What should be done with suppliers receiving B Grade?

Should they be dropped or should HTC work

- HTC does not consider short term suppliers – they want suppliers who are competitive as well as
progressive in terms of product pricing, technology, quality, delivery, and service.
- They consider suppliers who have the capability to develop together, on HTC’s product
roadmap.
- HTC’s supplier management (Vendor management) consists of 4 different teams:
o Sourcing team – responsible for searching new suppliers for long-term relations.
o Component team – responsible for selection of potential suppliers who could provide
appropriate parts related to various products and models of HTC, and later monitoring
them respect to consistency in production.
o R&D team – focuses on assessing supplier’s capabilities to provide relevant product
designs.
o Quality assurance team – performs testing mechanisms to ensure quality, consistency,
and efficiency of suppliers.
- These 4 teams were divided into two areas:
o Supplier selection
 Judging engineers based on a three-year product roadmap and future demands
rather than just the current situation/product requirements.
 Complete audit of supplier – quality, manufacturing process & capability,
financial situation, and capacity. And then require samples.
 Contractual agreement: volume, pricing and some other terms are not specified
for flexibility.
o Supplier monitoring
 Scorecard
 Team visits

Because HTC relies on product pricing, technology, quality, delivery, and service. It is essential to
evaluate the suppliers receiving B grade, with respect to HTC’s above-mentioned criteria/requirements.
Moreover, HTC mentioned they consider sourcing 80% of a product from a supplier who performs
extremely well, and 20% from that supplier who has underperformed. And if the underperformed
supplier performs well within the next three months, then the allocation could be adjusted, but if not,
then the said supplier would be dropped.

Second, HTC vendor management has mentioned that their team would visit their suppliers once or
twice in a month and communicate more often for providing feedback on improvement in product
quality or service, reduction in costs, update in technological aspects, or speeding up the delivery
process. And sometimes the suppliers would themselves send invitation to the HTC engineering team to
oversee and detect the reason behind an issue in the component, if any.

Apart from the scorecard grading on the mentioned criteria, there is another important aspect for HTC,
which is keeping the inventory levels low and for that they need their suppliers to be readily available
with quick delivery, and this requires good relationship with the suppliers.
Let’s now evaluate the suppliers of HTC where Supplier ‘A’, with an A grade, has been with HTC for the
past seven years, being the longest serving suppliers for the battery components, receiving consistent
score in the previous three months. Whereas, supplier B, C, and D, had all received B grades,
respectively.

Though supplier B’s performance in quality maintaining took a plunge over the course of previous three
months but on the contrast, they made improvements in their delivery processes. Similarly, supplier C
had made improvements in terms of providing quality materials, services, and technology while
performance chart fell in meeting cost and delivery requirements. Supplier D, had too received a B grade
despite struggling with maintaining quality and declining delivery performance. However, their
performance in sections of cost, technology, and service was static. Supplier E, on the other hand,
showed some improvements in providing quality materials and cutting edge costs while being
unwavering in sections of delivery, technology, and service. Because supplier E is relatively new and had
scored overall less in each segment, that’s why was marked with a C grade, compared to scores of
supplier B, C, and D.

The HTC vendor team, as per their strategy, should make visit to the suppliers receiving B grade to
examine their work processes and analyze the area(s) that require improvement. At some places, there
can be assistance directly provided by the HTC vendor team, to their suppliers, but with certain aspects
it should be dealt only by the suppliers themselves. For instance, in the case of supplier B, their
performance is affected due to the financial crisis they’re under because of two reasons: a legal scandal,
and overspending on construction of new factory. In this case, HTC vendor team cannot propose any
suggestion or advice to the supplier as it could have further negative consequences for both.
Furthermore, the HTC vendor team is only responsible for monitoring results and improving them by
providing feedback on the production processes and assisting their suppliers with respect to engineering
domain only; hence, limited only to components supply with not so involvement in their business
strategies.

However, HTC’s senior management could be of some assistance in this regard to the said supplier’s
senior management and propose some advice. But then again, HTC’s team could provide assistance with
problem pertaining to construction of new factory only and not the legal scandal perhaps. Because we
don’t know if the legal scandal pertaining to supplier B is of what nature and to what extent the supplier
is actually involved and therefore, could be of negative impact on the HTC for working with the accused
supplier. Secondly, supplier B is only producing 20% of the battery orders for HTC which means that this
supplier has been in underperforming stage and as mentioned in the case study that B has been
struggling with financial situations since the past 6 months, therefore, as per HTC’s policies the
suppliers’ whose performance doesn’t increases in 3 months are reconsidered to either be dropped or
continue working with. But because this supplier is been with HTC for 3 years, it means that they have
been performing well over the years to keep up with HTC’s expectation. However, from the provided
information, we cannot predict the results of the legal scandal they’re involved in nor we can tell what
type of scandal it is. So, with this regard, the supplier B should be re-considered with allocation of orders
for future prospects and should be refrained from doing business with until their name is cleared.

For supplier C, as they are improving in quality they are increasing costs also which is totally
understandable because producing good quality has some costs. But such costs can be reduced by
cutting off costs such as production, material, or overhead expenses incurred on the components.
Therefore, HTC should work with them and monitor them for another three months, after proposing
changes.

Supplier D’s performance increased in the second month but plunged in the third. The decline in their
quality and delivery processes suggests that they are struggling with the HTC’s sudden change in
requirements or orders which can be coped by working more closely with HTC’s engineering team and
effective communication. HTC should work with them for another 3 months also.

Supplier E is new and has displayed well performing statistics over the course of 3 months. Even if they
have received an overall grade less than the other suppliers, this supplier could be a prospective high
performing supplier for HTC if provided due assistance, suggestion, and/or attention because we see
that they have been progressing in meeting cost requirements whilst being static in other. HTC should
work with them to improve their grades.

HTC should consider giving more orders to supplier E, considering their improvement in performance
within the past 3 months and should drop some orders for D instead. For supplier there is very little
variance in change within the past three months but still it should be