CSCP (WorldatWork Rewards Certifications): Veco Drives: Single-Source Supplier in Distress

Exposure. Kestrel supplies 62% of $22M = $13.6M a year, roughly $37,000 of purchase value per day. Cover is 19 days against a 47-day lead time - a coverage ratio of 0.40. Veco is structurally short: it cannot even cover one replenishment cycle, and a shipping stop converts to line-down within 19 days. At $85,000 per shift and two shifts, that is $170,000 a day, or $2.4M for a two-week interruption, before customer penalties and lost allocation.

Why the 90-day sequence matters. The 9-12 month qualification means no new source can be created in time. Any response must use the assets that already exist: the alternate's spare capacity, Kestrel's goodwill, and Veco's own buffer.

Days 1-30 - stop the bleeding:

• Raise the housing buffer from 19 days to 35-40 days. Sixteen extra days at $37,000/day is about $590,000 of inventory; at 22% carrying cost that is roughly $130,000 a year - cheap against one line-down day.
• Joint call with Kestrel: open-book on the covenant, weekly delivery plan, and a written capacity reservation. Offer accelerated payment terms or consigned raw material to relieve the working capital squeeze that is driving the late deliveries.
• Verify tooling ownership and documentation now, while the relationship is intact.

Days 31-90 - build optionality: fund accelerated qualification of the alternate, shift the 13% broker volume to a controlled channel, and qualify a third source in parallel. Do not cut Kestrel's volume before the buffer is in place.

Against cutting volume now. Kestrel is a critical, strategic supplier - single-site, 62% of a gated part, and Veco is its largest customer at 31% of revenue. Cutting volume in the middle of the supplier's covenant test reduces its cash flow precisely when it is most fragile, raising the probability of the failure Veco is trying to avoid. The signal purchasing wants to send is real, but this is the wrong instrument: it is more likely to produce an insolvency than a service recovery, and Veco has no qualified replacement inside 9-12 months.

Use leverage as a development lever, not a punishment:

• Link volume to recovery. Set explicit 90-day targets (OTD back to 97%, lead time to 35 days) and state that the second-source share moves from 25% to 35% on achievement. Volume then rewards performance rather than signalling displeasure.
• Reduce the supplier's cash strain. Earlier payment on a defined portion of invoices, consigned raw material, or a committed forecast allows Kestrel to plan melts and staffing and directly addresses the late-delivery driver.
• Share the risk. Joint capacity reservation, a modest price adjustment tied to documented cost increases, and Veco technical support at the plant - all cheaper than a line stoppage.
• Guard the downside publicly. Confidentiality around Kestrel's financial position protects the relationship; contingency planning and tooling verification proceed quietly in parallel.

The relationship classification is the key judgement: a leverage supplier can be squeezed, a strategic single-source bottleneck cannot. Veco should behave like a partner while holding the exit ready.

The failure was visible six months before it became a supply problem - OTD slid from 98% to 94% and lead time stretched 17 days. The dashboard should have caught it at the first month.

Operational indicators (weekly): on-time delivery in units, not orders; order backlog and aging; lead-time trend versus quoted; schedule adherence; scrap and rework rates; open corrective actions.

Financial and capacity indicators (monthly, via open-book or credit monitoring): current ratio and quick ratio, days payable outstanding trend, covenant headroom, raw material booking volume and melt schedules, energy consumption, headcount, and any change in sub-tier suppliers. A rising DPO combined with falling raw material bookings is one of the earliest reliable distress signals.

External indicators (quarterly): credit rating and trade references, site risk exposure (flood-plain siting, utility dependency, labor agreements), insurance coverage, and business continuity plan testing.

Governance rhythm:

• Weekly operations call with a joint action log - short, operational, attended by both planners.
• Monthly business review with purchasing and quality: scorecard, corrective actions, capacity confirmation for the next quarter.
• Quarterly executive review with a documented risk register entry and a defined escalation trigger - for example, OTD below 95% for two consecutive months or covenant headroom under 10% automatically convenes a response team.

Also define the internal trigger: at what inventory coverage does Veco allocate customer orders? Deciding that rule now, in cold blood, is far better than discovering it during a crisis. Scorecards only matter if a missed target changes behaviour - so each indicator needs a pre-agreed consequence attached to it.