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Case Study

Managing Supply Investments and Improving Profits

Client Situation:

For Sun Microsystems, a leading manufacturer of high-end desktops, servers, storage and other hardware products, supply investment was a critical concern and key driver of financial results. With customer order values ranging from $50K to $2M, and gross margins exceeding 50%, raw material shortages led to missed revenue and EPS targets. On the other hand, supply surpluses could lead to inventory write-offs due to high rates of technological obsolescence of key parts. With production lead times as long as 16 weeks on some key materials and forecast error ranging from 30-60%, the company faced significant challenges in making the right inventory decisions.

Approach:

Rapt implemented Business Advisor to improve Sun's ability to assess the financial risks inherent in its large-scale supply decision and to optimize its supply investment decisions given forecast uncertainty. Business Advisor allowed planners to identify the minimal supply investments needed to meet revenue objectives and customer service levels.

Impact:

According to Kevin Carroll, Vice President of Supply Management, Rapt BBusiness Advisor allowed Sun to "make $30 million more per quarter in incremental revenue while spending $15 million less on supply." By identifying areas of over and under-spending on key materials and properly balancing material purchases, the company was able to reduce supply investment (and exposure) while increasing the amount of sellable product - defined as "efficient revenue". Additionally, Rapt Business Advisor was able to help the company avert the large inventory glut faced by many of its competitors.

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