Single-Source Panel and a Six-Week Fab Shutdown
Vantage Medical Devices assembles patient monitors using a single-sourced OLED panel from one supplier in Taiwan. Lead time is 16 weeks by ocean; the plant holds 5 weeks of panels and builds to a 10-week frozen schedule. A typhoon has shut the supplier's fab for an estimated six weeks, with partial output resuming after that and full output uncertain. Vantage has 4,100 panels on hand and firm customer orders for 9,800 monitors over the next 20 weeks; 30% of that volume is from hospitals carrying penalty clauses of $180 per day per late unit. Air freight would add $44 per panel. A broker has offered 1,200 panels at 2.3 times standard price. An alternate supplier could be qualified in 14 weeks at a 22% price premium.
1. Rank the available responses and justify the order with explicit break-evens.
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Start with the arithmetic. Demand is 9,800 units over 20 weeks = 490 per week. On-hand 4,100 panels covers about 8.4 weeks at full rate. The fab is dark for six weeks and then ramps, so exposure concentrates in weeks 9–14, not week 1. That means panic buying is the wrong first move - positioning is.
Order of response:
- Allocate the 4,100 panels deliberately (see next task). Free. Do this first.
- Air freight the resumed output for penalty-bearing units. At $44 per panel against $180 per unit-day, air freight pays back if it avoids a single day of delay on a penalty unit. It is a clear win for those orders and a judgment call elsewhere.
- Broker panels only against penalty exposure. At 2.3× price the premium is 1.3 × unit price per panel. Buy if premium per panel is less than the penalty-days avoided per panel times $180, or if it protects an account whose loss exceeds the premium.
- Qualify the alternate supplier now regardless. At 14 weeks it arrives inside the 20-week horizon and covers a second event - but a 22% premium is permanent, so qualify it and place only a minority volume, or use it as leverage, rather than switching outright.
The trap is treating all 9,800 units as equally urgent and spending the premium on unpenalized volume.
2. How should the 4,100 panels be allocated, and what should change structurally once the crisis passes?
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Allocation. Do not use first-come-first-served or largest-order-first; both are indefensible when the hospital complains. Stand up a cross-functional allocation council - sales, ops, quality, legal - with published rules applied in order: contractual penalties, clinical necessity/patient safety, strategic account lifetime value, then order date. Communicate the rule and the expected dates to every affected customer before they discover the shortfall themselves; a proactive allocation letter preserves far more goodwill than a late explanation.
Structural fixes, ranked by value:
- Design commonality across panel models, so one panel serves more configurations - this reduces exposure permanently and costs engineering time, not inventory.
- A qualified second site, with a contractual volume floor and tooling ownership so it cannot be stranded.
- Contract terms: capacity reservation, allocation rights during shortage, and notice obligations.
- A modest strategic buffer at module level, sized against a stress test, not against lead time alone - 5 weeks on hand was never sized for a six-week outage.
Resist the reflex to simply double inventory everywhere; quantify carrying cost against the specific disruption probability you are insuring.