Eliminate the Middleman

Problem:
USTech is concerned with the long term viability of using TaiSource as their exclusive
supplier. USTech needs to construct a sustainable sourcing solution that solves their worries of
only having one supplier. USTech needs to develop a new sourcing strategy while considering
issues with using an Original Design Manufacturer (ODM) and ensuring quality and design
protection.

Analysis:

1. End partnership with TaiSource and search for new supplier

Pros
 Potentially cut costs and increase margins
by going direct to another supplier
 USTech might secure protection of design
and operations
2. Continue to source from TaiSource
Cons
 TaiSource becomes a competitor
 TaiSource has a lot of USTech designs
 Takes a long time to establish trust
and communication with new
suppliers
 Will lose TaiSource’s quality
manufacturing standards
 Logistics, administrative and other
hidden costs increase

Pros Cons
 Will be able to take advantage of  Continues using an exclusive supplier
TaiSource’s world class research and  Opens the door for TaiSource to start
design their own brand off of USTech
 TaiSource is offering to integrate their designs
supply chain  Further integration of R&D increases
 Cost savings TaiSource’s knowledge of USTech
operations
3. Add another supplier on top of current sourcing with TaiSource

Pros Cons
 Increases Flexibility/Reactiveness  Operating cost will increase if
 Reduces Risk suppliers are not integrated within
 Decentralizes supply base USTech’s network
 Allows development of relationship with a  Keeps TaiSource as a viable threat/
new supplier but also an asset
 Eases the transition of phasing out
 TaiSource

In the analysis three different alternatives were created and for each of these alternatives the
pros and cons were weighed against one another. We also determined the optimal alternative
based on the amount of risk, uncertainty, and potential to profit. In scenario one, we suggest
cutting ties with TaiSource which results in the cons far outweighing the pros. The potential
value associated with cutting cost and protecting USTech designs does not come close to the
risk of losing USTech’s only supplier. In addition, USTech would incur logistical and other hidden
costs and TaiSource could even become a competitor by entering into the Chinese market.
Ending the partnership with TaiSource and searching for a new supplier would be very risky for
USTech, selecting a new Chinese supplier would yield a high level of uncertainty, and the
potential to profit from this change is unknown. In scenario two, the value attached to the
pros and cons are equal. The risk is relatively low with continuing to use TaiSource as the sole
supplier for USTech, the amount of uncertainty is high due to the fact that TaiSource could
become a competitor, and there is a small potential to profit any more than USTech currently
does. Finally, in scenario three the pros outweigh the cons. The certain increase in flexibility,
decentralizing the supply base, and the multitude of quality supplier relationships outweighs
the uncertainty of integrating a new supplier with TaiSource.

Recommendation:
Based off of our analysis we recommend alternative three. This option gives USTech the
advantage of keeping TaiSource and the advantage of increasing the supply base. Continuing to
use TaiSource ensures the high quality that USTech is used to and the low cost of current
production. By increasing the supply base the company can mitigate risk, increase flexibility,
and begin relationships with a new supplier. This will allow USTech to maintain market share
and profitability when reacting to a supply disruption.
For future sourcing, USTech should develop clear regulations and rules for their
interaction with TaiSource to protect USTech design. A contract as long-term as possible should
be implemented with TaiSource to take advantage of their new innovations and cost savings,
while keeping them as the main supplier instead of becoming the competition. When sourcing
new suppliers, they should use short-term contracts with the new suppliers until trust and
information sharing can be developed. Then, they should increase the length of the new
contract as their supply chain is integrated with TaiSource. USTech needs to select a supplier
with similar characteristics with TaiSource in order to allow them to integrate in to the USTech
network. Also, TaiSource has proven to be trustworthy, high quality and in line with USTech
interests. These things need to be focused on while considering a new supplier.