Supply Chain Disruption – Ashmark Corporation

Supply Chain Disruption – Ashmark Corporation

What more could Scott Tilden, the supply chain manager, have done to make the case for more resources, getting buy-in, or qualifying more suppliers?

Complex supply chains often result in diminished efficiency. In extreme cases such as Ashmark’s, the fragile supply chain may collapse entirely. Ashmark relied on Red Star to supply components that constituted at least 75 percent of the final product. Ashmark was Red Star’s main client. The corporation stuck to Red Star due to the low prices; a price increment was not an option. The recent price reduction that the former supply manager negotiated with Red Star placed the supplier in financial distress (Ashmark Corporation: Dealing with a Supply Disruption, 2019). This move was expected to meet personal goals, stressing out the supply chain.

Undoing previous mistakes could not rescue the supply chain. However, Scott had the option of decentralizing or segmenting the supply chain. The process of segmenting a supply chain safeguards a company’s ability to fulfill its orders (Chopra & Sodhi, 2014). In case of any negative effect in one supply chain, the undesirable impacts do not spread out to the entire chain. Such spreading easily leads to crisis, as the company is incapable of handling its orders. Therefore, Scott should have sought out multiple suppliers for the various components. This strategy could have reduced the impact of failure or disruption from one supplier. In addition, the company would have achieved low costs due to varying price quotations. All suppliers could have charged different prices, some low, some high, for the components supplied. The reduction of risk cushions companies such as Ashmark from costly disruptions.

Had he done all that he could, given the circumstances that stretched back many years?

Scott had explored numerous options to deal with the disruption of Ashmark’s supply chain. However, he had not considered a reduction of the components that Red Star supplied to Ashmark. The past agreements that Ashmark had with Red Star compelled the company to go out of its way to ensure Red Star’s foundry remained operational. Sending its employees, providing funds weekly, and advancing loans to the supplier displayed Ashmark’s desperation. While Scott was considering seeking a Mexican supplier, it was not enough to have Red Star supply critical components in substantial quantities during the financial difficulties (Ashmark Corporation: Dealing with a Supply Disruption, 2019). The decision to bring Red Star all new business crippled the options that Scott had explored. The supplier’s inability to fulfill Ashmark’s component needs was a red light that should not have been ignored.

Ashmark avoided dropping Red Star, a bankrupt company, as a supplier. This action was detrimental to its functionality, leading to the disappointment of clients and reduced sales and revenues. Scott failed to courageously seek out entirely new suppliers that could lead to supply chain segmentation to save the organization. In addition, Ashmark lacked reserves to keep the company afloat during a disruption. Commonly known as the redundancy cost, organizations use stock reserves to fulfill clients’ orders even when suppliers are incapable of fulfilling their obligations (Sheffi & Rice, 2005). Besides safety stock, additional suppliers could have cushioned Ashmark largely. Scott and former supply chain managers had not considered proactivity as a critical element in management.

Perhaps the key question of all is, what should he do next?

Despite the negative result that the supply chain disruption has produced, Scott needs to re-strategize and adopt new measures to revive it. In the short term, Scott needs to seek out new suppliers for the required components. This action is important in addressing the needs of the clients who still need motor engines urgently. Seeking out new suppliers may lead to a higher cost. However, it will result in reduced profit margins, as well as satisfied and loyal customers. In the medium term, Scott needs to adopt an inventory policy that buffers the company against such interruptions. The ‘sell one, stock one’ policy allows an organization to maintain reserve stock. The reserve stock can only be released with special approval (Sheffi & Rice, 2005).

Finally, Scott’s department needs to review various suppliers to create long-term relationships. While evaluating the numerous suppliers, it is important to utilize Altman’s Z-score. The score uses five financial ratios that enable a company to predict the chances of bankruptcy in two years. The ratios include a comparison of total assets against the working capital, retained earnings, earnings before interest and taxes, and sales (Supply Chain Digest, 2009). The total liabilities are compared to the market value of equity. Using Altman’s Z-score, Scott and his colleagues should avoid suppliers who may file for bankruptcy in the future, reducing the risk of disruption. Most importantly, Scott should use an objective criterion to choose the most reliable suppliers. During the selection process, it is important to consider the production capacity of each supplier, prices, and quality, leading to the allocation of different portions of components to supply. Dispersing the required components among numerous suppliers spreads out the risk and eliminates the chances of total disruption. These strategies should facilitate the revival of Ashmark’s production capability and improve the fulfillment of clients’ orders.

References

Ashmark Corporation: Dealing With A Supply Disruption. (2019).

Chopra, S., & Sodhi, M. S. (2014). Reducing the Risk of Supply Chain Disruptions. MIT SLOAN Management Review, pp. 73-80.

Sheffi, Y., & Rice, J. B. (2005). A Supply Chain View of the Resilient Enterprise. MIT SLOAN Management Review, pp. 41-48.

Supply Chain Digest. (2009, July). What are the Best Ways to Estimate Supplier Financial Risk? Supply Chain Digest, pp. 1-2.

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Supply Chain Disruption – Ashmark Corporation

1. What more could Scott Tilden, the supply chain manager, have done to make the case for more resources, getting buy-in, or qualifying more suppliers? (We suggest that you revisit the topic of segmented supply from a previous SCM course to ascertain how the urgency of the situation might have been elevated.)
2. Had he done all that he could, given the circumstances that stretched back many years?
3. Perhaps the most key question of all is, what should he do next?