Week 2 Assignment - Decisions for Quarter One and Quarterly Business ReviewPart I: Decisions for Quarter One. Prior to working on your Decisions for Quarter One, review the following through the Growi

TO:General Manager

FROM:Stall Brick (Manufacturing Manager)

Supplier Report

The manufacturing process for our reader uses a pick-up cell imported from Japan and assorted other materials purchased locally. The pick-up cell is the key component and is ordered for delivery one quarter before requested receipt. All other materials arrive "just-in-time" and are not inventoried. The JIT materials program is stable and unlikely to change for 3-5 years.

The pick-up cells are another problem. Our vendor, Hamada Ltd., holds an exclusive license to produce the pick-up cells for the next three years. It is possible that another supplier could enter the cell market after Hamada's license expires, but it is too early to speculate. Distance, competition, and changing world conditions give us concern about working with a sole source supplier. For example, our Environmental, Health and Safety Manager has visited the manufacturing operation and reports that a high pressure heat treatment autoclave is used at one key step in the process. Regulations concerning vessels of this type are extremely strict in Japan and the slightest infraction in operating procedure may prompt a mandated shutdown and agency investigation. Shipment delays could result.

If Hamada has insufficient supplies to fill a complete order, its policy is to guarantee shipment equal to the prior quarter's order, with backlogs ranging up to 50% of the new order's increase over the previous quarter's order. Hamada also supplies our competition. If Hamada is unable to supply demand in any period, it will back order all of its customers using the standard policy. To illustrate: Order in Q1 for delivery in Q2 = 1000 units. (No previous back order.) In Q2, 700 units are delivered and 300 are back ordered. Order in Q2 for delivery in Q3 = 1200 units. Guaranteed delivery in Q3 is 300 units (back order) plus 100 units (50% of difference in Q2 vs Q1 orders) plus 1000 (amount of old order (Q1)). In this example, Hamada guarantees a minimum delivery of 1400 units and a maximum delivery of 1500 units. Backorders are not known until delivery.

We have recently signed a contract with Hamada. The first clause of our contract states that Hamada will quote delivery prices for its cells -- that is, the price we pay per unit when it is delivered. If we order in one quarter for delivery in the next, we will pay the price in effect at the time of delivery. The same is true for backorders, which are paid for upon delivery at the current delivery price. In Q4-2019 we paid $86.10 per unit. This price was held through Q4-2020. This price increased to $87.39 for Q1-2021 on the chips ordered in Q4-2020. New contracts will be negotiated for Q2-2021 and beyond.