5.1.2. Risks
5.1.2.1. Research and development risk
Research and development risk is the risk of the success or failure of investment in research and
development.
Under both supply chains, ADC and ADK, the IPs owners, solely take responsibility on the main R&D
function of the Group’s products (i.e. diamond wheels and diamond dies, respectively). In this regard,
those parties assume risks related to the success or failure of the activities.
As such, the IPs owners, ADC and ADK, solely assumed R&D risk.
5.1.2.2. Market risk
Market risk describes the possibility that a company will suffer losses when market conditions
adversely impact sales levels. The risk may arise from market fluctuation, which is a result of
economic downturn, competition in the market, etc. Market risk generally occurs in the form of input
cost and output price fluctuations.
In the case where the economic fluctuation causes the raw material price or the finished goods price to
fluctuate, the impact of such fluctuations would be borne by ALTC. That is, if the costs of raw material
increase, ALTC bears higher cost of production, and vice versa. Similarly, if the prices of the finished
products increase, ALTC receives the higher profit from the sale of its products, and the other way
round. Other related parties who sell raw materials to ALTC would pass or any increase in the cost of
production to ALTC and bear market risk only in a short run during which the transfer price is not
revised.
For the sales made to ALAP for smaller customers, ALTC can pass the risk of input cost/output price
fluctuation to ALAP. ALTC only bears the risk during the period that the selling price to ALAP is not
revised. However, the amount of this transaction is small comparing to the whole business.
As the result, ALTC assumes higher market risks than other related parties under this supply chain.
5.1.2.3. Inventory risk
Inventory risk is defined as the risk of holding inventory and being exposed to possible loss. Inventory
risk can be divided into two main categories, i.e. raw material inventory risk and finished goods
inventory risk.
5.1.2.3.1. Raw Materials
Under both supply chains, ALTC bears the risk of and being exposed to possible loss, obsolescence or
damage to the raw materials as the stocks are kept at ALTC’s warehouse for the production. ALTC
keeps the raw materials at its warehouses for approximately one to three months prior the production.
ALTC’s suppliers bear the cost for loss of raw materials prior to delivery to ALTC. Other related
entities supplying raw materials to ALTC are also assumed the inventory risks with the similar matters.
Therefore, both ALTC and other related companies assume inventory risk of raw materials.
Function, Risk, and Asset Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 43
5.1.2.3.2. Finished Products
Manufacturing supply chain
ALTC maintains low finished product inventory as those products are normally delivered to related
parties for further distribution right after the completion of production process. Related parties
purchasing the products from ALTC need to maintain the finished products inventory. As such, any
possible loss, obsolescence or damage to the inventory are assumed by those related entities.
Manufacturing and distribution supply chain
Similar to the mentioned above, ALTC normally ship the finished products to the customers right after
finished the production and quality control processes. A slight difference under this supply chain is
that the products sold to Optics (Thailand) Co., Ltd., a third party customer, ALTC maintains the
inventory for approximately one month prior to the delivery. This makes ALTC to bear finished goods
inventory risk, however, the transaction is small when comparing to ALTC’s entire sales transaction.
In relation to the related party side, as ALTC sells the finished products to unrelated parties customers,
none of the related companies is assumed finished product inventory risk under this supply chain.
5.1.2.4. Production risk
Production risk is the potential loss associated with the production process, which are the results of
human errors, defects from machines and equipment, etc.
For both supply chains, ALTC, as a manufacturer, bears the production risk and the costs of all
defective products incurred during the manufacturing process as a result of the human error,
manufacturing process, electricity blackout, and equipment failure, etc. Likewise, the other related
manufacturing companies also bear the production risk regarding the manufacturing activities they
perform.
Overall, both ALTC and other related manufacturing companies assume risks associated with the
production process.
5.1.2.5. Product liability risk
Product liability risk is the risk associated with bodily and property damage arising from the use of the
products.
In the event that damages incurred to the customers, the SEI Group will investigate for the root causes.
The parties who perform functions relating to the causes have to compensate for such damages. To
illustrate, if the damages arisen from the fault of manufacturing technical or procedures, ALTC would
be liable for the costs. On the other hand, if the damages resulting from defective raw materials,
inappropriate designs, improper handling and packaging etc., the IPs owners or other group
companies who perform the functions relating to the causes would be responsible for the damages.
To prevent such unforeseen situations, ALTC enters into product liability insurance to ensure that
once such risk is crystalized, all or parts of the costs incurred will be covered. The insurance fee is paid
by ALTC.
Consequently, both ALTC and other related companies bear product liability risk under both supply
chains.
Function, Risk, and Asset Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 44
5.1.2.6. Credit risk
Credit risk is defined as potential loss which may arise from not being able to collect debt from
customers.
Manufacturing supply chain
ALTC assumes no credit risk under this supply chain as payments are always honored by its related
companies regardless of whether they can collect payment from their customers. The risk belongs to
other related parties who sell the products to unrelated customers.
Manufacturing and distribution supply chain
ALTC is assumed credit risks for the sales to unrelated party customers under this supply chain. If the
customers default the payments, ALTC will assume economic damages, which cannot get
compensated or claimed from any other entities.
5.1.2.7. Foreign exchange risk
Foreign exchange risk is the risk of financial losses from foreign exchange rate fluctuations.
Under both supply chains, ALTC and other related companies trade in several currencies, such as US
Dollar, Thai Baht and Japanese Yen. Therefore, both ALTC and its related parties assume foreign
exchange risk.
5.1.3. Assets
5.1.3.1. Tangible assets (i.e. Production Facilities,Warehouse, Local
Office)
ALTC owns all warehouses, production lines, machinery, equipment and tools related to its
production and business operation. Other related manufacturers and distributor also own those
mentioned fixed assets relating to their functions.
Therefore, both ALTC and other related parties own tangible assets under both supply chains.
5.1.3.2. Intangible assets (i.e. Know-how, Trademark, Trade name)
ALTC does not own any intangible assets such as trademarks, trade names, or manufacturing
intangibles. ALMT is the owner and grants ALTC the right to use those intangibles on its
manufacturing and sale of the Group’s products.
5.1.2. Risks
5.1.2.1. Research and development risk
Research and development risk is the risk of the success or failure of investment in research and
development.
Under both supply chains, ADC and ADK, the IPs owners, solely take responsibility on the main R&D
function of the Group’s products (i.e. diamond wheels and diamond dies, respectively). In this regard,
those parties assume risks related to the success or failure of the activities.
As such, the IPs owners, ADC and ADK, solely assumed R&D risk.
5.1.2.2. Market risk
Market risk describes the possibility that a company will suffer losses when market conditions
adversely impact sales levels. The risk may arise from market fluctuation, which is a result of
economic downturn, competition in the market, etc. Market risk generally occurs in the form of input
cost and output price fluctuations.
In the case where the economic fluctuation causes the raw material price or the finished goods price to
fluctuate, the impact of such fluctuations would be borne by ALTC. That is, if the costs of raw material
increase, ALTC bears higher cost of production, and vice versa. Similarly, if the prices of the finished
products increase, ALTC receives the higher profit from the sale of its products, and the other way
round. Other related parties who sell raw materials to ALTC would pass or any increase in the cost of
production to ALTC and bear market risk only in a short run during which the transfer price is not
revised.
For the sales made to ALAP for smaller customers, ALTC can pass the risk of input cost/output price
fluctuation to ALAP. ALTC only bears the risk during the period that the selling price to ALAP is not
revised. However, the amount of this transaction is small comparing to the whole business.
As the result, ALTC assumes higher market risks than other related parties under this supply chain.
5.1.2.3. Inventory risk
Inventory risk is defined as the risk of holding inventory and being exposed to possible loss. Inventory
risk can be divided into two main categories, i.e. raw material inventory risk and finished goods
inventory risk.
5.1.2.3.1. Raw Materials
Under both supply chains, ALTC bears the risk of and being exposed to possible loss, obsolescence or
damage to the raw materials as the stocks are kept at ALTC’s warehouse for the production. ALTC
keeps the raw materials at its warehouses for approximately one to three months prior the production.
ALTC’s suppliers bear the cost for loss of raw materials prior to delivery to ALTC. Other related
entities supplying raw materials to ALTC are also assumed the inventory risks with the similar matters.
Therefore, both ALTC and other related companies assume inventory risk of raw materials.
Function, Risk, and Asset Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 43
5.1.2.3.2. Finished Products
Manufacturing supply chain
ALTC maintains low finished product inventory as those products are normally delivered to related
parties for further distribution right after the completion of production process. Related parties
purchasing the products from ALTC need to maintain the finished products inventory. As such, any
possible loss, obsolescence or damage to the inventory are assumed by those related entities.
Manufacturing and distribution supply chain
Similar to the mentioned above, ALTC normally ship the finished products to the customers right after
finished the production and quality control processes. A slight difference under this supply chain is
that the products sold to Optics (Thailand) Co., Ltd., a third party customer, ALTC maintains the
inventory for approximately one month prior to the delivery. This makes ALTC to bear finished goods
inventory risk, however, the transaction is small when comparing to ALTC’s entire sales transaction.
In relation to the related party side, as ALTC sells the finished products to unrelated parties customers,
none of the related companies is assumed finished product inventory risk under this supply chain.
5.1.2.4. Production risk
Production risk is the potential loss associated with the production process, which are the results of
human errors, defects from machines and equipment, etc.
For both supply chains, ALTC, as a manufacturer, bears the production risk and the costs of all
defective products incurred during the manufacturing process as a result of the human error,
manufacturing process, electricity blackout, and equipment failure, etc. Likewise, the other related
manufacturing companies also bear the production risk regarding the manufacturing activities they
perform.
Overall, both ALTC and other related manufacturing companies assume risks associated with the
production process.
5.1.2.5. Product liability risk
Product liability risk is the risk associated with bodily and property damage arising from the use of the
products.
In the event that damages incurred to the customers, the SEI Group will investigate for the root causes.
The parties who perform functions relating to the causes have to compensate for such damages. To
illustrate, if the damages arisen from the fault of manufacturing technical or procedures, ALTC would
be liable for the costs. On the other hand, if the damages resulting from defective raw materials,
inappropriate designs, improper handling and packaging etc., the IPs owners or other group
companies who perform the functions relating to the causes would be responsible for the damages.
To prevent such unforeseen situations, ALTC enters into product liability insurance to ensure that
once such risk is crystalized, all or parts of the costs incurred will be covered. The insurance fee is paid
by ALTC.
Consequently, both ALTC and other related companies bear product liability risk under both supply
chains.
Function, Risk, and Asset Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 44
5.1.2.6. Credit risk
Credit risk is defined as potential loss which may arise from not being able to collect debt from
customers.
Manufacturing supply chain
ALTC assumes no credit risk under this supply chain as payments are always honored by its related
companies regardless of whether they can collect payment from their customers. The risk belongs to
other related parties who sell the products to unrelated customers.
Manufacturing and distribution supply chain
ALTC is assumed credit risks for the sales to unrelated party customers under this supply chain. If the
customers default the payments, ALTC will assume economic damages, which cannot get
compensated or claimed from any other entities.
5.1.2.7. Foreign exchange risk
Foreign exchange risk is the risk of financial losses from foreign exchange rate fluctuations.
Under both supply chains, ALTC and other related companies trade in several currencies, such as US
Dollar, Thai Baht and Japanese Yen. Therefore, both ALTC and its related parties assume foreign
exchange risk.
5.1.3. Assets
5.1.3.1. Tangible assets (i.e. Production Facilities,Warehouse, Local
Office)
ALTC owns all warehouses, production lines, machinery, equipment and tools related to its
production and business operation. Other related manufacturers and distributor also own those
mentioned fixed assets relating to their functions.
Therefore, both ALTC and other related parties own tangible assets under both supply chains.
5.1.3.2. Intangible assets (i.e. Know-how, Trademark, Trade name)
ALTC does not own any intangible assets such as trademarks, trade names, or manufacturing
intangibles. ALMT is the owner and grants ALTC the right to use those intangibles on its
manufacturing and sale of the Group’s products.
การแปล กรุณารอสักครู่..