A Supply Chain is Only as Strong as Its Weakest Link - Zoran Corporation - Case Study Example

A Supply Chain is only as Strong as its Weakest Link: Zoran Corporation Case Study Name Institution Date What types of supply chain risks does Zoran face? Zoran Corporation faces supply chain risks due to the nature of the supply chain which is vertically integrated and global. The risks in this case may be explained from either the supply or demand side of the supply chain. Risks related to supply are associated disruptions or delays which could be so demanding for Zoran Corporation. Zoran is exposed to the risk of possible economic recession across the world. This is likely to affect the consumers’ buying decision in such a way that demand for electronic products will remain lower than expected. Alternatively, a worldwide recession would lead to more consciousness of value in the entire business of consumer electronics which could then affect profit margins for the corporation. When the demand for electronics decreases, Zoran is also affected, since it will have to supply few chips to the Chinese factories who are its main consumers (Phred, 2009). Although, the problem of low demand will first be experienced by Best Buy, it will eventually be felt by Zoran Corporation because now Best Buy will order less from Toshiba. Due to few orders from Toshiba, the Chinese factories will also be forced to order for few chips from Zoran which will affect its profit margins as well. Another risk Zoran faces is forecast risk. This risk is likely to occur due to mismatch between Zoran’s forecast and actual demand for chips by the Chinese factories. In case it makes very low forecasts it implies that there will be no enough chips to sell. On the other hand, if it makes very high forecasts, it will have more than enough inventory to sell and it may also experience price-markdowns. Inaccuracies in forecast may arise due to distortion of information leading to the bullwhip within Zoran’s supply chain. Zoran may expect that Chinese factories will order for more chips due to upward shift in demand for electronic products, but instead demand falls and vise versa. This will have effect on its overall sales and even profitability. The corporation is exposed to the risk related to issues of production quality. In case the manufacturing companies Zoran contracts such as Semiconductor Manufacturing Company (TSMC) supply chips with quality issues or even if Zoran suspects of the same, it may cause delays in delivery of the product to the Chinese factories (Phred, 2009). Even if Zoran does not realize quality issues on time before supplying the chips to Chinese factories, it may result to costly recalls later. Quality issues if chips will affect the entire chain and may in particular destroy the reputation of Zoran Corporation. Since, Zoran is just a designer of the chips, it is very challenging to maintain quality in the supply of these products to customers. Thus, any compromise in quality will adversely affect the operations of the corporation and may even lose some customers. Delay in supply of chips by the manufacturers is a possible risk to Zoran Corporation. As indicated in the case study, Zoran has subcontracted manufacturing of chips to various companies that specialize in chip making (Phred, 2009). For instance, delay in delivery of chips by TSMC may hinder Zoran from meeting orders placed by Chinese factories and this will extend up to the final consumers of electronic products. This is more risky when Zoran uses a single manufacturer at a time to produce chips. Any interruption in the manufacturing process could have serious impact on meeting the demand for chips by customers. This may translate to losses to Zoran Corporation and more so its customers. Another significant risk Zoran faces is intellectual property risk. The supply chain Zoran operates in more global and there is a possibility that the chips making companies in Asia also serve competitors for Zoran. These places Zoran are high risk of losing its intellectual property in the design of chips. Long-term profitability for Zoran relies on its ability to maintain a competitive edge in the design and supply of chips to the global market. Therefore, risk to intellectual property has strategic implication to Zoran such that it may affect it competitiveness in the industry. Change in customer preferences is also a risk to Zoran Corporation. Customer preferences often change as technology also changes. Therefore, the issue is not only technology being available, but also which technologies that will attract people (Sodhi & Lee, 2007). This means that Zoran has a challenge of moving with technology always. Zoran depends on factories in Asia to sell chips. In case these factories decide that they will not buy chips from Zoran and opt for other chips that bit Zoran’s in terms of quality, it may have a great impact on the corporation. In the same perspective, decline in value of electronic component may be harmful to Zoran. It means that the demand for chips per say will also decline and this will affect the sales and profitability of Zoran Corporation. What steps can Zoran take to minimize the risks it faces? There are various effective approaches Zoran can use to reduce or deal with above risks in its supply chain. One of the significant principles for Zoran to consider is start with enhancing visibility or inherent risks. It will be very difficult for Zoran to manage these risks if it never envisioned them. Nevertheless, Zoran has to ensure that it reduces the risks and the approach it uses depends of the type of risk it faces. In order to minimize the risk of forecast, orders foe chips should be honored by Zoran customers even when it has delayed to supply the order due to some interruptions in the manufacturing process. There is also need to increase information on visibility of demand across the supply chain (Sodhi & Lee, 2007). The case study shows that Zoran has no adequate information concerning its consumers and this should be discouraged. Having adequate knowledge of customers will help Zoran make right predictions and determine right levels of stock. Zoran should use tactical planning to reduce risk of delay in supply of chips from chips making companies. The corporation may decide to establish its plant for manufacturing chips that has excess flexible capacity. This will give it more control over the production process and risks of delay will at least reduce (Sodhi & Lee, 2007). In addition, Zoran should identify the most reliable companies for making chips amongst those it has subcontracted and use them to produce large volumes of order to reduce delays. Alternatively, Zoran should use more than one subcontracted companies at a time when it has to supply large orders. Using more than one company will help supply chips to customers at agreed time and avoid and possible delays. It will be very challenging for Zoran to reduce intellectual risk since it does manufacture it own chips. However, by should strive at manufacturing the chips on its own as this will help it maintain some production at least under its control. Alternatively, Zoran can reduce the risk by discouraging the transfer of new intellectual property into countries that have no strong legal controls to protect such rights (Chopra & Sodhi, 2004). Zoran can also invest much in research and development (R&D) to remain ahead of it competitors and others who are likely to copy its ideas and designs. In order to remain relevant to the market despite changes in customer preferences, Zoran should try to diversify its range of products and the market it operates. Unfortunately, it has no full knowledge about it customers business and this denies Zoran the opportunity to predict changes in the market and customer needs. This implies that Zoran should conduct constant R&D about its products and the market (Market, 2004). Most importantly, it should research and monitor it customers. This will enable the corporation to think ahead of customers and adjust accordingly to their preferences at any given time. Zoran has to manage the risks across the network of its supply chain. Given the systematic nature of Zoran’s supply chain risks, a problem in a particular area, for instance, manufacturing or distribution may have impact on the whole supply chain and ultimately on Zoran Corporation (Sodhi & Lee, 2007). Therefore, as much as Zoran may be required to handle individual risks, it should not lose focus on the entire supply chain. The management of Zoran Corporation should be courageous to identify these risks, manage them and communicate throughout the supply chain network. All the players in the supply chain should be made aware of the issues that affect them in particular so as to work in coordination towards having a better network (Chopra & Sodhi, 2004). Zoran should also assess all its suppliers, in this case subcontracted chips manufacturing companies to identify their risk management process. Equally, Zoran should measure the impacts of these risks across the corporation as well as to the consumers. This should include the impact of these risks to the reputation and market share of the business. Unless, these risks are controlled they will have a long-term effects on the business of Zoran Corporation. References Chopra, S., & Sodhi, M. (2004). Managing risk to avoid supply chain breakdown. Sloan Management Review, 46(1): 53-61. Market, W. (2004). Electronics manufacturing outlook: Midyear TMRC check. Circuits Assembly July: 14. Phred, D. (2009). Clarity Is Missing Link in Supply Chain. Wall Street Journal, pp.1-14. Sodhi, M. S., & Lee, S. (2007). An analysis of sources of risk in the consumer electronics industry. Journal of the Operational Research Society, 58(11), 1430-1439. Read More