D472 Task 1 Disruption Analysis Presentation Example

One Flooded Factory, Three Idle Assembly Lines: A Disruption Analysis and Recommendation for a Composite Appliance Maker That Relied on a Single Supplier for Control Boards

Student Name

School of Business, Western Governors University

D472: 21st Century Operations and Supply Chain, Task 1

Course Instructor

Month Day, Year

Slide 1: The Disruption

Sole supplier of washer control boards flooded

Supplier out for an estimated 10 to 14 weeks

Board inventory on hand: 9 days

Speaker notes: Keystone Home Appliances, a composite manufacturer in Tennessee, builds about 4,000 washing machines a day, six days a week, on three assembly lines. Every washer needs an electronic control board, and all of Keystone's boards come from one supplier, whose plant in the Gulf Coast region flooded last week. The supplier estimates 10 to 14 weeks before it can ship again. Keystone has nine days of boards on hand. This presentation traces how the disruption moves through our supply chain, evaluates three proposed solutions using the case data and recommends one.

Slide 2: How the Disruption Moves Through the Chain

Tenth day: assembly lines stop

Third week: retailer stock of top models runs out

Sixth week: retailers shift floor space to competitors

Speaker notes: Once our board inventory runs out on day 10, all three washer lines stop, idling about 900 production workers. Finished-goods inventory at our distribution centers covers about two weeks of retailer orders, so retailers begin running out of our top-selling models in the third week. By the sixth week, based on what happened to a competitor in a similar event, large retailers typically shift floor space and promotions to other brands, and some of that shelf space does not come back. The disruption also moves upstream: our suppliers of motors, drums and cabinets will see orders canceled, which strains their finances and could affect our supply later. The lost revenue is about $2.1 million per day of lost production, and the long-term cost of lost retail placement may be larger. Research on supply chain risk emphasizes that disruptions at a single point can propagate through an entire network, and that firms should identify such points in advance (Tang, 2006).

Slide 3: Option A, Help the Supplier Recover Faster

Fund expedited equipment replacement: about $6 million

Could cut outage to 7 to 8 weeks

Leaves single-source risk in place

Speaker notes: Option A is to pay for expedited replacement of the supplier's damaged equipment and to send our own engineers to help restart production. The spreadsheet data estimate a cost of about $6 million, including our share of equipment and air freight for parts, and a recovery time of seven to eight weeks instead of 10 to 14. That would still mean six to seven weeks of stopped lines, about $80 million in lost revenue, and it leaves us exactly as exposed to the next disruption as we are today. Its strength is that it preserves a supplier relationship that has otherwise worked well and requires no redesign or qualification of new parts.

Slide 4: Option B, Qualify a Second Supplier

Qualify an alternate board maker in Mexico

Qualification and first shipments: about 5 weeks

Cost: about $3.5 million plus a 7% higher unit price

Speaker notes: Option B is to qualify a second supplier, a contract electronics manufacturer in Monterrey that already builds similar boards for other appliance makers. It would need our design files, testing and a pilot run. The data estimate five weeks to first volume shipments, at a one-time cost of about $3.5 million for tooling, testing and expedited qualification and a unit price 7% higher than our current supplier. Lines would still stop for about four weeks, roughly $50 million in lost revenue, but recovery would come sooner than Option A, and we would end with two qualified suppliers. The risks are qualification delays if testing finds problems and the new supplier's ability to ramp up to full volume quickly.

Slide 5: Option C, Redesign the Board

Redesign around widely available components

Engineering and certification: 16 to 20 weeks

Best long-term flexibility; no short-term relief

Speaker notes: Option C is to redesign the control board around more widely available components so that several manufacturers could build it. Engineering, testing and safety certification would take 16 to 20 weeks and cost about $4.8 million. It offers the most long-term flexibility, but it does nothing for the current crisis; our lines would be down for the entire period unless combined with another option. On its own, it is the most expensive choice in lost revenue.

Slide 6: Comparing the Options

Weeks of stopped lines: A 6 to 7, B about 4, C 16 or more

Direct cost: A $6.0M, B $3.5M plus higher unit price, C $4.8M

Future risk: A unchanged, B reduced, C reduced most

Speaker notes: Scoring the options on time to recovery, cost and future risk makes the trade-offs clear. Option B restores production fastest and at the lowest direct cost, and it reduces future risk by giving us a second source. Option A keeps our existing relationship but leaves the underlying weakness. Option C has the best long-term payoff but the worst short-term result. Supply chain research argues that resilience comes from redundancy, such as extra suppliers or inventory, and from flexibility, such as interchangeable designs and processes (Sheffi & Rice, 2005). Options B and C each build one of these, which suggests they are complementary rather than competing.

Slide 7: Recommendation

Pursue Option B now to restore production

Start Option C in parallel as a long-term fix

Keep the original supplier as one of two sources

Speaker notes: We recommend Option B immediately: begin qualifying the Monterrey supplier this week, with engineers on site to speed testing, and allocate its first shipments to our three best-selling models so that retailers keep those in stock. In parallel, we recommend starting the redesign in Option C, not to solve this crisis but to reduce the chance of the next one. When our original supplier recovers, we should keep it as one of two sources, splitting volume between them. This recommendation has weaknesses: the higher unit price from the second supplier will raise costs by about $4 million a year at full volume, and qualification could slip. We believe the insurance value of a second source is worth that price, given that this single disruption will cost more than $50 million.

Slide 8: Preventing the Next Disruption

Map critical single-source parts

Set inventory buffers for parts with long recovery times

Review supplier risk every quarter

Speaker notes: Beyond this event, we should identify every part with only one qualified source and estimate how long we could operate if that source failed. Research on managing supply chain risk warns against one-size-fits-all approaches and recommends tailoring responses, such as extra inventory, extra capacity or extra suppliers, to each risk's likelihood and cost (Chopra & Sodhi, 2004). For parts like control boards, where recovery takes months, we recommend a second source plus four weeks of buffer inventory. We will review supplier risk each quarter and report our most critical exposures to the leadership team.

Slide 9: Conclusion

Single sourcing turned one flood into a company-wide shutdown

Second source restores production fastest

Redesign and risk mapping build lasting resilience

Speaker notes: One supplier's flood has put all three of our washer lines at risk because we relied on a single source for a critical part. Qualifying a second supplier restores production fastest and at the lowest cost, redesigning the board builds long-term flexibility, and mapping our other single-source parts helps prevent the next crisis. Thank you.

References

Chopra, S., & Sodhi, M. S. (2004). Managing risk to avoid supply-chain breakdown. MIT Sloan Management Review, 46(1), 53-61.

Sheffi, Y., & Rice, J. B., Jr. (2005). A supply chain view of the resilient enterprise. MIT Sloan Management Review, 47(1), 41-48.

Tang, C. S. (2006). Perspectives in supply chain risk management. International Journal of Production Economics, 103(2), 451-488. https://doi.org/10.1016/j.ijpe.2005.12.006