Group #1 - PQI

1. Analyze 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.
2. 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:
 3. 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.
4. 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.