Kuiper Leda Supply Chain Defense

Kuiper Leda Supply Chain Defense

Organizations of today understand the need for efficient supply chain management (SCM) to gain an advantage in this highly competitive business environment. In order to create an effective SCM system, an understanding of the various interactions between suppliers, manufacturers, distributors, and consumers is needed. Furthermore, these organizations/entities must work together to establish a committed contractual relationship. Ultimately, doing so would provide each entity opportunities for success and increase the shareholders' wealth.

This paper will attempt to educate the readers on the importance of supply chain management. This paper will identify some of the SCM practices or strategies organizations use, specifically those used by Kuiper Leda (Kuiper), the subject of the case study. Moreover, this paper will provide recommendations on how to further improve Kuiper's supply chain which will help reduce costs, minimize wastes, and maximize value. Readers are encouraged to carefully evaluate Kuiper's operations, current position, and objectives, which would help in determining the best SCM practices the organization must adopt.

Kuiper Leda Supply Chain

Kuiper Leda, an electronic components manufacturer, is faced with a growth opportunity. A small but highly respected organization, Kuiper has spent the last decade producing Electronic Control Units and more recently, Radio Frequency Identification Systems (RFID). Kuiper's daily production capacity is 1,250 units of ECUs and 250 units of the RFIDs. Midland Motors (Midland), an American Original Equipment Manufacturer (OEM), received a large order for powertrain assemblies to a leading car manufacturer. As a result, there is an increased demand for Kuiper's products. Midland placed an annual order of 250,000 ECUs, a necessary component for powertrain assemblies (direct demand). Additionally, Midland placed an annual order of 35,000 RFID tags to help with inventory control (indirect demand). With this increased demand for Kuiper's products, Kuiper needs to reevaluate the company's existing supply chain. The company needs to ensure that the existing SC is streamlined. "A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers" (Infoscaler, n.d.). Currently, Kuiper acquires all necessary materials to produce both ECUs and RFIDs in-house; however, with such a large order from Midland producing in-house would be inefficient for Kuiper. Furthermore, Kuiper is not geared to produce large quantities. Kuiper needs to decide whether to accept Midland's order and how Kuiper would manage to manufacture and supply a higher volume order. Kuiper needs to evaluate whether outsourcing or producing in-house would be most advantageous to Kuiper. Kuiper also needs to consider how outsourcing would impact the supply chain and customer satisfaction. By changing the existing production plan, Kuiper needs to make modifications to the delivery schedules as well. Kuiper needs to consider various effects such as overtime (production), errors and defects, and customer dissatisfaction.

In order to meet current demands, Kuiper needs to partially outsource some of the orders. "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, including people, facilities, equipment, technology, and other assets, are transferred... the responsibilities for making decisions over certain elements of the activities are transferred as well" (Chase, Jacobs, and Aquilano, 2005). According to MDF Systems' (2004) website, by outsourcing Kuiper can "minimize capital expenditures; improve efficiencies through economies of scale, and level out seasonal fluctuations." Kuiper would also benefit by increasing efficiency, reducing risks, and gain better control of costs. In addition, Kuiper does not have to accrue additional expense in acquiring new technology and/or equipment to produce the products since the obligation and decisions relating to production are transferred to the external company. Furthermore, Kuiper can focus on core activities or expertise, customers, and markets. In determining which of these products to be outsourced, Kuiper has to consider three things namely lead time, costs, and capacity. Kuiper has to outsource the ECUs because the company does not have ample lead time to outsource the RFIDs. Outsourcing the RFIDs would require three weeks while producing it in-house would only require two weeks. Furthermore, Kuiper cannot exceed the 79,297 ECU-capacity for the first quarter. In Kuiper's case, outsourcing would assist in reducing costs of good sold and allow for achieving production targets. Therefore, outsourcing the production of ECUs would be the most optimal solution for Kuiper and its clients.

While the RFIDs are being outsourced, Kuiper is still responsible for producing the ECUs. Kuiper needs to adopt the Just-in-Time (JIT) principles in procurement of products, manufacturing, and distribution. JIT lets manufacturers, such as Kuiper Leda, purchase and receive components just before the components are needed on the assembly line. As a result, the cost and burden of storing and managing idle parts are minimized. Pioneered by Toyota of Japan, JIT philosophy is an effective strategy that helps in improving efficiency and profitability. By adopting JIT in procurement, manufacturing, and distribution, Kuiper can reduce wastes and minimize expenditures in the entire manufacturing process. "This (JIT) process lets manufacturers purchase and receive components just before they are needed on the assembly line... as a consequence, it relieves manufacturers of the cost and burden of housing and managing idle parts" (Songini, 2000). Kuiper can reduce wastes by only acquiring materials needed for production (at any given time). Through JIT, Kuiper can increase profitability by minimizing expenditures by reducing carrying costs and reducing wastes. Inventory carrying costs (or holding costs) include expenditures related to storage, handling, insurance, damages or wastes, and taxes. Kuiper can also better manage its human capital and improve employee morale by reducing overtimes, simplify schedules, and control activities. Increased customer satisfaction would result from JIT as Kuiper can offer shorter lead time, increase productivity, and improve quality by minimizing errors (Sparling, 2004). In addition, Kuiper needs to centrally regulate demand and postpone sub-assemblies.