Gap Analysis: Kuiper Leda

Gap Analysis: Kuiper Leda

Supply chain management refers to the process that aims to satisfy, with optimal efficiency, the requirements of customers through the planning, control, and implementation of supply chain operations. According to Hau L. Lee, a professor at the Graduate School of Business and the School of Engineering at Stanford, "supply chain management involves the flows of material, information, and finance in a network consisting of customers, suppliers, manufacturers, and distributors" (2000, p. 31). In other words, supply chain management entails a set of interactions among several entities, each taking a distinct role, in a network across which materials, finance, and information flow (Kotrill, 2002). A substantial amount of activities are executed and harmonized within, as well as between, organizations; every firm or company engages in at least one supply chain interaction relationship with another. The effective management of complex global supply chains, according to Lee (2000, p. 32), entails "tight integration between partners." It is like a pair ballroom dancers on the floor needing constant synchrony to deliver the dance routine well. Undoubtedly, supply chain management has become a global organization's most potent business tool for cost reduction while improving production performance and reliability, as well as customer satisfaction.

This paper provides an inventory model, based on generalizations of the operation-management theorems discussed by Chase, Jacobs, and Aquilano (2005), as a viable solution to a company's current production inadequacies. The company in focus is Kuiper Leda, Inc., which is a manufacturer of electronic components, particularly radiofrequency identification devices, electronic control units, and sensors catering original equipment manufacturers in the automotive industry. From a bird's eye view, Kuiper Leda is currently production-capacity deficient in addressing additional client requirements and demands. More specifically, Kuiper Leda's production inadequacies lie in its inventory tracking, production planning, and supply chain management system. While Kuiper Leda establishes itself through the principle of constant upgrades of its existing technological base, the company is now, more than ever, seeking to optimize key components in its production through the application of technology-based alternatives. By treating Kuiper Leda's problem as one of reliability-type inventory, a gap analysis is carried out to explore possible plans of action.

Situation Analysis

Issue and Opportunity Identification

On the surface it appears that Kuiper Leda's main problem is prompted by a viable growth opportunity in increasing the number, as well as the business size, of its customers. However, looking more closely at the current capacity of Kuiper Leda reveals a deficiency, if not inferior, in the efficiency of its inventory system, supply chain management, and production planning capability.

The most challenging issue that Kuiper Leda is facing right now is gearing up its capacity to satisfy production demands, which are necessary for it to meet and maintain its contract with Midland Motors. If Kuiper Leda succeeds in this area, then it will definitely achieve growth within its industry. The present production capacity of Kuiper Leda, however, does not permit that because it is not adequately equipped to meet Midland Motors's requirements and demands. For instance, assuming a 365-day year of production, Kuiper Leda must be able to increase its output of electronic control units (ECU) by 55 percent and of radiofrequency identification devices (RFID) by 39 percent.

With its present capacity, Kuiper Leda produces 250 RFIDs and 1,250 ECUs in one day of production. Suppose that there is no work during Saturdays and Sundays, as well as during holidays. This leaves Kuiper Leda with only 250 days of production in one year. Assuming a uniform daily rate of production, this annual amount of production time would enable Kuiper Leda to produce 62,500 RFIDs and 312,500 ECUs within a year. From this annual output, Kuiper Leda has managed to derive revenue of about $400 million. In November 2008, Kuiper Leda receives a bulk order from Midland Motors for RFID tags and ECUs. Specifically, Midland Motors places a yearly order of 35,000 RFIDs and 250,000 ECUs. To fulfill the contract, Kuiper Leda needs to deliver to Midland Motors the aforementioned minimum quantity of RFIDs and ECUS. Kuiper Leda sells each RFID tag at $185, whereas it sells an ECU at $700. It is easy to calculate how financially significant Midland Motors' bulk order is for Kuiper Leda--the total additional revenue of $181 million essentially translates to a 45 percent revenue increase. Kuiper Leda therefore stands losing a considerable degree of credibility if it fails to fulfill its contract with Midland Motors.

To satisfy the demand and requirements, and win its contract with, Midland Motors, Kuiper Leda must consider the opportunity of outsourcing a portion of its production. Outsourcing would enable Kuiper Leda to enhance its internal competencies, as well as to establish strategic plans to move the company forward from its current state. Chase, Jacobs & Aquilano assert that outsourcing production enables a manufacturing firm to concentrate on activities that comprise its core competencies. Hence, while the firm reduces production costs, it also creates a competitive advantage. An entire production function or some elements of activity may be outsourced while the rest are maintained in-house (2005, p. 413).

While outsourcing its production of RFIDs and ECUs is a wise option for Kuiper Leda to take in order to win Midland Motors' contract, Kuiper Leda nevertheless needs to bring under control its Work-In-Progress (WIP). Failure to address WIP control implies that Kuiper Leda would unfortunately miss crucial deliveries. In this regard, Kuiper Leda needs to upgrade its supply management and inventory tracking systems, as well as its production planning. Upgrades in these areas would render the company improved internal control and demand forecasting, web integration, and an increased distribution control. Part of these upgrades should be focused at improving its current Enterprise Resource Planning in order to integrate Kuiper Leda, through web enabling, to its suppliers on the input end and to its customers on the output end. This opportunity is supported by operation-management theory:

Web-based tool[s] used to coordinate demand forecasting, production and purchase planning, and inventory replenishment between supply chain trading partners. CPFR [Collaborative