FPT University – Danang Campus

Business Department

Procurement and Global Sourcing

SCM301m – SU2022

Students’ name Student ID

Trịnh Tú Ngân DS150173
Nguyễn Thị Phương Thảo DS150029
Nguyễn Thị Hà Vi DS150182
Kiều Gia Huy DS150195
Trần Văn Quang DS150037
Trần Thị Kim Hường DS150156

Assigned Case:
1 Procurement at Betapharm Corp. (A)
2 Destron Petroleum Services: Bidding for a project
3 Ashmark Corporation: Dealing with a supply disruption
4
5
Danang, 2022
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 Case 3

SYNOPSYS:

Summarize the case

This case covers the causes of supply disruptions and how they deal with it. To illustrate this
case more clearly, let's take the case of ASHMARK and RED STAR.

As a tier I automotive supplier, Ashmark has built a reputation for high quality and
technological solutions. As a supplier of choice for the supply of complex, emissions-critical,
safety-critical engine components as well as having several billion dollars in worldwide sales.
Annual sales are US$250 million, and annual sales of engines and machines have exceeded
$1 billion for some of Ashmark's well-known OEM customers. OEMS is mainly dependent on
Tier I companies like Ashmark for their technical expertise and manufacturing capabilities.
OEMs also rely heavily on Tier I companies to manage Tier II and Tier III supply bases.

Tilden is an experienced supply chain specialist with a background in sourcing and project
management. During the interview with Ashmark, the division general manager told Tilden
that the company was having a hard time with Red Star and needed his help. He also
promised Tilden an opportunity for advancement while Ashmark was expanding.

It is known that Red Star - a tier 2 supplier, has been supplying quality products at
competitive prices to Ashmark for decades and has expanded its capabilities to better serve
Ashmark's needs. A few years earlier, Red Star had added more complete machining
capacity, where instead of just manufacturing castings, it was able to supply more complete
parts.

In fact, Ashmark stopped finishing machining more than three years before Red Star went
bankrupt. This move shows that it is extremely consistent with Ashmark's strategy of
focusing on higher value-added outsourcing. Recently, Ashmark has been sourcing some of
the higher volume products from other suppliers in low-cost countries, which makes Red
Star more associated with high-volume products. lower quantity.

As the situation at Red Star became more and more desperate. Ashmark had timely
support, which was to send a group of retired maintenance technicians to work at Red Star
to keep the foundry running, and also give Red Star money every week. , to finance the
purchase of aluminum and pay wages. That also helped Red Star to some extent, however in
the end creditors took over the account right after Ashmark transferred the funds which
worked on a weekly basis.

Therefore, Red Star was forced to stop all activities and declare bankruptcy. OEMs are
concerned about Ashmark product availability and want the latest updates on specific
components. This disruption is a threat to the OEM's ability to deliver the diesel engines
that power expensive trucks, agricultural/construction equipment and even yachts to high-
end customers. their.

Jim Davis, one of the two key project managers dealing with the Red Star status, announced
to Tilden that he wanted to resign, because of the pressure and fatigue of the job. Everyone
on the supply chain team worked 60 to 70 hours per week with grueling commute
schedules. Even before Red Star closed, Davis told Tilden about his increased stress,
declining health, and doctor's recommendation to limit travel. And since the closure of Red
Star, Ashmark has been behind on production of 200 units mainly due to lack of
components.

On the other hand, the original equipment manufacturer (OEM) relies heavily on Ashmark's
expertise as a tier I supplier. Ashmark is also responsible for tier I and tier II supply base
management, relies on supplies from very few Tier II and III suppliers. Focus on ensuring
that supplies are purchased at a lower cost, but at the same time ensuring they conform to
certain quality standards. One of the main suppliers is Red Star, which supplies components
for more than 75% of Ashmark products. Against this backdrop, a major supply chain
disruption occurred in the supply chain that supplies products to OEMs.

ANALYSIS:

Question 1: What were the key issues with Red Star, Ashmark and their relationship that
led to this situation?

Answer:

Red Star Key Issues:

-Red Star is a private company, so they do not voluntarily provide information about the
status and profits of the company, so it will be difficult for Ashmask to anticipate problems.
The problem here is the lack of transparency in the work.

-Louden, owner of Red Star, fired 18 accountants before declaring bankruptcy. Red Star was
facing a difficult situation and there were months of unpaid bills coming in by the time
Tilden joined Ashmark. Red Star as a private company has not shown any signs of imminent
bankruptcy making Ashmark and other OEMs unforeseeable. The Red Star showed no
urgency and did not contact Ashmask for help until it was too late. This shows the weak
leadership of Red Star.

Ashmark Key Issues:

-Tilden, the new supply chain manager at Ashmark, was shocked at the company's mess,
which is less than $10 million in annual revenue. Red Start has supplied more than 75% of
the ingredients for Ashmark products, and therefore 90% of Red Star's businesses are
represented by Ashmark.

-Ashmask did not have measures in place to assess risk or detect financial problems. If
Ashmark had assessed and weighed the risks properly, it is unlikely that Ashmark would
have focused all of his efforts on price and put 75% of his spending on a single company. In
addition, the fact that other Red Star customers bailed out 6 months before the company
declared bankruptcy (probably due to price increases due to Ashmark's claim for lower
prices) should have raised alarm. . Due to the failure of risk assessment and late detection,
Ashmark's action was ultimately too late.

-Ashmask did not have a strong relationship with the Red Star. Ashmask should
communicate closely and closely with Red Star to build stronger relationship, emphasize the
importance of mutual success, contact to improve together. Had Ashmark fostered a win-
win relationship, RS's failure could have been avoided.

Relationship Issues:

-Ashmask and Red Star did not develop coordination and communication, so they could not
succeed in this relationship.
-Ashmark was careless in managing its relationship with what should have been a win-win
strategic partnership with RS and RS chose not to show the adverse effects of its decisions.
Ashmark or the severity of the problems thus both failed.

Question 2: What is OEM? What is the role of the OEMs in this situation?

Answer

-OEM stands for the English phrase “Original Equipment Manufacturer”, which translates as
“Original Equipment Manufacturer”. In a nutshell, an OEM product is an item manufactured
by a factory or enterprise that specializes in performing tasks such as providing products
and manufacturing according to the orders of a partner unit.
OEM is often used to refer to companies and factories that carry out the manufacturing
work according to the design and specifications, and sell the product to another company
(responsible for distribution). In a more understandable way, the OEM company will
produce "on behalf" of another company. Products are marketed under the brand name of
the company that orders the product.
An example of this form of OEM is the relationship between Apple and Foxconn in iPhone
manufacturing. In which Apple plays the role of customer, responsible for technology
research and product distribution. And Foxconn is an OEM company, producing actual
products from the first aluminum blocks.

-The distribution of supplies to Ashmark had been severely impacted by Red Star's
bankruptcy, which caused the original equipment manufacturers (OEM) to be extremely
anxious. OEMs were concerned about Ashmark's product availability since this disruption
had started to jeopardize their capacity to provide pricey vehicles and diesel engines for
agricultural and construction equipment to their high-profile clients. However, because the
insolvent company didn't show any signs of interruption, they weren't able to identify the
issues early.
The workload had increased as a result of Red Star's shutdown because the company had to
set up tooling and other equipment in the building. A meeting with OEM managers had also
been scheduled, and Tilden and Davis had drafted a strategy to be shared with OEM during
the meeting. Tilden described in the meeting the precise steps the company would follow in
the current situation. The strategy involved finding suitable new suppliers, duplicating
maximum volume tooling for production at a different source, and active management at
Red Star in order to maximize its output for as long as possible. Tilden also informed OEM
managers that Ashmark had meticulously accumulated a components inventory in addition
to storing the tooling off-site and at a warehouse. Additionally, the majority of the tooling
had been successfully transferred to other vendors and was ready for production while
awaiting final approval. Since the components were a significant part of the customer's
diesel engines' emissions system, Tilden had explained that the elaborate qualification
process he had outlined went far beyond the usual dimensional quality and compliance
verification. As a result, the components had to undergo both destructive and performance
testing. Tilden further promised that manufacturing would begin soon and that the last of
the tooling was on its way to the new suppliers. However, OEM managers were keen to
understand which parts were in stock and how they would work with the customer's
constantly shifting manufacturing schedule. The managers of the OEM also had a specific
query regarding the tools that had previously been transferred to the new suppliers but had
not yet been authorized for production. However, six units of a very low-selling type, of
which one was low before the shutdown, caused Ashmark's major OEM significant concern.
OEMs, however, play a hazy and unclear role in the current scenario. Since Ashmark was the
most competitive and high-end quality-providing company, the OEM companies could have
been more accommodating to it.

Question 3: What were some of the actions taken by Ashmark immediately after the
bankruptcy, and what should Askmark do next?

Answer

Things Ashmark did after Red Star went bankrupt:

- Ashmark's largest OEM met with them for a meeting that started at 7 a.m. and Ashmark
updated the situation and the efforts that employees in the company are trying to reassure
the OEM.

- Have the remaining Red Star tools shipped directly to the new supplier and send any
remaining inventory to Ashmark.
- Plan a deployment that focuses on higher value-added machining, design, and assembly
while making outsourcing less important to lower-level suppliers.

- Strengthening support, sending groups of retired maintenance technicians to work for the
foundry to improve their qualifications.

Suggest what Ashmark should do next:

- Focus on finding new major suppliers for their next activities or invest in opening a factory
for products that require large and strong supply.

- Negotiate with OEM partners for their trust and peace of mind to continue cooperating
with Arshmark in the near future.

- Schedule a vacation for employees for a while. I believe that the employees in Ashmark's
supply chain during this time were extremely stressed and tired working 60-70 hours per
week. They need time off or good incentives to prepare to return to work.