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

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ESOURCING STRATEGY AT SUN MICROSYSTEMS
Introduction

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

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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.

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.
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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
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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.
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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.

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eSourcing Strategy at Sun Microsystems OIT-34 p. 2

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Supplier Management at Sun

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 three main functions – supplier management, manufacturing, and logistics.

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PROCUREMENT STRATEGY AND SUPPLIER RELATIONS

The 700-person Supplier Management Group, led by Kevin Carroll, vice president of supplier
management, was responsible for managing the relationships with all of Sun’s suppliers. Sonia

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reported directly to Kevin Caroll, and led a 35-person team responsible for the development of
Sun’s procurement strategy. (Exhibits 1) Sonia was responsible for driving an overall strategy
behind the procurement of all of Sun’s direct materials. She was also responsible for delivering
key technological tools that would support Sun’s overall procurement process and the activities
of Sun’s global commodity directors. (Exhibit 2) According to Sonia, “My goal is to have Sun
be the best-in-class in supplier management compared to any metric. It is my job to ensure that
we have alignment and communication around our strategy and to implement key programs that
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will allow us to maintain our number-one position as the top provider of products, technologies
and services for enabling the Networked economy.”

GLOBAL COMMODITY DIRECTORS

Sonia worked closely with Sun’s five global commodity directors (GCDs), who also reported to
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Kevin Carroll. The GCDs had purchasing responsibility for one or more of Sun’s commodity
areas, which included ASICs, cables, drives, memory, displays, enclosures, printed circuit
boards/FABs, power supplies, and storage software. (Exhibit 3) Each GCD was responsible for
the development and implementation of the overall supplier strategy for his or her respective
commodity areas. Among many other activities, the GCDs spent a significant amount of time
qualifying new suppliers for Sun based on four criteria: cost, quality, lead-time, and time-to-
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market (CQLT). Several supply base development managers (SBDMs), who reported directly to
each GCD, were responsible for managing the performance of Sun’s approved suppliers using
Sun’s Scorecard system.1 The GCDs then utilized the Scorecard results to allocate business
among his or her various suppliers. The GCDs also served as the team leaders for their
respective Commodity Teams, which were cross-functional groups that had responsibility for
their commodity components all the way through the “procure-to-pay” process,” including:

x Acting as a point of contact between Sun and its suppliers

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1
The Scorecard was a tool used to manage supplier relationships at Sun. Using this system, each supplier was rated
along several criteria. A supplier could earn a maximum total performance score of 100. Points were allocated to
four areas as follows: quality – 30 points; leadtime/delivery/flexibility – 30 points; technology – 25 points; and
support – 15 points. The performance score was multiplied by a price index to determine the overall Score.
Finally, the Total Cost of Ownership (TCOO) was calculated: TCOO=[(100-Score)/100]+1. For additional
information on the Scorecard system, refer to “Supplier Management at Sun Microsystems” Case A.

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eSourcing Strategy at Sun Microsystems OIT-34 p. 3

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x Building relationships with suppliers

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x Understanding technological and manufacturing capability of the supply base
x Understanding future technological developments in their commodity areas

The GCDs were evaluated by their performance in several areas. According to Bob Archibald,
global commodity director for hard drives:

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I’m measured based on how well my supply base is performing against our four
key metrics: cost, quality, lead-time, and time-to-market. I have to ensure the
availability of high quality, low cost supply for my commodities. I am also
measured based on my ability to influence key executives at Sun and in our
supply base. Finally, I am evaluated based on my strategic agility – my ability to
understand the industry and translate this into an effective supplier strategy for

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Sun.

Cost Cutting and e-Business Initiatives

Sun had a very strong cost focus, and management continuously looked for opportunities to
reduce costs. The Worldwide Operations team, for example, committed to achieving annual cost
and headcount reductions, and performance versus set targets was reviewed quarterly. As a
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result of efforts like these throughout the company, Sun’s gross margins had grown from 45
percent to 52 percent over the last four years. (Exhibit 4).

In a forward-looking effort to continue to reduce costs, Sun management realized in 1998 that
the company would need to increase its supply chain velocity in order to remain competitive into
the future. As Sonia described it, “We realized we needed to accelerate how quickly our
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customer demand channeled into our supply chain and back. To do so, we needed to invest in
supply chain tools, such as optimization applications, that would help us meet our business
objectives of saving time and money and achieving shorter lead times to our customers.”

With these objectives in mind, Sun set a goal of delivering all products to customers in one, two,
five, or ten days, depending on the class of product. This 1-2-5-10 initiative was highly
innovative and ambitious, given that most major server providers delivered product in a four- to
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six-week time frame. In order to reach this goal, Sun’s Supplier Management Group, led by
Kevin Carroll, initiated several “e-business initiatives” (Exhibit 5) by investing in new tools.
For example, in the Supply Planning area, Sun began working with i2, a market leader in
planning and optimization software, and continued to work with Oracle in order to ensure the
company’s ERP system was as robust as possible.

The 1-2-5-10 initiative and the adoption of new tools helped Sun to reduce both cycle time and
costs. However, in 1999, the company realized it was not doing enough. The Internet economy
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was booming, and Sun began to have trouble meeting its demand. According to Sonia, “Demand
for our products was going through the roof! But all of our lead times for products were being
extended because we just couldn’t keep up with the demand.”

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eSourcing Strategy at Sun Microsystems OIT-34 p. 4

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Around the same time, Scott McNealy, Chairman of the Board and CEO, began to spark

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discussions among Sun’s leaders about the concept of dynamic pricing and fixed lead times. Sun
was currently operating under a fixed pricing – dynamic lead-time model. As Sonia explained,
“Our customers were willing to pay a fixed price and to wait eight weeks to receive their
products. Scott encouraged us to turn that concept on its head. He asked ‘Why don’t we let our
customers bid for the opportunity to get our products in a shorter, fixed lead-time? Would they
be happier in this case?’.”

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While Scott spoke about the sell-side, Sonia thought there was an opportunity to use technology
in order to apply the bidding concept to the buy-side of the business. Sun currently negotiated its
prices one-by-one with individual suppliers – a process that would often take up to three months.
Sonia thought if Sun could use this concept of variable pricing on the buy-side in a real-time
competitive environment, the company could create an even more competitive situation among
its suppliers and potentially drive down its costs. Many other companies were testing this

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concept by procuring indirect materials through software and services provided by startups like
Commerce One and Ariba. Sonia, however, felt the magnitude of these savings would not come
close to the savings Sun could achieve by actually reducing its direct materials cost. According
to Sonia, “I wanted to see if we could create an environment in which suppliers hashed it out to
give us the best price rather than depending on our strongest commodity director to negotiate a
price out of an individual supplier.”
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In April 2000, Kevin Carroll and Marissa Peterson, Executive Vice President of Worldwide
Operations, asked Sonia to lead a dynamic bidding pilot test. She had four weeks to select a
software vendor and work with that vendor to run the test.

Market for Dynamic Bidding Services2

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Dynamic bidding or dynamic pricing can be formally defined as the buying and selling of goods
and services in markets where prices are free to move in response to supply and demand
conditions. In the late 1990’s, as companies began to see the potential to leverage the Internet in
order to create their own online marketplaces, the market for dynamic bidding engines exploded.
A myriad of niche players emerged, resulting in a highly fragmented market.
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Sun’s View of the Market

In order to evaluate vendors, Sonia felt that there were two important criteria she needed to
consider: the key attributes of the software products and the level of service provided by the
software vendors. (Figure 1)

Software Attributes
Sonia needed a product with a high level of sophistication and with the following attributes:
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x Real-time auctioning capabilities. The instant a supplier placed a bid, Sonia needed to make
sure Sun and all of the participating suppliers could see that bid.

2
McConnell, Kimberly, “Dynamic Bidding Service Providers: What is the Right Solution for Sun?” Sun
Microsystems White Paper.

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eSourcing Strategy at Sun Microsystems OIT-34 p. 5

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x Flexibility. Sonia wanted a software package that would enable her to run the auctions in a
variety of different ways. For example, she wanted to make sure that the software would
allow her to use different lotting strategies (lotting is the process of grouping different parts
together).

x Graphics. Given that so much would be happening in such a short period of time, Sonia

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wanted to make sure that suppliers could quickly see the bidding trends and respond
appropriately. This required an appropriate level of graphics.

x Connectivity. Sonia also needed a software package that could alert her if a vendor lost
connectivity during an auction and had a mechanism to resolve connectivity problems.

x No glitches. Finally, she needed 100% assurance that the software had no glitches.

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Figure 1
Sun’s Dynamic Bidding Vendor Map
Software Functionality vs. Level of Service
Software Attributes

High Bid.com
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Market
Owner

eXcellent

AB Global Market Source

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Trade

Sales Make a
Expert Market

XYZ Atrium
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Commerce

Full Service Low

Level of Service

Service Levels
In addition to looking at software attributes, Sonia placed vendors into one of two categories
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based on the level of service they provided:

x Self-service. Self-service vendors aimed to incorporate all of the value into their software.
These vendors provided software solutions that completely automated the dynamic bidding
event. That is, the software generated the Request for Quotes (RFQ), ran the bidding event,

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eSourcing Strategy at Sun Microsystems OIT-34 p. 6

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and awarded the contract to the winning bidder(s). Because self-service vendors were not

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involved with the dynamic bidding process, once they sold the software to a client, they used
subscription and/or license fee revenue models. The subscription fee was a monthly or
quarterly fee to use the software, regardless of number of transactions. A license fee was an
up-front fee for the ownership of the software license.

x Full-service. Full-service vendors focused on providing value-add consulting services to

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their clients. They essentially “hand-held” their clients through each dynamic bidding event
by helping clients to assess opportunities to utilize dynamic bidding; working with clients to
develop new strategies for each event; training suppliers on how to use their software; and
overseeing each event. Because they were so involved with each bidding event, their
software did not need to automate the bidding process completely. For example, full-service
providers would help clients develop the RFQs and communicate them to the suppliers.
Because of their high level of involvement with each bidding event, these providers generally

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had transaction-based revenue models; customers paid a fee based on a percent of the value
of the bidding event.

With respect to service, Sonia felt that Sun needed to be “hand-held” during this pilot test. She
wanted a full-service vendor that would educate Sun on how to best automate its negotiation
process, and she wanted to make sure there were no problems integrating the dynamic bidding
software with Sun’s existing internal tool sets. At the same time, she knew that if Sun were to
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eventually adopt dynamic bidding on a broader scale, she would want to have the flexibility of
making some sourcing decisions using a self-service model.

Pilot Test
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After a quick market assessment, Sonia and her team decided to work with software vendor
Market Owner because the company ranked highest with respect to both software attributes and
level of service.

Rules

In order to truly test the viability of this new sourcing method, Sonia and her team decided that
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they should establish a set of rules governing the dynamic bidding pilot tests. Working with the
participating GCDs, they laid out the following four rules, which are described in more detail in
Exhibit 6:

1. Commitment to integrity of the market making process

2. There has to be a real sourcing decision to be made
3. Must be able to create a market
4. Create markets consistent with established Sun sourcing policies and practices
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SUPPLIER SELECTION

Once the rules were set, Sonia and her team had to decide which suppliers to work with during
the pilot test. In order to do so, they looked at each of Sun’s commodity areas and compared the

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eSourcing Strategy at Sun Microsystems OIT-34 p. 7

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dollar spend and number of suppliers in each area as well as the strategic importance of the

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commodity area to the organization overall. (Exhibit 3) Immediately, they ruled out suppliers
in those commodity areas in which they could not create a true market (i.e., There were only one
to two suppliers.) They also ruled out contract manufacturers. While contract manufacturers
were suppliers to Sun, the company considered them to be more like partners who had made
considerable investments in Sun; therefore, Sonia and her team felt testing the program on this
group of suppliers was not appropriate.

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Ultimately, Sonia and her team chose to run the pilot tests with what were perceived to be lower
risk commodity suppliers – cable and printed circuit board suppliers. They handpicked a group
of suppliers in each category and invited them to bid against each other for two separate
contracts worth approximately $10 million each. To the suppliers that were interested, they then
issued the request-for-quote (RFQ) that detailed the award criteria for the contracts, which
included cost/price, availability, and quality factors. On the day of the auction, the suppliers

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were to bid only on price, but following the auction, the sourcing team would take all of the
factors into account when deciding who should ultimately be awarded the contract.

PILOT TEST AND RESULTS

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Each auction was open for thirty minutes, during which time the suppliers could view each
others’ bids and revise their bids accordingly. (Exhibit 7) When the thirty minutes ended, the
sourcing team took the price, analyzed the other factors specified in the RFQ, and then awarded
Sun’s business to the top suppliers. By taking the average historical price for each commodity
and comparing it to the final bid in each auction, Sonia determined that Sun had reduced its
procurement costs by 30 percent.
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Sun’s management was thrilled with these results and immediately saw the potential for Sun to
take significant costs out of its supply chain. Sonia, too, was excited about these results, and saw
additional potential benefits for Sun if the company were to implement a dynamic bidding
program on a larger scale. She realized that there would be a huge gain in efficiency.
Traditionally, Sun’s commodity directors identified suppliers, communicated the RFQ, and then
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performed one-on-one negotiations that took up to three months. With dynamic bidding, once the
commodity directors identified suppliers, they would have to spend more time communicating
the RFQ to suppliers, but they would eliminate the long negotiation process. As illustrated in
Figure 2, this would reduce Sun’s overall cycle time, enabling the company to be faster to market
with new products.

Figure 2
DYNAMIC BIDDING SAVES TIME
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Traditional Sourcing Flow

Identify Prepare and One-on-One Negotiation Implement

Suppliers Communicate RFQ 1-3 months Results

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eSourcing Strategy at Sun Microsystems OIT-34 p. 8

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Dynamic Bidding Flow Bidding Event
1 Day

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Identify Prepare and Implement
Suppliers Communicate RFQ Results

CONSIDERATIONS MOVING FORWARD

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Although Sonia recognized these potential benefits of dynamic bidding, she realized that she had
to consider several issues before launching a full-blown program.

Supplier Relationships

At the heart of Sun’s strategy was its “leveraged manufacturing model.” Sun outsourced the
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bulk of its manufacturing and did very little captive manufacturing. Given this strategy, Sun had
invested heavily in building strong relationships with its suppliers and ensuring that the
company’s strategies were aligned with those of its suppliers. Sun’s commodity directors, who
were the primary point of contact with suppliers, were concerned that the suppliers would not see
dynamic bidding as a win-win proposition. In fact, several of Sun’s long-standing cable and
printed circuit board suppliers were dissatisfied with the pilot test, and one company president
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refused to participate.

Although Sonia understood that suppliers might be concerned at first, she felt that if the program
was structured appropriately, she could allay some of their worries. First, Sonia knew that some
suppliers would fear that dynamic bidding would completely change the way that they did
business with Sun. According to Ted Dagnese, global commodity director for power, displays
and input devices, after learning of the pilot project, several suppliers “expressed concern that
Sun would start making business decisions based only on who was the low-cost bidder.”
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However, Sonia knew this would not be the case. Even with a dynamic bidding program in
place, Sun would continue to screen carefully all of its suppliers based on its CQLT criteria and
to evaluate them using the Scorecard system. Only those suppliers that met the company’s strict
requirements would be invited to participate in Sun’s closed dynamic bidding market.

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eSourcing Strategy at Sun Microsystems OIT-34 p. 9

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Second, Sonia knew that even though all of the participating suppliers would be approved

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suppliers, the top suppliers would be concerned that they would no longer be given special
recognition for excellent performance in areas such as quality or delivery time. In order to
address this, Sonia already had begun to explore options to incorporate the Scorecard system into
a dynamic bidding program. For example, Sonia knew that GCDs often allocated their business
to a set number of suppliers. Under the current system, the GCDs determined the share of
market for each supplier using the Scorecard results and a combination of other factors. Using a

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dynamic bidding program, Sonia thought that the GCDs could determine a maximum share of
market by supplier based on their Scores and available capacity in their plants. Therefore, if
supplier A had a TCOO of 1.02 and suppliers B and C had TCOOs of 1.10 and 1.14, supplier A
would have the right to win up to 50 percent of the business while the other suppliers’ maximum
share of market would be 25 percent.

Sonia also believed that there were clear benefits to suppliers in the long-term. First, Sonia saw

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this as a low-cost sales channel for them. She explained, “A big chunk of suppliers costs were
coming from SG&A. Once we qualified suppliers, they were still flying around trying to
convince the commodity directors to give them the biggest piece of the business. I knew if we
were to implement a dynamic bidding system, this would change. After qualifying suppliers, we
would invite them to participate in the auction. There would be no need to go around
schmoozing because the dynamic bidding process would be so straightforward.” Second, she
believed that dynamic bidding would give suppliers the opportunity to access business much
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faster. At the same time, she argued it would allow them to dynamically play to their capacity.
She said, “If the suppliers were really desperate to utilize their factories or they did not have
capacity, they would be able to bid accordingly.” Third, she felt that suppliers would benefit
from participating in dynamic bidding because it would provide them with important competitive
information and allow them to benchmark themselves versus their competitors.
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Additionally, as much as suppliers might complain about competitive bidding, Sonia and the
GCDs knew that the suppliers had room to squeeze their margins. They estimated that suppliers’
gross margins ranged anywhere from 15 to 70 percent. Although they did not have exact data,
they ascertained these estimates by gathering general industry information and by looking at
publicly available financial information on Sun’s suppliers. Sonia and several GCDs believed
that suppliers had a natural pricing floor that they were willing to go to. Dynamic bidding would
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simply be a process to help get them there.

Most importantly, Sonia knew that Sun needed to maintain harmonious and fair relationships
with its suppliers. She wondered how much dynamic bidding would strain these relationships
and how she could work with the GCDs to communicate the potential benefits to Sun’s suppliers.

INTERNAL ISSUES
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Sonia not only had to consider Sun’s relationships with its suppliers, but she also had to take
several internal issues into account. Most importantly, many of Sun’s commodity directors had
spent years identifying ways to cut procurement costs. Given their extensive experience, many
of the commodity directors initially had a mixed to negative reaction to dynamic bidding at first.
According to Bob Archibald, global commodity director for hard drives, “At first, I wasn’t sure

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eSourcing Strategy at Sun Microsystems OIT-34 p. 10

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how we were going to pull something like this off. My relationships with my suppliers are

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extremely complex – much more complex than a buy-sell relationship.” Sonia knew winning the
GCD’s buy-in and commitment would be critical to preserving Sun’s strong relationships with
its suppliers and ultimately, to the success of this project. While many of them, like Bob, had
started to offer great input, she wondered what the best way would be to get them 100 percent
on-board.

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Sonia also wondered how comprehensive the next phase of implementation should be. Sun
worked with suppliers in so many different commodity areas. Sonia had selected the “lowest
risk” products for the pilot test, but she knew that she would need to source more critical
commodities via this process in order to demonstrate Sun’s commitment to dynamic bidding.
She wondered how to select the appropriate commodities. Sonia also wondered how much
volume Sun should consider sourcing through a dynamic bidding program. Should she propose
that Sun take a go-slow approach or jump in to a full-blown dynamic sourcing program?

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Finally, Sonia recognized that if she were to move forward with a dynamic bidding program, she
would need to implement a series of procedures that would maintain integrity in Sun’s sourcing
process. That is, if Sun were to hold an auction according to a set of pre-specified rules, Sonia
needed to ensure that the rules were followed. For example, she did not want suppliers to call
after an auction to offer better prices and have the commodity directors accept them. Sonia
feared that getting the commodity directors to abide by the new set of procedures she laid out
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would be difficult, given their general skepticism about dynamic bidding.

Competition
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Sonia had another big question in her mind. When she looked around, none of Sun’s high-tech
competitors had adopted a dynamic bidding scheme and to her knowledge, none of them were
considering it. From past experiences, Sonia knew that Sun was comfortable taking the lead and
taking risks. However, several executives at Sun had been getting a bit nervous. They wondered
why Sun was the only server manufacturer moving in this direction, so they kept asking, “Are we
missing something?”.
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Vendor Selection

Finally, if Sonia decided to move forward with dynamic bidding, she knew she would need to
reassess which software vendor(s) to use. She had been pleased working with Market Owner
during the pilot test, but she needed to ensure that she selected the best possible vendor. While
Market Owner ranked high on both service level and software attributes, the company was
relatively new and the management did not have experience in the high-tech industry. Sonia
needed 100 percent assurance that there were no glitches in the software and that the company
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would be viable long-term. In addition, she wanted a software vendor that would be heavily
involved with the implementation of the dynamic bidding system. This meant that Sonia wanted
to make sure that the vendor did not simply install the software and disappear. She needed a
vendor that would help her train and educate Sun’s commodity directors and suppliers on how to
use the new system. Additionally, Sonia’s background was in materials procurement

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eSourcing Strategy at Sun Microsystems OIT-34 p. 11

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management and supply chain design, not software selection. She wondered if she should be

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taking other factors into account as she evaluated potential vendors.

Decision

After seeing the results of the pilot test, Scott McNealy gave Sonia one week to make a
recommendation on the future of dynamic bidding at Sun. Sonia called a team meeting and laid

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out all of the different issues they needed to consider. Most importantly, however, she
emphasized that whatever decision they made, they needed to ensure that Sun preserved its
strategic supply relationships and the quality of the inputs for Sun products.

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No
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eSourcing Strategy at Sun Microsystems OIT-34 p. 12

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Exhibit 1

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Sun Microsystems, Inc.
Worldwide Operations Organization Chart

Marissa Peterson
Executive Vice President
Worldwide Operations

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VP VP
Manufacturing Logistics

Kevin Carroll

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Vice President
Supplier Mgmt

Global Commodity Sonia Syngal Other Directors

Directors* Reporting to
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Procurement Strategy & VP Supplier Mgmt
Supplier Relations
Commodity Supply Base 35-Person Team reporting to
Teams* Development Sonia
Managers
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Note: This is not an official organization chart of Sun Microsystems, Inc. but rather a
representation created by the author of this case.

*Each Global Commodity Director (GCD) acts as a team leader for his or her respective
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Commodity Team, the members of which do not directly report to the GCD.
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eSourcing Strategy at Sun Microsystems OIT-34 p. 13

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Exhibit 2

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Sun Microsystems, Inc.
Procurement Strategy & Supplier Relations Group’s Vision and Focus

Vision:
Enable Sun to be the industry leader in Supplier Management

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Focus:
x Drive the strategic framework and maintain the critical control points on $9 billion spend

x Drive excellence in Strategic Sourcing, Material Fulfillment, Supplier Relationship

Management, and Materials Cost Management.

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x Use e-Business as key enabler for business process velocity and simplicity

Source: Sun Microsystems, Inc. op

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No
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eSourcing Strategy at Sun Microsystems OIT-34 p. 14

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Exhibit 3

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Sun Microsystems, Inc.
Core Suppliers by Commodity Area

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*Core suppliers are crucial to Sun and their attributes include:
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x Strategically aligned with Sun

x Possess aligned core technologies
x Leverage requirements or dependencies across Supplier Management groups
x Receive significant Sun spend
x Supply “critical” technologies or evidence of significant future strategic potential
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Source: Sun Microsystems, Inc.

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eSourcing Strategy at Sun Microsystems OIT-34 p. 15

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Exhibit 4

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Sun Microsystems, Inc.
Summary Consolidated Statements of Income a
Fiscal Year 1996 – 1999
($ million)

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a) All historical financial information has been restated to reflect the merger with forte
Software, Inc. on October 19, 1999.
Do

b) Share and per share amounts for all periods presented have been adjusted to reflect stock
splits through

Source: Sun Microsystems, Inc. Annual Report 2000

Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617-783-7860.

eSourcing Strategy at Sun Microsystems OIT-34 p. 16

t
Exhibit 5

os
Sun Microsystems, Inc.
Worldwide Operations eBusiness Priorities
(End-to-End Business Process steps in Sun’s Value Chain that could be Internet-enabled and
accessible via the Supplier Portal)

rP
Supplier Portal

Time to Volume Cost

yo
Collaborative eDesign

eSourcing

eFulfillment
op
eCost
Mgmt

eSupply Planning
tC

eProcurement

eSupply
Execution
No

Availability Quality

Supplier Portal
Do

Source: Sonia Syngal, Director of Procurement Strategy and Supplier Relations, Presentation to
Stanford Graduate School of Busines “Sun eSourcing Strategy,” September 2001.

Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617-783-7860.

eSourcing Strategy at Sun Microsystems OIT-34 p. 17

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Exhibit 6

os
Sun Microsystems, Inc.
Dynamic Bidding Pilot Test
Market Making Rules

1. Commitment to integrity of the market making process

rP
x No parallel communication
x All working to same set of knowledge – no asymmetric information
x No post-event price negotiation based on outcome of event

2. There has to be a real sourcing decision to be made

x No benchmarking
x Must have authority to source business

yo
x Intellectual Property owners must be confirmed
x Existing financial contracts musts be honored

3. Must be able to create a market

x Qualified supply base (minimum 3)
x Suppliers interested in the business
op
x Suppliers willing to follow Dynamic Bidding process

4. Create markets consistent with:

x Sun’s Commodity and External Manufacturing strategies
x Established Sun sourcing policies and practices
tC

Source: Sun Microsystems, Inc.

No
Do

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 eSourcing Strategy at Sun Microsystems OIT-34 p. 18
Exhibit 7
Sample Screen-Shot of Online Bidding Event for Metal Stamping of a Chassis (Supplier View*)

File View Preferences Windows Help Current Time: 01:55:01 PM PST

Lot 01: Delivery Option 1
Sponsor: Sponsor Market Leader: Bidder 1 Close Time: May 15, 2000 1:36:00 PM PST
Status: OPEN View Currency: USD Market vs. Reserve: -4,285,000 (-17.49%) Status: CLOSED
Market Savings: -31.94% Lots: 2 Market vs. Historic: -9,785,000 (-32.62%) Total Bids: 19
Do
Available Lots
Num Name Close Time Status Historic Reserve Mkt Lead Mkt vs Hist Currency
01 Delivery Option 1 1:36:00 PM CLOSED 30,000,000 24,500,000 20,215,000 -9,875,000 USD
02 Delivery Option 2 1:49:00 PM CLOSED 30,000,000 24,500,000 20,620,000 -9,380,000 USD
Totals: 60,000,000 49,000,000 40,835,000 -19,165,000
Bid Graph: Lot 01 – Delivery Option 1 X
No
Historic: 30,000,000
Reserve: 24,500,000
30,000,000 Open Time: 5/20/00 1:00:00 PM PST
Orig Close: 5/20/00 1:30:00 PM EST
tC
Close Time: 5/20/00 1:36:00 PM EST
28,000,000
Bidder 1
Bidder 2
26,000,000
Bidder 3
Bidder 4

Bid Amounts
op
24,000,000

22,000,000

20,000,000
yo
Bid Times 1:01 1:08 1:15 1:21 1:28 1:35

Terms: Historic = Last purchase order (PO) price

Reserve = Price point where switching to a new supplier is attractive
rP
Market Lead = Current leading bid in the marketplace
Notes: Two different delivery locations (2 lots) were bid on in this sample.
The bidding period was extended because a supplier made a competitive bid 60 seconds prior to the event close. Additional 60 seconds can continue to

Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617-783-7860.

be added as long as suppliers continue to place competitive bids.
*The suppliers can see all of the bids, but they appear as black dots. Thus, a supplier
os
t