Ashmark Corporation Dealing With A Supply Disruption Case Solution

2. Presentation of Case Questions

Question 1

Ashmark

As far as Ashmark is concerned, it can be said that an important supply chain risk facing the company is to remain flexible in view of changing global emissions and safety standards. The company was required to maintain a certain level of expertise in the spheres of technical and manufacturing capabilities, so as to ensure that the OEMs are supplied with quality and technologically superior engine components. It was a great risk for the organization, as it was a Tier 1 supply of components. 

Apart from this, it was also important for the company to align the efforts and manufacturing strategies of its Tier 2 supplier, so as to ensure that the delivered components are as per the specification and requirement of the OEM customer. During this phase, it is also important for a Tier 1 supplier like Ashmark to ensure that it optimizes its costs, particularly with regards to procuring components from its tier 2 suppliers, as this would significantly have an impact on the profitability of the supplier.

Other than this, it was also important for Ashmark to ensure that apart from meeting various cost-related benchmarks, it was also necessary for the organization to ensure timely delivery of components to the OEM manufacturer, as supply chain framework of the automobile industry are particularly impacted by the changes taking place in the external environment (Wang, Foerstl, & Zimmermann, 2017). Various demand and supply-related measures are also important to consider for the purpose of ensuring that right components are delivered at the right time. Most importantly, Ashmark faced a huge risk of managing multiple layers of Tier 2 suppliers, and provided that the company used to rely mostly on one Tier 2 supplier (Red Star), it was a tough challenge to ensure that in case of massive destruction, the company should be ready for the contingency plan.

Red Star

The biggest risk that confronts a tier 2 supplier like Red Star was to ensure that supplies are delivered at an affordable price, as agreed in various negotiations. This was the unique selling point for the company, and so it was necessary for the organization to come up to the expectation of the client. Another related challenge was that of cost optimization, as there was pressure on the organization to deliver affordable components. A major risk facing Red Star in the context of this study is reliance on one main client, Ashmark, which accounts for more than 85% of its business. The company has even increased its machining capacity to cater to the increased demand from the company. Any disagreement could have proved lethal for the company, as there were limited alternatives for the organization.

OEM

Consumer demand is a big supply chain risk for the OEM manufacturers. Fluctuations in demand can lead to over or under-utilization of capacities for Tier 1 and Tier 2 suppliers, and this can lead to cost-related issues for these entities. Furthermore, regulatory pressures are also important to take into account, as they can lead to changes in the technical specifications for the ordered components, and suppliers will have to oblige to the requirement.

Question 2

There are normally six sourcing strategies that are used to procure supplies. It is important to consider each of these, in order to ascertain their usefulness. The first sourcing strategy is having many suppliers, which pertains to developing a competition between suppliers, so that the competition can assist the organization in getting the supplies at a much affordable rate. This sourcing strategy is particularly used for commodity products. Purchasing in this case is particularly based on price, and the responsibility is on the supplier when it comes to forecasting, cost, and quality. A major disadvantage of this strategy is that the relationship is developed on price, and so it is difficult to develop long-term relationships. The opposite of this strategy is having few suppliers. In this strategy, more close business relationships are developed, and a strong coordination is developed between the organization and its suppliers. This helps in creating value through economies of scale, and relationships can lead towards productively guiding the organization towards implementing innovative measures in the organization. However, there is a flipside towards the strategy. Cost of changing suppliers become quite costly in this case, and in such a scenario, trade secrets might also get disclosed (Zeng, 2000).

The third strategy is vertical integration, which means that the organization develops the ability to produce supplies that were originally purchased from another entity. This greatly improves the cost structure, and the organization can also exercise control over the quality of the supplies. However, things can become difficult to control, in case of rapid technological change. The fourth sourcing strategy is joint ventures. It means developing of a collaborative framework with a notable supplier, however, it is done without weakening the brand image. The fifth strategy is developing Keiretsu Networks. It is a form of collaborative framework, where a coalition is developed with few suppliers. It is a strategy that aims to find a middle ground between few suppliers and vertical integration. In this framework, financial support is also provided to suppliers, so that they can productively generate supplies for the organization. However, there might be sustainability issues, with regards to retaining such a framework. The last strategy is meant to make use of virtual companies to rely on a variety of supplier relationships. A notable aspect is the fluid organizational boundaries. The advantage is the delivery of lean performance, flexible approach, and speedy delivery (Tran, 2018).

In the context of this case, Ashmark worked with very few suppliers. The second-tier supplier, Red Star, supplied components for more than 75% of Ashmark’s products. The relationship between Ashmark and Red Star evolved over a period of time. It was an old relationship, spanning more than 10 years. The extent of the relationship can be ascertained by the fact that Red Star added more capacity for finishing machining, and instead of making only castings, Red Star was providing complete parts to Ashmark. With the passage of time, the relationship strengthened to such an extent Ashmark stopped doing in-house finish machining. However, it is also to be noted that the relationship was developed due to the fact that Ashmark was procuring supplies at a very affordable price from these few suppliers, as price was an important factor for Ashmark. It was also important to consider the support provided by Ashmark to Red Star, when the organization was passing through the initial rough patch. Ashmark offered to pay more for each completed part during the period of Red Star’s shutdown. Ashmark also extended financial support to Red Star that eventually helped the organization in catering to the financial requirements of its creditors. It also provided adequate support to the organization, in order to ensure that the closing of the organization is done in an appropriate manner, so that mutual loss is minimized. This related to Keiretsu Networks, where organization often provides support to suppliers for the purpose of ensuring that they perform well (Oger, 2018). 

Therefore, it is quite evident that different sourcing strategies are found in the manner way Ashmark conducted its supplier relationship. It has few suppliers, but at the same time, the price was an important factor in the relationship. It also extended support to the Red Star during the tough phase of the supplier organization. Henceforth, a hybrid sourcing strategy is seemed to have been used by Ashmark.

Question 3

Red Star faced a number of management issues. There were issues that were related to the management affairs. The Chief Executive of the company, Barry Louden, was more comfortable when he was involved in lower management position, so the lack of resolve from the top leadership was apparent from the views of the leader. Although Louden was a well-respected figure in the community, as far as leadership was concerned, it became quite difficult to manage the overall affairs of the organization. Financial management also became a great issue, as it was discovered that months of unpaid invoices were piling up. This also led to firing of an accountant. Moreover, it was also a notable issue in the organization that they were under a lot of pressure to reduce costs, as it was delivering quality supplies to its main client at a very affordable price. This impacted the profitability of the company, and made it difficult for the leadership to undertake confident initiatives that can steer the organization towards success and prosperity.

The poor conditions of the administrative affairs led to filing of the bankruptcy. An important issue was the rising insecurity in the organization, as it relied a lot on its main client, Ashmark, and did not have much flexibility in terms of diverse relationships. This created a number of issues for the management. The management’s lack of ability to organize a suitable shutdown can be understood by the fact that Red Star ad to rely a lot on Ashmark, in order to make sure that the operations of the organization are ended in a manner that it meets the basic requirements of various stakeholders associated with the organization.