Crisis- Semiconductor Chip Shortage

In the wake of the global semiconductor chip shortage, the automobile market finds itself in a state of upheaval. With several
manufacturers forced to exit the market due to supply constraints, the remaining players face unprecedented challenges in
meeting surging consumer demand.

As one of the leading automobile manufacturers, you are not immune to the effects of the shortage. However, due to strategic
foresight and a network of trusted suppliers, you have an opportunity to not only weather the storm but emerge stronger than
ever.

The parts needed to assemble the semiconductor chip and their respective procurement strategies are:

1. Silicon Wafers:

Explanation: Silicon wafers serve as the foundation for semiconductor chips and make upto 40% of the
semiconductor chip. These wafers are sliced from a single crystal of high-purity silicon and act as the base
material on which the chip's components will be built.

Procurement Strategy: Participants need to identify reliable suppliers of high-quality silicon wafers.
Considerations include cost and quality assurance.

2. Semiconductor Materials (Dopants):

Explanation: Dopants are added to the silicon wafers to modify their electrical properties and create the
necessary conductivity for semiconductor components. They contribute upto (25%) to the making of the
semiconductor. Common dopants include phosphorus and boron.

Procurement Strategy: Participants must source dopants from suppliers ensuring timely delivery. Negotiations
may involve bulk pricing and delivery schedules.

3. Photolithography Materials:

Explanation: Photolithography is a crucial step, contributing about 20% to the making, where the chip's design
is transferred onto the silicon wafer. This process involves photoresist materials that undergo chemical changes
when exposed to light, defining the chip's intricate patterns.

Procurement Strategy: Identifying suppliers of quality photoresist materials with considerations for resolution,
sensitivity, and compatibility with the chip design and customisation.

4. Etching Chemicals:

Explanation: Etching is used to selectively remove material from the silicon wafer according to the chip design
and contribute 15% to the making of semiconductor. Chemicals like hydrofluoric acid are commonly employed
in this process.

Procurement Strategy: Participants need reliable suppliers for etching chemicals, who are also willing to provide
technical support.
 To optimize procurement and financing amidst the semiconductor chip shortage, an astute approach blending
supplier collaboration and strategic financing is imperative.

You have the option to procure these parts from four suppliers, namely TechMaterials Inc., Precision
Components Co., Optimum Solutions Ltd and Advanced Chemicals Corp.

Considering the detailed supplier profiles and procurement parameters provided, a synergistic combination
needs to be formulated to ensure both quality and cost efficiency. Leveraging the strengths of each supplier
while mitigating potential drawbacks is key to resilience in this challenging market landscape.

The respective ratings and procurement costs of each supplier is presented below in the form of table

Table 1- Qualitative Rating

TechMaterials Inc Precision Optimum Solutions Advanced Chemicals

Components Co. Ltd Corp.

Quality Assurance 1.2 1.6 1.1 1.3

Timely Delivery 1.4 1.1 1.25 1.2

Customisation Capability 1.1 1.05 1.9 1.4

Technical Support 1.5 1.3 1.2 1.25

Table 2- Cost for Material

Quality Supplier Cost

TechMaterials Inc Precision Optimum Solutions Advanced Chemicals

Components Co. Ltd Corp

Quality Assurance 2.2 2.8 2.0 2.3

Timely Delivery 1.7 1.1 1.6 1.2

Customisation Capability 1.1 1.4 1.8 1.2

Technical Support 1.8 1.4 1.05 1.25

Some further details:

-All suppliers face a quality efficiency cap of 70%, meaning one particular supplier cannot be used for
procurement of 100% of any material.
-Despite its technical expertise, TechMaterials Inc. has a history of contentious relationships with other
suppliers, leading to a 15% increase in costs and a marginal 1.2% dip in overall quality regardless of
partnerships.

-Precision Components Co.Holds a substantial 30% contract for photolithography materials and is recognized
for its efficiency. When collaborating with Supplier 4, they achieve a remarkable synergy, decreasing costs by
12% and enhancing quality by 1.4%.

-Optimum Solutions Ltd, Renowned for its compatibility, seamlessly integrates with all other suppliers,
reducing costs by 3% and bolstering overall quality by 1.3% irrespective of the combination. Its versatility
ensures a streamlined production process.

-Advanced Chemicals Corp. has Forged a strong partnership with Supplier 2 over the years, Advanced
Chemicals Corp. guarantees timely deliveries and significant contributions to cost reduction and quality
improvement when paired together.

After choosing the optimal combinations, insert the respective multipliers to the provided equation and calculate
the Operating profit

Equations:

Quality Index = Sum of (Quality multiplier* Weight) * Synergy Adjustment if any

Cost Index = Sum of (Cost Multiplier*Weight) * Synergy Adjustment if any

Operating Profit = 40,000*QI/(CI-2.5)

To finance this procurement you have the following options and cost. Choose
whichever combination is most optimal according to you and calculate the financing
cost of 10,000 units.

Table 3- Financing Options

Financing Option Interest Rate Origination Fee Max Amt that can be
borrowed
Bank Loan 6.5% 1.5% 4000
Line of Credit Prime Rate* + 2% Weighted average of Variable
financing options
used
Supplier Financing 8.0% 0.95% 6500
Debenture 5.9% 1.75% 3500

*Prime rate= Up to 2K units the prime rate is 4%.

From 2K-5K units the prime rate is 5%.
From 5K-7K units the prime rate is 6.3%
From the figure thus obtained, calculate and present the total profit where

Total Profit = Operating Profit- Financing Cost