Hello everyone. In this video, you will learn how to make supplier's score sheets. The score sheets summarize all the analysis done so far and compare suppliers side by side, and so we can select the best suppliers meeting the supplier selection criteria. For instance, let's make a score sheet for Intel on each criterion, from excellent, good, fair, and to poor. First, we note that Intel has superior technology and innovation as measured by its high gross margin, so we give excellent to Intel on innovative, technological and engineering capability. Intel also has a decent production capacity and is well known for its excellent quality. It is also excellent in manufacturing capability and quality. Due to its high gross margin, Intel's pricing is on the high side. We give fair to Intel on pricing. Intel is very profitable and thus sustainable, so it is excellent on profitability. However, Intel is the largest IC manufacturer in the world, and used to make its own chips but not serve as a contract manufacturer. So Apple does not have a bargain power over Intel. We also notice that Intel has both low risk in a short-term and long-term and so it is excellent in financial health. Intel also has a good operating efficiency, implying good flexibility and responsiveness. Finally, Intel will not compete with Apple, and so it is excellent in terms of leaks and competition. Qualcomm is highly innovative and technologically capable, and so it is excellent in innovative, technological, and engineering capability. Qualcomm is in business of cell phone chip manufacturing. But its production capacity may be limited. It is just good but not excellent on manufacturing capacity. Its pricing is the highest, and so it is poor in pricing to Apple. Qualcomm is quite profitable in recent years but less stable than the others. So it is just good but not excellent in profitability. By our bargain power analysis, Qualcomm has a bargain power over Apple. So it's a powerful supplier, and Apple does not have a leverage. Qualcomm has high long-term risk, but low short term risks, so it is just good in financial health. Qualcomm also has a good operating efficiency, which implies good flexibility and responsiveness. Finally, there are some lawsuits on patents, potential leaks, and competition. It is fair on leaks and competition. Global Foundries' gross margins were negative in the past few years. We need data from other sources to prove this company's technological capability. But this company was rapidly building up a strong manufacturing capacity. However, Apple may need to co-invest to ramp-up dedicated fab houses for production. Apple has the bargaining power over Global Foundries, and so may get a good price from the supplier. Global Foundries is currently not profitable and we're not sure if it will be. We gave poor to Global Foundries on profitability. We also note that Global Foundries had a little risk for both short-term and long-term. But it was losing money for quite a few years. We'll give good but not excellent to Global Foundries on financial health. Finally, we'll notice that Global Foundries has a good operating efficiency and will not compete with Apple. Taiwan Semiconductor Manufacturing Corporation, TSMC, is technologically capable due to its high gross margin. It has a strong manufacturing capability and can raise capital as the company starts working for Apple. It also has a lower price and lower expectation on pricing. Despite this, it is very profitable. However, TSMC is becoming increasingly powerful, but comparing to Intel and Qualcomm, Apple may have more leverages dealing with TSMC. TSMC has excellent financial health, it is also very efficient with the lowest SG&A cost, but it had some leaks and IP confidentiality issues in the past. Finally, let's look at Samsung. It has proven technological capability and a strong manufacturing capacity. It also has a lower pricing as TSMC. It is less profitable, and stable than TSMC. Apple may not have much bargaining power over Samsung due to its size. Samsung has little risk, both short-term and long-term, so it is very healthy financially. It also has proved reliability and flexibility. However, it is competing directly with Apple, and there were many patent infringement issues. Summarizing the individual score sheets of the potential suppliers into one table, we can see that TSMC has the most green, that is good, scores. Intel and Samsung Electronics have the second most favorable scores. Qualcomm, the third, Global Foundries needs to verify its technical capability. Other than this, Global Foundries looks good as a potential candidate. So the sourcing strategy for the CPU of iPhone could be, first, use TSMC as the main supplier, and second, cultivating Global Foundries as a potential supplier. Third, spread some work to Intel, Qualcomm, and Samsung for their specialties as minor suppliers. This is very close to what Apple did in fiscal year 2020, except cultivating Global Foundries.
