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Managing Risk In The Supply Chain: Case Kapton

2593 words - 11 pages

Managing Risk in the supply chain
Case 3: Kapton

CASE BACKGROUND
As the major consumer in this case, Delta Electro-Mechanical, Inc. is a small manufacturing firm located in Fort Myers, Florida that manufactures various electronic and electro-mechanical products. Since Delta is using a strategy called 'build-to-print' which means the customer designs the product and then Delta fabricates the product according to its customer's design and requirement, often the customer will specify the exact material that is to be used in the product. Kapton, due to its excellent mechanical, thermal, and electronic properties, is such a important material that is often specified by Delta's customers. ...view middle of the document...

SUPPLY MARKET ANALYSIS
There are two specific supply and demand price drivers. One main price driver is that Kapton, the most often specified material by designers, is manufactured exclusively by DuPont, which means DuPont holds a strong bargaining power of supplier. The other price driver is that since production capacity of DuPont is limited, it will first fill orders for its preferred customers when the demand exceeds available supplies. As a result, small consumers like Delta have a poor bargaining power of customers.
Besides, other polyimide insulation product manufacturers cannot provide high quality robust and versatile Kapton as DuPont does, so current existing competitors threat little to DuPont. However, now that sometimes DuPont cannot satisfy all orders from customers, on the one hand, there might be some new companies emerging to share the profitable market with DuPont in the near future. On the other hand, there is a high probability that new products or materials will substitute Kapton.

RISK ANALYSIS
Not all risk has same effects on supply chain nor is created equally. It makes sense to segment risk into different categories and develop approaches that are suitable for each category. Generally, there are four categories of risks.

Financial Risk
Both ABC and Insulock Company have several signs of supplier distress: first, they both are small privately-owned companies; secondly, ABC’s equipment is old and manually operated; at last, the capacity of ABC also appeared to be limited. All these signs indicate that ABC and Insulock Company may be experiencing financial difficulties.
Because of its suppliers’ long lead time and indefinite back order, Delta may be also involved in poor performance of production as it sometimes is unable to provide products to its customers on time. Therefore, Delta may also suffer bad influence of unhealthy financial.

Operational Risk
Neither ABC nor Insulock Company has a formal quality assurance program in place or holds ISO certification, which may cause quality of their products are unsteady. Since Kapton is a specified and necessary material for Delta recently, there might be a high defective rate of Delta’s products if it consumes Kapton from ABC Sequential.
The Kapton production capacity inDuPont is limited. Although DuPont supposes to carefully match supply with demand for Kapton, the increase in products that use Kaptonaccompanied with DuPont’s own limited production capacity and occasional unforeseen spikes in demand often mean that demand exceeds available supplies. When this happens, DuPont will fill high-volume users preferentially. This might bring Delta a long lead time or indefinite back order for material purchasing of Kapton.
Delta has inaccurate forecasts on purchasing plan.Because ofDuPont’s “allocation”response solution, Delta cannot forecast accurately lead time for the Kapton and exact quantity of Kapton they should buy. Under the global economic uncertainty,...

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