Introduction
Red Star, Ashmark Corporation’s major supplier, filed for bankruptcy, forcing Ashmark to devise and implement a backup plan while simultaneously placating its customers who were unsatisfied with the delays in the shipments of their components. Due to a shortage of parts, Ashmark has been producing 200 units late ever since Red Star shuttered (Moritz & Craighead, 2015). Even though this statistic represented less than 1% of the company’s monthly shipment totals, things would probably worsen because key personnel had already left due to the stressful circumstances (Moritz & Craighead, 2015). In addition, there was less inventory than had been built up before the bankruptcy, the new supplier was having trouble getting the tooling online, and there were delays in the certification and testing procedures.
Case Study Analysis
Summary
The issues presented in the case study are important in supply chain risk management. It presents a problem that has occurred in real life, giving a complex educational situation for future supply chain managers. The companies had a number of key issues between them, namely the lack of communication and transparency, as well as the financial strain that was put on Red Star by Tilden’s predecessor. Thus, Ashmark made a wise decision by selecting different suppliers for the low-volume items produced by Red Star.
Collaboration Issues
Low Sales
As seen above, Red Star and Ashmark’s relations had been full of issues. The company’s lackluster sales, which came in at less than $10 million yearly, surprised Tilden, the new supply chain manager at Ashmark, as it was far below what he had anticipated (Moritz & Craighead, 2015). Red Star supplied more than three-quarters of the parts for Ashmark’s products, allowing it to represent 90% of Red Star’s business.
Ashmark did not want Red Star to raise prices because of its low prices compared to local and international competitors. Even yet, Tilden’s predecessor had negotiated with Red Star to reduce the pricing even more, assisting him in achieving the cost-cutting goal (Moritz & Craighead, 2015). This price drop had made Red Star’s situation more complicated and, as a result, worsened the financial strain, turning it into a “red flag” for Ashmark.
Lack of Communication and Poor Accounting
Another issue and “red flag” in the Red Star-Ashmark relations was poor communication and accounting from Red Star’s side. Before announcing bankruptcy, the owner of Red Star sacked 18 accountants (Moritz & Craighead, 2015). Red Star had months’ worth of unpaid invoices that surfaced when Tilden started working for Ashmark.
Additionally, because Red Star was a privately held company, Ashmark and other OEMs had trouble seeing the problem because there were no early warning indications or indicators of insolvency. Six months before the bankruptcy, all Red Star’s clients stopped working with the company as they started partnerships with new suppliers (Moritz & Craighead, 2015).
The ability to collaborate and respond quickly and effectively to sudden and rapid changes in the market or corporate environment is facilitated by excellent communication (Fernando & Wulansari, 2020). The lack of communication leads to opposite results. Hence, the lack of communication and proper accounting, as well as the fact that the clients of Red Star stopped working with them 6 months prior to the events of the case study, were major “red flags” for Ashmark.
Reasons Behind Collaboration with Other Suppliers
Thus, it was advantageous for Ashmark to seek out new suppliers in place of Red Star. Businesses that wish to distribute demand among a variety of suppliers who collectively have higher capacity and are more buyer-responsive may find that the multiple sourcing strategy is advantageous. It is also required when one supplier cannot satisfy the purchasing organization’s needs, for example, when a product contains several parts that one source cannot manufacture (“Choosing suppliers”, n.d.).
Hence, the most significant advantage of cooperating with multiple suppliers is higher safety for the buyer. Suppose one of the suppliers runs into problems and cannot supply its products. In that case, the buyer can rely on other options and thus keep their supply chain and production undisrupted (“Choosing suppliers”, n.d.). Thus, relying on multiple suppliers is advantageous because it gives the buyer more safety if one of the suppliers fails to meet their quotas.
Conclusion
In conclusion, the relations between the two companies, Red Star and Ashmark, were riddled with issues, eventually leading to the situation described in the case study. Firstly, the relationship that Ashmark’s previous supply chain manager established has crippled Red Star’s financial situation, forcing it to lower its prices, which has had an adverse effect on its revenue.
Secondly, another big “red flag” for Ashmark was the lack of communication, improper bookkeeping, and the fact that Red Star’s clients quit doing business with them six months before the events of the case study. To summarize, it was a reasonable choice for Ashmark to diversify its suppliers, as it would ensure its safety in case one of the suppliers cannot provide the needed products.
References
Choosing suppliers for your business (n.d.). Web.
Fernando, Y., & Wulansari, P. (2020). Perceived understanding of supply chain integration, communication, and teamwork competency in the global manufacturing companies. European Journal of Management and Business Economics, 30(2), 191–210. Web.
Moritz, B. B., & Craighead, C. W. (2015). Ashmark Corporation: Dealing with a Supply Disruption. Harvard Business Publishing. Web.