Kiuper Leda

Running head: PROBLEM SOLUTION: KUIPER LEDA INC.

Problem Solution: Kuiper Leda Inc.

University of Phoenix Dallas

May 23, 2006

MBA - 550

Problem Solution: Kuiper Leda Inc.

In this paper we recall and further develop an inventory model formulated by one student of MBA 550. One will make some generalizations of the theorems of Chase, Jacobs and Aquilano with application to a reliability type inventory problem. The basic assumption made in connection with this reproduction is that the delivery of the ordered amount takes place in an interval, according to some arbitrary process, rather than at one time period. The setback is to determine that minimum level of safety stock, which ensures continuous production, without interruption, by a prescribed high possibility. The model is further developed first by its combination with another inventory control model, the order up to S model and then, by the formulations of a fixed and a dynamic type stochastic programming models; hence we have Kuiper Leda Inc.

Situation Background (Step 1)

Kuiper Leda, further referred to as, K.L. is an electronic component manufacturer that specializes in the production of electronic control units (ECUs) and sensors for the automotive industry. As the vice president of supply chain one has to take a look at the current situation and to develop an inventory management plan for handling the extra requirements placed on this company by its customers. Currently, they are producing 1250 ECUs and 250 radio frequency identification devices (RFID) per day. Hypothetically speaking, if there is no work done on the weekends, leaving 250 workable days per year, K.L. would have produced 312,500 ECUs and 62,500 RFIDs in one year.

K.L. is based in the Republic of Novamia and has revenues of $400 million. Breaking down the numbers into workable terms, if one takes 50 weeks out of the year for business, K.L would have weekly revenues of $8 million; and if one was to take that number and put it into a 5 day work week Kuiper would have revenues totaling $1.6 million per day.

In November 2008 K.L has received a large order for ECUs, which are a key component of powertrain assemblies, and RFID tags to facilitate inventory control from Midland Motors - an American Original Equipment Manufacturer (OEM). Midland has placed an annual order of 250,000 ECUs and 35,000 RFID tags to facilitate inventory control in their factory. A minimum quantity of both products has to be delivered to Midland to fulfill the contract. This selling price for ECUs is $700 ea. and for RFIDs is $185 ea. Calculating the order from Midland Motors will yield one an increase in revenues of around 45% to the sum of $181 million. K.L. stands to loose a substantial amount of credibility if this contract is not fulfilled.

The vice president of supply chain for K.L. decided to outsource partial production of the ECU/Microchips to keep up with the weekly demand. In addition the vp decided to manufacture the RFIDs in house because they have a greater contribution margin of $45.

In December 2008 the vice president of supply chain has to come up with a new inventory management plan to deal with excess stock and production. Some customer orders in the first and second quarter of the master planning schedule were delayed because the customer has discontinued the production line because of financial problems.

Issue Identification

This development places several issues in front that need to be handled in a supply minded way. Kuiper first has to come up with a plan to meet the sudden increase in requirements in the month of November. Can K.L. make both products in house and still make a profit. Secondly, K.L. has to develop an inventory management plan for handling the production of the microchips and a contingency plan to assure management that this will not happen again.

Opportunity Identification

With any problem there are always opportunities that can be realized if looked at with an open mind. In the case of K.L. one can see the financial benefits to the situation at hand through the increase efficient production and the streamlined procedures. The contract with Midland Motors will allow for a 45% increase in sales to the sum of $181 million above the $400 million. This contract also comes along with bragging rights. The reputation of K.L. is on the line. Showing that they can produce large quality quantities will entice other large firms into ordering from Kuiper.

Stakeholder Perspectives/Ethical Dilemmas

The stakeholders in the above scenario are numerous in number. For the purpose of this paper I am only going to concentrate on 3 of stakeholders; the employees, management, and Midland Motors are the stakeholders I am referring to.

The employees of K.L. have probably started the rumor mill going and there is no real way of knowing what type of damage is already done. The management of K.L needs to have a meeting with the employees and make sure they know what is really going on. This method may even come out with some great results. Who else would know better than the ones working, about how to increase production in a safe and cost effective manor? Midland Motors want to receive the same great quality product that K.L. is known for and receive it on time. Finally, the management wants to find a way to make a profit off the increased production.

Problem Definition (Step 2)

Kuiper Leda needs to find a way to produce more ECUs and RFIDs in order to keep up with the demand from the customer and make a suitable profit margin.

End-State Goals (Step 3)

The End State Goals for Kuiper Leda are as follows:

1. Optimize profit margins by using a mixture of in house production and outsourcing.

2. Develop an inventory management plan that will allow for an industry standard of inventory levels consistently.

3. Find a supplier for ECUs and develop the RFIDs business.

Alternative Solutions and Benchmarking Validation (Step 4)

Eastman Kodak Co.

Kuiper Leda Inc. has the opportunity to maximize its current production resources and optimize profit margins