Abstract
Today’s business environment is faced with various challenges that are as a result of ever increasing competition and dynamics of the business world needs. These sum challenges of unpredictable international economy, stifled competition and dynamics has resulted to creation of environment that demand the 21st century organizations to understand the need for designing an effective chain supply management system to be able to contain this challenges and sustain the competitive advantage in the global market place. Therefore, it can be seen that effective supply chain management system is necessary for supportive business practice amidst political instabilities and conflicts worldwide, economic recessions, and fluctuating oil prices that influence and affects business.
In this regard, by understanding the external forces that affects today’s chain supply management systems like global economy and the relationship between the various stakeholders, customers, suppliers and distribution remains key to success inputs for designing and building an effective chain supply management system in 21st century and future decades. Importantly, firms must learn to exploit services and products in order to succeed in this complex business environment. Holding to these views, Kuiper Leda Company ought to employ the chain management strategies outlined in this research paper that will enable it to be a firm on the lead. Additionally, the paper shall propose how Kuiper’s supply chain can be further improved to reduce costs, minimize wastes, and maximize value.
Introduction
Kuiper Leda Company is an electronic components manufacturer that specializes in sensors for the automotive industry and ECUs (Electronic Control Units) which is located in the Republic of Novamia. The consumer base for the Kuiper Leda Company mainly consists of the OEMs (Original Equipment Manufacturers) and automobile manufacturers. The firm has been in manufacturing arena for over a decade with much effort directed towards Electronic Control Units than the time allocated for FRID (Radio Frequency Identification Devices). Evidently, Kuiper Leda Company has only been producing the Radio Frequency Identification Devices for less than a decade, while manufacturing of the electronic control units (ECUs) has lasted for over a decade. Therefore, it can be seen that the production of the Radio Frequency Identification Devices has only lasted for only a short period of time as compared to Electronic Control Units in manufacturing capacity of the Kuiper Leda Company.
In this regard, the company has recently ventured into manufacturing of the Radio Frequency Identification Devices which presents it an opportunity too exploit. But this is not the concern for the source of the problems that are affecting Kuiper Leda Company. The main concern originates from its production capacity in relation to its supplies to its clients. For instance, Kuiper Leda Company produces a sum total of 250 units of the Radio Frequency Identification Devices and 1,250 units of Electronic Control Units. This production can not sustain the needs of the customers for RFIDs and ECUs like the Midland motors.
In the recent years one of the customers of Kuiper Leda Company; Midland Motors which is an American OEM, received a large order for power-train assemblies to a leading car manufacturer as just an example to demand for Kuiper Leda Company’s products and services. This indicates that the demand for the products and services provided by Kuiper Leda Company need to increase to meet this raising needs. The available present statistics reveal that Midland firm only places a total of 250,000 ECUs which is a direct demand to necessitate its powertrain assemblies, while the same company; Midland company placed an annual order serving as an indirect demand of 35,000 RFID tags. It is evident that Midland orders alone are daunting task to be met by the Kuiper Leda Company, yet there are other firms in need of these vital products. Therefore, it’s evident per production capacity of the Kuiper Leda Company currently it can not meet the demand and create a competitive advantage globally. As result, the need to reevaluate the company’s existing supply chain and changes to create an efficient SCM (supply chain management) is invertible.
Kuiper Leda Company Problem Solution and Defense
The initial problem of Kuiper Leda Company lies in the production capacity that can not meet the demand from its expanded consumer base. The resultant situation of the recent overload has rendered its supply chain inefficient. This contradicts the law of efficient supply chain which states that supply chain is a network of facilities and distribution options aimed at performing the functions of procurement of materials, transformation of these materials into intermediate and finished products, while facilitating the distribution of these finished products to customers to create value for the company’s products. Failure by a SC (supply chain) to accomplish these three essential areas of an effective SC awakens the need to streamline the existing SC that applies in this case.
Furthermore, the current source for the challenges that face Kuiper Leda Company originates from its design of acquiring the material necessary to produce RFIDs and ECUs. Kuiper Leda Company obtains ECUs and RFIDs production materials through in-house. But, it’s a common knowledge that such high order placement from Midland Company of 35,000 RFID tags and 250,000 ECUs and others, in-house can not be of great help towards its remedy. Unfortunately, Kuiper Leda Company is not focused towards mass or large scale production that can meet the increased demand of these voluminous orders.
Therefore, the remedies to Kuiper Leda Company can only be looked at from the following perspectives. Firstly, Kuiper Leda Company needs to consider which mechanism is of significance between outsourcing and producing in-house. Secondly, the firm needs to decide on the large quantity orders or devise method of how to handle them at production level in relation with the other orders from other customers. Thirdly, it is mandatory for Kuiper Leda Company to evaluate various effects like customer dissatisfaction, errors and defects, overtime in their new considerations. Lastly, should consider outsourcing options and its impact to customer base satisfaction in relation to the changing production plans and the resultant modifications on the delivery schedules.
Solution options and Defense
Outsourcing production of ECUs
There is no doubt that Kuiper firm needs a remedy like a sick person in a hospital desperate for the doctor’s help to see the next day. In this case, meeting the increased current demand should be a priority for Kuiper. To meet current skyrocketing demands, common supply chain knowledge calls for outsourcing for some of the orders. For Kuiper, outsourcing implies that the company shall at a great extend reducing risks, level out seasonal fluctuations, increasing efficiency, gain better control of costs, and minimize capital expenditures, therefore improving efficiencies through economies of scale. Furthermore, through outsourcing the obligation and decisions relating to production are transferred to the external company, as a result, Kuiper Leda Company shall not have to bear additional expense in acquiring inputs and/or new technology to use in production as it does for now.
In emphasizing on the outsourcing option for the Kuiper Leda Company Babb, (2008) states that Outsourcing goes beyond the more common purchasing and consulting contracts because not only are the activities transferred, but also resources that make the activities occur, workforce, facilities, equipment, technology, and other assets, are transferred, in addition to managerial roles which is the responsibilities for making decisions over certain elements of the activities are transferred as well. The outstanding advantage that can not be ignored by even a blind man is the ability to focus on core activities or expertise, markets and customers enabled by the outsourcing option.
In order to effectively choose the product to be outsourced between the ECUs and the RFIDs, the firm has to put on the weighing machine three aspects. These aspects are the essentials that would facilitate for the production through outsourcing option effective and value oriented. These vital elements that enhance value for outsourcing option are costs, lead time, and capacity. In this regard, the firm can efficiently outsource the Electronic Control Units since the company does not have ample lead time to outsource the Radio Frequency Identification Devices. Practically, Outsourcing the Radio Frequency Identification Devices would require 3 weeks while producing it in-house would need 2 weeks only. Additionally, Kuiper Leda Company in its production capacity for the first quarter cannot exceed the 79,297 Electronic Control Units-capacities. Therefore by outsourcing production of ECUs it will still concentrate on the production of the RFIDs well, it would result allow for achieving production targets and reducing costs of good sold. Hence, proves to be the most optimal for both the customers and Kuiper Leda Company.
Adopting principles of Just-in-Time
Another viable option for Kuiper Leda Company is to adopt the principles of JIT (Just-in-Time) in products procurement, distribution and manufacturing. The application of Just-in-Time (JIT) by Kuiper Leda Company as a producer shall allow the firm to purchase and receive components just before the components is needed on the assembly line, therefore minimizes and saves the firm on the cost and burden of storing and managing idle parts. Holding to these views, Kuiper Leda Company shall have reduced wastes by acquiring materials needed for production only at a time of need in specific quantity. Secondly, by minimizing expenditures on reduced carrying costs and reducing wastes the firms shall increase profitability. Profitability can also be enhances through slashed down expenditures related to storage, damages or wastes, handling, insurance, and taxes (Inventory carrying costs). Thirdly, Kuiper Leda Company shall better manage its human resource and improve satisfaction, morale and retention by reducing overtimes, and control activities and simplify schedules. Fourth benefit is customer directed, since Just – in- time principles shall offer increase productivity, improve quality by minimizing errors and shorter lead time leading to increased customers satisfaction.
JIT principles are not new ideas of improving the efficiency in CSM, but have been tested and proven and can work well with Kuiper Leda Company. The case from Dell Computer Company integration of JIT in its manufacturing, procurement, and distribution processes serve as a tangible example that should awaken Kuiper Leda Company to consider this viable option for their good. According to Dell Computer Company spokesperson Venancio Figueroa, he states that the successful integration of JIT: Dell only produces to order and does not keep finished goods inventory, gained better control of the supply chain process, while its decision to sell computers built from components produced by other manufacturers has relieved Dell off the burden of research and development risks, owning assets, and the burden of managing a large workforce. As a result, Dell has been able to manage its expenditures by reducing inventory carrying costs that have enabled it to maintain only eight days of inventory and grow more rapidly than its competitors in the global market place.
From this successful exemplary case, Kuiper Leda Company should rethink on adopting JIT for its building on effective SCM. Furthermore, Kuiper Leda Company needs to postpone sub-assemblies and centrally regulate demand. It is in good faith that Kuiper adopts JIT in order to modify its production schedule based on the demand that to a great extend reduces on costs related to manpower, improve quality and reduce wastes,
Develop a more effective IMP
The system used in production planning and inventory control in order to manage manufacturing processes requires restructuring. For instance the currently used MRP (Material Requirements Planning) that helps to meet three objectives of maintaining the lowest possible level of inventory, ensuring materials and products are available for production and delivery to customers and planning manufacturing activities, purchasing activities and delivery schedules. The MRP used is not bad but to some extend not effective and call for adoption of a more effective IMP (Inventory Management Plan) to upgrade on its efficiency.
An effective IMP (Inventory Management Plan) shall allow Kuiper Leda Company to better control purchase and inventory holding costs, to maximize the safety stock levels to deal with any fluctuations in production demands and lastly to reduce inventory and operating costs, minimize inventory investments and focus on providing high quality customer service. In support for an effective Inventory Management Plan in SCM systems, (Jacobs, Aquilano and Chase, 2005) they say that an effective IMP as an inventory system to a company, effectively utilize human capital function and equipment, provides information to efficiently manage the flow of materials, coordinate internal activities and communicate with customers. In this way an effective IMP as a tool of inventory management fulfills its vital role of provide the information to managers who make more accurate and timely decisions to manage their operations, rather than being looked upon to manage operations.
In processes of building an effective IMP, Kuiper Leda Company should add an ABC inventory planning which is like an update to the IMP. This shall facilitate dividing inventory items into three groupings based on the unit sales. ABC inventory planning will enable identifying the products on unit sales basis that would ensure differentiated items on their moving speed. In other words, the items that are on high demand shall be maintained in Kuiper Leda Company’s inventory, while dead stocks are stocked accordingly. As a result, Kuiper Leda Company shall be able to ensure that the company is able to provide the customers with in-demand items on a timely manner, therefore reducing company’s inventory carrying costs and minimizes wastes. Generally, adoption of the ABC inventory planning shall facilitate easy categorization of products based on specific criterion assigned by the firm.
It is a point of worth to mention that in building of a better Inventory Management Plan and production schedule, creation of a forecast of customer demand in necessary. According to Babb (2008), forecasting customer demand for services and products it is a proactive process of determining what products are needed where, when, and in what quantities, which is the most fundamental tasks that a business ought to perform. In this light, forecast of customer demand system is not limited in materials management, it will facilitate better adjust production schedules of supplies and labor. By doing so, forecast of customer demand shall lead to better management of its human capital resources and financial resources that will enhance a smooth supply chain owing to their critical elements in the business operations. Practically, forecasting shall allow the company to allocate sufficient human capital and financial resources to manufacturing both items as opposed to outsourcing the ECUs. Therefore, forecast of customer demand helps Kuiper Leda Company to respond to customers needs due to minimal disruption in the production and supply chain.
Kuiper Leda Measures in implementing CSM system
In the process of adopting an effectiveness of the company’s chain strategies Kuiper Leda Company can develop a balanced scorecard to measure the effectiveness. Balanced Scorecard is conceptualized as a mean of selling the vision and strategy towards attaining those visions was developed by David Norton and Robert Kaplan for the purpose of accommodating performance and strategy focus. Through employing this scorecard to Kuiper Leda Company, it will facilitate a top-down approach to business performance management by scrutinizing business strategies to operationally relevant target.
This scorecard shall focus on various domains of Kuiper Leda Company, especially its non-financial measures and financial aspects to assess overall business performance. After setting of clear realistic targets, sufficient funds allocation, putting supportive measures in place and creating of monitoring and evaluation mechanism in place, the scorecard can be of great help to Kuiper Leda Company in weighing the options to use in an attempt to adopt an effective and efficient SCM system. The measures to be used are Supply Chain Management, Supply Chain Delivery Reliability, Supply Side Measurements and financial domains of the scorecard (refer to table1).
Conclusion
The paper has discussed the root of the problem that causes inefficiency to the Kuiper Leda Company supply chain management system. Production capacity of the Kuiper Leda Company currently it can not meet the demand and create a competitive advantage globally due to ineffective SCM system used. In offering the best remedies to the Kuiper Leda Company, the paper has offered with sufficient support adoption of Outsourcing production of ECUs, Adopting principles of Just-in-Time, Developing a more effective IMP with domain Measures in implementing either solution.
Therefore, the challenge remains in the managerial carder of the Kuiper Leda Company to take step and implement these viable options that will enable the firm gain further competitive advantage over its competitors by creating an effective SCM system.
Appended documentation
Table1.Domains to Measures in implementing solutions
Supply Chain Management
Supply Chain Delivery Reliability
Supply Side Measurements
Financial
Cash to cash cycle time
Inventory days of supply
Asset tiers
Delivery performance
Fill rates
Perfect order fulfillment
Order performance lead time
Supply chain response time
Product flexibility
Net profit
Return on investment
Cash flow
Cost of goods sold
Total supply chain management costs
Value-added productivity
Warranty/returns processing costs
References
Babb, J. (2008) Demand forecasting: available at http://supplychain.ittoolbox.com/pub/JB051101b.pdf; retrieved on Retrieved 23rd Nov, 2008, from
Bukovinsky, D. (2008). Theory of constraint (TOC): New York, Routledge
Jacobs, E, Aquilano, & N.J. Chase, R.B., (2005). Operations management for Competitive advantage: New York, McGraw-Hill.
Just In Time – JIT. (2007). Available at www.investopedia.com Retrieved on Nov 24th, 2008.
Procurement and Supply Chain Management (2007): available at www.bp.com/liveassets Retrieved on 20th Nov, 2008,
