Supplier Management at Sun Microsystems (B), Managing Risk in the Supplier Relationship
Sun faces several risks in its supplier relationships, including: i) Technological risk (with sourcing, will Sun lose or misdirect its internal technological capabilities?); ii) Product risk (in cooperative development projects, who is responsible for investments in time, money, and knowledge when the products may fail to reach production?); and iii) Quality risk (how should underage and overage costs be shared when demand volume differs from forecast?). The case examines how Sun should share these risks with its suppliers, and how Sun can manage these risks without restricting its flexibility to do business or weakening its bargaining power. Possible initiatives are discussed, including Quantity Flexibility contracts that would limit Sun’s order flexibility and might require her to forecast more carefully.