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Sun Microsystems lived and operated in a dream world throughout most of the 1990s, realizing significant rev- enue mainly from its line of server...
Sun Microsystems lived and operated in a dream world throughout most of the 1990s, realizing significant rev- enue mainly from its line of server computers. Then, along came the dot-com implosion around 2000 and a new entrant into the market, Dell Computer. Dell had previously focused most of its efforts on providing cus- tomized personal computers. Its growth strategy was to take its famous and world-renowned sell-source-ship model into the server market. And that hurt Sun prob- ably more so than the dot-com implosion. In fact, Sun hasn’t earned an annual profit since fiscal year 2001. When its fiscal year 2006 ended on June 30, it posted a loss of $864 million. Previously, Sun did what many computer vendors did. It received unfinished products from manufactur- ers, stored them in warehouses, and configured them according to customer needs once a customer placed an order. As Eugene McCabe, executive VP of world- wide operations for Sun, explained it, “We knew we had to make some changes.” And Sun did, with the rollout of the One Touch Supply Chain effort in 2004, in which products are sent directly from manufacturers to customers. This alone has cut in half the time between when you order a computer from Sun and when you receive it. As Eugene summarized it, “What we wanted to do is take that step out of the supply chain.” “That step” was Sun itself—now when you order a computer from Sun, it never sees, handles, or warehouses it. Sun’s logistics expenses have been reduced by more than $20 million annually, which helps alleviate the financial losses the company has been experiencing. According to Robert Worrall, Sun’s CIO, who has been with the company for 16 years, “We live and die by the supply chain and the demand cycle.” So much so, that Robert estimated that 20 percent of the company’s IT staff spends part of its time devoted to demand plan- ning and supply chain systems. Those staff are now focused on One Touch Supply Chain. The infrastructure of that initiative is ERP applications from Oracle, sup- ply chain management software from Manugistics, and demand planning software from i2 Technologies. When you order a Sun server, One Touch Supply Chain determines which manufacturer can best ful- fill your order and electronically transmits your order information to the manufacturer. The manufacturer assembles, configures, and tests your system before sending it directly to you. This increased efficiency in the supply chain has enabled Sun to deliver products to customers within the promised time 95 percent of the time, up from 85 percent. The manufacturers even tap into Sun’s order-processing system and generate a customer invoice and shipping order for you. Equally important, Sun has been able to close distri- bution centers in Asia, Europe, and the United States, creating valuable cost savings. It has also significantly cut inventory costs1. In reference to Porter’s Five Forces Model from Chapter 1, how was Sun affected by Dell Computer? Do you think Dell had a similar impact on other computer vendors in the same server market? Why or why not? 2. How closely does Sun’s supply chain now mirror that of Dell Computer? Is it wise to “mimic” a competitor so closely? What about Blockbuster following the model of Netflix? How are they similar? What has Blockbuster added to its video rental model that appeals to people? 3. In this case study, we explained that Sun is now using software from multiple vendors—ERP from Oracle, supply chain management from Manugistics, and demand planning from i2 Technologies. Can this collection of software truly be an integrated, seamless, unified- interface, all-encompassing ERP system? How do you believe organizations get different pieces of software from different vendors to talk to each other? 4. What’s on the customer relationship management side for Sun? How can it use the information it gathers on customers and their ordering habits to create a competitive advantage? 5. How has Sun created an information partnership with its supplier manufacturers? How has this information partnership created efficiencies in the supply chain?
