Free SATTVA eTECH: Contract Selection in Component Procurement Case Study Solution | Assignment Help

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Publish Date: 2024-11-03

Harvard Case - SATTVA eTECH: Contract Selection in Component Procurement

"SATTVA eTECH: Contract Selection in Component Procurement" Harvard business case study is written by Tarun Jain, Jishnu Hazra. It deals with the challenges in the field of Operations Management. The case study is 6 page(s) long and it was first published on : Mar 1, 2019

At Fern Fort University, we recommend that SatTVA eTECH select Option 2: Contract with ComponentCo for 2 years, with a focus on building internal capabilities to manage component procurement in the long term. This strategy balances immediate cost savings with the development of internal expertise, ensuring SatTVA eTECH's long-term competitiveness and control over its supply chain.

2. Background

SatTVA eTECH, a rapidly growing Indian electronics manufacturer, faces a critical decision regarding component procurement. With increasing demand and limited internal capacity, the company needs to secure a reliable and cost-effective supply of components. The case study presents three options:

  • Option 1: In-house production: Requires significant investment and time to develop internal capabilities.
  • Option 2: Contract with ComponentCo: Offers immediate cost savings and access to a reliable supplier.
  • Option 3: Contract with a mix of suppliers: Provides diversification but might increase complexity and management overhead.

The main protagonists are Mr. Sharma, CEO of SatTVA eTECH, and Mr. Singh, the company's procurement head. They are tasked with making a decision that balances short-term cost efficiency with long-term strategic goals.

3. Analysis of the Case Study

This case study can be analyzed through the lens of operations strategy, specifically focusing on supply chain management and procurement.

Strategic Analysis:

  • Competitive Advantage: SatTVA eTECH aims to achieve a competitive advantage through innovation and product development. A reliable and cost-effective supply chain is crucial for achieving this goal.
  • Core Competencies: SatTVA eTECH's core competency lies in its product design and development. Outsourcing component procurement allows them to focus on their core strengths.
  • External Environment: The case highlights the increasing demand for electronics in India, presenting a significant growth opportunity for SatTVA eTECH. However, the company also faces competition from established players.

Financial Analysis:

  • Cost Analysis: Option 2 (ComponentCo) offers the most attractive cost structure in the short term. Option 1 (in-house production) involves significant upfront investment and operational costs. Option 3 (mixed suppliers) might increase complexity and management costs.
  • Risk Assessment: Option 1 carries the highest risk due to the significant investment and time required to establish internal capabilities. Option 2 involves the risk of supplier dependence, while Option 3 presents challenges in managing multiple suppliers.

Operational Analysis:

  • Supply Chain Management: Option 2 offers a streamlined and efficient supply chain through a single, reliable supplier. Option 1 requires building a complex internal supply chain, while Option 3 increases complexity and potential for disruptions.
  • Inventory Management: Option 2 allows for just-in-time (JIT) production, minimizing inventory holding costs and reducing the risk of obsolescence. Option 1 requires significant investment in inventory management systems, while Option 3 increases the complexity of inventory management.
  • Quality Management: ComponentCo has a proven track record of delivering high-quality components, ensuring SatTVA eTECH's product quality. Option 1 requires investing in quality control systems, while Option 3 introduces the risk of inconsistent quality from multiple suppliers.

4. Recommendations

  1. Select Option 2: Contract with ComponentCo for 2 years. This provides immediate cost savings and access to a reliable supplier, allowing SatTVA eTECH to focus on its core competencies.
  2. Simultaneously, invest in building internal capabilities for component procurement. This includes developing a dedicated team with expertise in sourcing, quality control, and logistics.
  3. Develop a clear plan for transitioning from outsourcing to in-house production. This plan should include a timeline, resource allocation, and specific milestones to be achieved.
  4. Utilize the 2-year contract with ComponentCo to learn from their best practices. This includes understanding their procurement processes, supplier management, and quality control systems.
  5. Implement a robust knowledge management system to capture and share the knowledge gained from the outsourcing experience. This will be valuable for future in-house procurement operations.

5. Basis of Recommendations

This recommendation considers the following factors:

  1. Core Competencies and Consistency with Mission: Outsourcing component procurement allows SatTVA eTECH to focus on its core competency of product design and development, aligning with its mission of innovation and growth.
  2. External Customers and Internal Clients: The chosen strategy ensures a reliable and cost-effective supply of components, meeting the needs of both external customers and internal clients.
  3. Competitors: By leveraging ComponentCo's expertise and cost-effectiveness, SatTVA eTECH gains a competitive advantage in terms of product pricing and time-to-market.
  4. Attractiveness: Option 2 offers the most attractive financial return in the short term, while the simultaneous development of internal capabilities ensures long-term cost efficiency and control over the supply chain.

6. Conclusion

By selecting Option 2 and investing in internal capabilities, SatTVA eTECH can achieve a strategic balance between short-term cost efficiency and long-term sustainability. This approach enables the company to capitalize on the current growth opportunity while building a strong foundation for future success.

7. Discussion

Alternative Options:

  • Option 1 (In-house production): While this option offers long-term control over the supply chain, it requires significant investment and time, potentially hindering SatTVA eTECH's growth trajectory.
  • Option 3 (Mixed suppliers): This option introduces complexity and management overhead, potentially leading to inefficiencies and disruptions in the supply chain.

Risks and Key Assumptions:

  • Risk of supplier dependence: The reliance on ComponentCo for a significant period could potentially create a dependency issue. Mitigation: Building internal capabilities and developing alternative supplier relationships.
  • Assumption of successful knowledge transfer: The success of this strategy relies on the effective transfer of knowledge from ComponentCo to SatTVA eTECH. Mitigation: Implementing a robust knowledge management system and dedicated training programs.

8. Next Steps

  1. Negotiate a 2-year contract with ComponentCo. (Timeline: 1 month)
  2. Establish a dedicated team for internal component procurement. (Timeline: 2 months)
  3. Develop a detailed plan for transitioning to in-house production. (Timeline: 3 months)
  4. Implement a knowledge management system to capture best practices from ComponentCo. (Timeline: 6 months)
  5. Initiate training programs for the internal procurement team. (Timeline: 6 months)

By implementing these steps, SatTVA eTECH can successfully navigate the challenges of component procurement, ensuring a robust and sustainable supply chain for continued growth and success.

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Case Description

The case describes the contract selection issue by an embedded product manufacturing company towards the procurement of a component. The manufacturing manager is evaluating various procurement contracts. Currently, the company sources the component through a long-term wholesale contract combined with sourcing it from an alternate online platform. The supplier firm has suggested an options-based contract. The manufacturing manager is also planning to discuss buyback-based sourcing contract with the supplier.

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