to maintain relationship with PQI 3
17 Speed in responding to substandard quality 5
18 Capability to guarantee against damage 5
19 Capability in improving product quality 5
20 Speed and capability in handling RMA 5
Remarks on Assessment Results:

Remark: Good: reach standard or above standard; Average: standard acceptable; Bad: no standard or
standard unacceptable.
Grading: A. 100-90 priority suppliers. B. 90-70 normal suppliers. C. 70-60 suggests improvements. D.
Below 60 fail.

Total: _ 75

1
5
Supplier’s Half-year Assessment Form

Purchasing Department Supplier: C

Material type:
Date: 05 / 4 / 2010 .
Main product:
Assessment Remarks
No. Description Good Ave- Bad
rage
5 3 0
01 Capability in synthesizing primary material 3
02 Ability to pioneer in new product development 3
03 Industry assessment No info
04 Technical support capability 5
05 Competitiveness of pricing in primary materials 3
06 Cost down initiative as order quantity changes 3
07 Initiating adjustments to reduce loss in response to market situation 3
08 Standardization capability 3
09 Management of delivery cycle 5
10 Production management capability 5
11 Ability to supply in a stable manner 5
12 Responsiveness to short delivery cycles 5
13 Ability to manage and label goods for delivery 5
14 Quarterly Product Roadmap Meeting 0
15 Monthly market information meeting or provision of market 0
information
16 Wish to maintain relationship with PQI 3
17 Speed in responding to substandard quality 5
18 Capability to guarantee against damage 5
19 Capability in improving product quality 3
20 Speed and capability in handling RMA 5
Remarks on Assessment Results:

Remark: Good: reach standard or above standard; Average: standard acceptable; Bad: no standard or
standard unacceptable.
Grading: A. 100-90 priority suppliers. B. 90-70 normal suppliers. C. 70-60 suggests improvements. D.
Below 60 fail.

Total: _ 69