Introduction
Kuiper Leda Inc is located in the Republic of Novamia and specializes in the production of Electronic Control Units (ECUs) with its clients including automobile manufacturers and Original Manufacturers (OEMs). Recently, the company has entered into the Radio Frequency Identification Devices (RFID) line. (Chase, et al, 2006)It has become leader in the industry domestically and efforts are made to have its progress in the international market as well. Although it’s much smaller than its competitors, they are well known for their quality and delivery responsiveness. For this to be achieved, the company must have an understanding of various interactions between manufacturers, suppliers, distributors and consumers in order to have an efficient supply chain management system. The firm works with small customers and has a limited capacity of ECUs and RFIDs. However, it has built a strong reputation with its customers and is known for quality and delivery responsiveness. Kuiper Leda prospers from repeat orders and suppliers relations and hence it prosper can be attributed to market research that it does to know the current position of its competitors. The firm has therefore to ensure that it maintain its focus on its capacity management and delivery.
In for Kuiper Leda to operate in such a competitive market, it has focused much attention to its management and delivery. This owe to the fact that in last few months the fluctuating demand had overloaded its supply chain and thus lack of uniformity in the production pant. To maintain its responsiveness, Kuiper Leda set its objectives which it had to struggle to achieve. These objectives are: (a) maintain the lowest possible level of inventory; (b) ensure materials and products are available for the production and delivery to customers and (c) plan manufacturing activities delivery schedules and purchasing activities. For effective achievement of these goals, the firm has adopted the use of Material Requirements Planning software system (MRP) based on production and Kuiper Leda supply chain defense. This paper seeks to identify the effectiveness of the Supply chain defense as is discussed below:
Kuiper Leda Supply Chain Defense
Supply chain management is referred to as the integration of the organizational functions and processes related to the planning, scheduling and physical movement of products or materials. Therefore, supply chain defense imply to all attempt to have a persistent supply chain management. Efficiency in operations management of Kuiper Leda Supply Chain Defense is significant as it relates to all of the three objectives listed above. As for any world-class company, recognition of its ability to compete in the marketplace will depends on developing an operative strategy that will properly streamline on its mission of serving its clients (Chase, et al, 2006). The firm is in position to look for most of the profitable and efficient source of options. These options include: (a) in-house manufacturing of the product; (b) purchasing of the entire product or major components from another manufacturer; (c) outsourcing production of the entire product or components to another manufacturer; (d) purchasing the product or components from a portal that sells electronic items and components (www.investopedia.com ).
The firm recognized that it can improve the supply chain management by outsourcing Electronic control units manufacturing and Radio Frequency Identification Devices (RFID) through in-house manufacturing. This saw four week duration set for the outsourcing ECU production that had the eventuality of satisfying the customer’s order for merchandise delivery; as well as making outsourcing of the entire product to an e-business portal feasible. Consequently, the massive rescheduling and the subsequent increase in cost eased on outsourcing as ECUs were in-house manufactured. As a tradeoff between the time taken to procure the product and the cost, outsourcing is a more feasible option than manufacturing microchip production.
The Kuiper Leda Inventory Management Plan has strategized on handling the new order requirement for Microchips by lying emphasis on: (a) inventory ordering system; (b) maintain N-weeks supply; (c) independent ordering system; (d) lot for lot; (e) order fill rate. This form of management must meet the dictates of the marketplace and support the company’s strategic plan. Despite the many changes that company goes through, the basic principles of inventory management should remain the same. The defense of each system choice is discussed below:
Independent Ordering System; this is a forward looking inventory arrangement. It involves making decision prior to a specified order point. Where the inventory drops below the safety stock level, the order point is released and a fresh order is created. The Independent ordering systems try to maintain a minimum level of inventory at all points in time. This system is therefore dependent on: (a) demand rate per day; (b) the production lead time; and (c) safety stock level.
Lot for Lot; in choosing the Lot for Lot system the firm ensured that the order is exactly what is needed. It can thus be taken to mean that the order quantity fluctuates whenever there is a corresponding requirements fluctuation. For instance, if the ECUs are less demanded, it means that there will be low quantity sold; then, items are ordered as and when they are required. The benefits of this system are: creation of no unused lot size inventory and reduces carrying costs; making it appropriate for a Just in Time (JIT) environment (www.investopedia.com ). This refers to an environment where orders are known in advance. The system also works well when used in conjunction with MRP since the MRP indicates requirements in successive periods well in advance.
Order Fill Rate; this refers to the percentage of orders that are shipped and delivered complete and on time in the given period or month. The Order Fill Rate of 75% is good options arise to the fact that inputs indicate that the Order Fill Rate should not exceed 80%. This can be attributed to the idea that an excess of safety stock would unanimously increase the carrying costs. Large order quantities would lead to subsequent increase in ‘Work in Progress inventory’ at the plant and also increase requirements for other components. Once errors associated with shipment e.g. damage or being late occur; the order is considered as completely failed.
N-weeks Supply; by choosing the N-weeks Supply system, adequate inventory can be ordered to satisfy future demand for a given period of time. This deal has the effect of increasing the level of inventory in the system, hence increasing the carrying costs. Nonetheless, it reduces ordering cost since orders for many time periods are ordered together. An N-week supply of two is adequate, because anything over two weeks can cause overstocking, and consequently increase carrying costs. The firm also consider number of days in which the locally held stock should be fully used up according to the future sales forecast. This involves s a forward-looking figure in calendar days which is measured by SKU. The overall stock level is the average of all items.
Besides these measures, Kuiper Leda also uses other methods which include: line fill rate, stock out rate, perfect order rate, days sales outstanding and invoice error (credit note) rate. Line fill rate is concerned with order lines that were shipped and delivered on time and complete in the given time of duration whereas stock out rate is concerned with the number of calendar days out of stock-out in a market during a month expressed as a percentage of the SKU days. Perfect order rate is the variation of the order fill rate that includes perfect invoice and payment on time while days sales outstanding is the number of days that the period end outstanding customer received is consumed by the backwards actual sales. Finally, invoice error rate is the percentage of invoices that require correction.
Kuiper Leda Measures and Metrics
Basing on Kuiper Leda’s production capacity, the firm is required to manufacture at a particular rate for every week. It is thus crucial to maintain the smooth running of the plant at a level rate. Moreover, the firm need to be careful not to either under-stock or overstock. Overstocking is observed to increase holding costs. This includes the cost incurred in warehousing whereas in under-stocking level of production is bottlenecked. Kuiper Leda needs to operate within the system that will enable the company to forecast order requirements during a particular specified period of time. In addition, the firm needs to have enough supplies for their finished product, as well as be in a position to handle: (a) shortages of supplies; (b) excesses of supply; and (c) inventory. Since the firm happens to have several product lines, it needs to be able to remain competitive and still manage various types of inventory. This would be to affirm the general expectation of a firm to use its inventory for future predictions and for other uses such as borrowing money to finance the inventory investment; with the objective of having the proper amount of inventory and to have it in the correct locations in the supply chain.
Inventory management at Kuiper Leda is analyzed at four different levels. These levels are: (a) plant; (b) management; (c) divisional; and (d) regional. However, each level or sector can develop its own metrics with the objective of having precision in forecasting and in determining the inventory management. For a firm to develop the metrics that will ensure company practices are sound and maximize value to the end consumer, Kuiper Leda must rely on its statistical analysis and forecasting models; both of which help into driving the supply chain decisions. In addition, the firm should also continue to utilize the JIT concept in determine how the material should be processed and moved in so as to arrive in the appropriate prior to the start of the next operation. JIT utilizes an integrated set of activities developed to achieve the high-volume production the firm culminate while making use of minimal inventories of parts that arrive at the workplace precisely when they are needed. Consequently, philosophy coupled with total quality control (TQC) seeks to avoid the causes of production dysfunctions which are a pillar in many manufacturers’ production practices.
JIT is an inventory strategy which will increase efficiency and lead to the decline in waste for this firm since they will receive goods only as they are needed in the production process; hence reducing inventory costs. Nevertheless, this method requires that Kuiper be able to accurately forecast demand (www.investopedia.com , 2007). Use of statistical analysis along with JIT will optimize Kuiper’s ability to forecast consumer demand.
Implementation of JIT also meant that Kuiper Leda’s responsibilities would include determining the best sourcing approach to meet specific business needs and determine the total cost of ownership (TCO). This did not only allow for a full assessment of initial purchase, but also for operational, logistics, maintenance, as well as the eventual disposal costs for the organization.
Additionally, the firm will thus need to track both: demand and supply, manufacturing status, logistics but also in distribution. There is also need for data to be shared between Kuiper Leda and its supply chain partners. One module of MRP software, which is used to manage the supply chain movement is suppose to incorporate tools that allow customer service representatives to actively manage customer orders, providing on-time product shipping, delivery and invoicing. The MRP software can also help the firm in measuring the improvement as far as the handling of its customer transaction processing is concerned. Again, utilizing the appropriate software can facilitate immediate access to customer account information, placement of new orders, and tracking of existing orders.
Kuiper Leda needs also to ensure that its model minimizes excess inventory across multiple warehouses. Besides being able to minimize the excess inventory cost, it also needs to beware of additional carrying and ordering costs. Suppose it was able to produce and ship JIT, it will save the company considerable inventory carrying costs. ‘Just in time’ (JIT) also assist the company to get a valid schedule and pass it on to its suppliers. Adoption of this model will align Kuiper Leda with its efforts for the subsequent years to follow.
Finally, the company should determine its efficiency by measuring its efficiency measurements. This include: (a) slow moving stock rate; (b) obsolete stock rate; (c) operation cost index; (d) warehousing cost index and (e)distribution cost index. The first rate involves; calculating the percentage of stock that has not moved in the defined number of days while obsolete stock rate involves calculating the percentage of stock that is held above the ceiling stock level. Distribution cost index is the cost of the distribution for the given period expressed in % to sales terms whereas warehousing cost index is the cost of the warehousing for the given period expressed in % to sales terms with operation cost index referring to the cost of the Supply Chain organization for the given period expressed in % to sales terms.
Conclusion
Kuiper Leda should continue with its current MRP system and utilizing it to its optimal capacity, so as to maximize value to its end consumer. Moreover, its proper utilization of its operating system will help it focus on capacity management and delivery. Kuiper Leda can build a stout defense of its plans to outsource portions of its product line as this will allow for reduction of in-house storage costs and still satisfy the customer’s specification for delivery. Kuiper’s choice of system management is defendable since each system module, or rather the its: independent ordering system, order fill rate, lot for lot, and n-weeks supply do offers the optimal levels of inventory in the system and subsequently reduces carrying costs and overstocking.
Lastly, Kuiper Leda can defend its decision to use ‘Just in Time’ in order to retain its ability to achieve high-volume production on demand and still minimize inventory of parts. The ability to properly forecast consumer demand will keep the firm more profitable and competitive while maintaining its strong reputation in supplier relations as a trusted and reliable partner.
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References
Chase, Richard B., Jacobs, Robert F., Aquilano, Nicholas J. (2006) Operations Management for Competitive Advantage.11th Ed. pp 16, 24, 408.
Just In Time – JIT. www.investopedia.com (2007). Retrieved on January 24, 2007 from the World Wide Web.
Material requirements planning. www.wikipedia.com (2007). Retrieved on January 24, 2007 from the World Wide Web.
Operations Management. University of Phoenix Week 4-6 simulation (2007). Retrieved on December 30, 2006 from the UofP website.
Procurement and Supply Chain Management. www.bp.com/liveassets (2007). Retrieved on January 17, 2007, from the World Wide Web.
(www.investopedia.com , 2007)
