nized design process, which results in high development costs. For example, hundreds of different components made by hundreds of different suppliers are needed to produce a single server. Before production can begin, all components must be manufactured to a certain specification. At present, IBM is not efficient at communicating these specifications to suppliers. The constant changes inherent in this process make it difficult for IBM to update and educate suppliers about the most recent product specifications. (Stevens, interview). Source: Commodity Review - HDD Mechanical 12/99 (IBM Internal Document)In order to regain its position in the marketplace, IBM must overcome Seagate, its most powerful competitor. Not only is Seagate beating IBM to market and doing so at a lower price, Seagate’s profit margins are almost double that of IBM’s (Stevens, interview). Evaluative Criteria and Their WeighingThere are three main criteria IBM uses to select a supplier: price, quality and technological capabilities.PricePrice is the single most important determinant of the supplier IBM will select. If the other two evaluative criteria are satisfactorily met, but price is still too high, IBM will purchase elsewhere (Stevens, interview). When evaluating the factor of price within the buying equation, IBM also considers shipping costs, volume discounts and terms of payment (Demas, 2). It is important that the supplier agrees to work proactively to lower the price of the commodity as the company rides down the experience curve and is able to produce each component at a lower cost. QualityThe next most important evaluative criterion is quality. Quality encompasses several factors, including defective parts per million (DPPM), responsiveness to quality issues, timeliness of deliveries, and lead-time (Demas, 3). DPPM - While up to 4% DPPM is often considered acceptable, zero is ideal.Responsiveness to Quality Issues - This means providing a liai...
