Universal Registration Document 2021

3 RISKS, LITIGATION, AND CONTROLS RISK FACTORS

DVD SERVICES

RAWMATERIAL AND OTHER KEY INPUT DEPENDENCY

[103-1 Procurement practices] [103-2 Procurement practices] [103-1 Materials] [103-2 Materials] Risk identification

Risk monitoring and management

The selection process of suppliers is made after careful assessment of the sustainable production capacity, quality standards, financial health, and respect of social and environmental standards. The division systematically monitors price volatility of its suppliers. To reduce dependency and allow business continuity, the procurement is diversified with some preferred vendors present in different geographies. When possible, and in-line with the procurement strategy, the division has identified alternative sources for many of its key materials. In the case of sole or very limited source suppliers, the division has put in place a monitoring structure designed to track potential price pressure of select raw materials (and their constituent components) to anticipate possible shortages and/or price volatility. In some cases, the division has further mitigation potential for sudden unexpected price variation via the inclusion of key material price index/pass-through provisions in certain customer contracts. The division has mitigated selected supply risks by engaging in longer-term agreements and ensuring extended buffer inventories are kept both within the division and at the vendor. Moreover, given the supply-chain risks the division completes periodic assessments of all inventory items/stock levels/lead-times and proactively adjusts/increases holdings/order frequencies of certain critical items.

The division purchases approximately 65% of its materials, components, and services from its top 10 suppliers. In addition, certain raw materials such as polycarbonate and DVD cases come from a limited number of key suppliers. Any change, delay or disruption in supply, or reallocation of capacity to a different market, product line or customer by a key supplier could cause material delays in the division’s production or operations, increase its production costs or harm customer relationships. DVD Services previously managed some of its inventory on a just-in-time basis but due to the increase in supply-chain dislocations and single supplier risks the division has moved away from this practice. In addition to delays or other performance failures of its suppliers, DVD Services’ operations may be disrupted by external factors beyond its control, including price volatility risks. DVD Services’ operations (particularly replication activity in Mexico, Poland & Australia) are significant consumers of electricity, and thus are exposed to utility cost/regulatory volatility in these local markets.

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