Kuiper Leda Supply Chain Defense

Kuiper Leda Supply Chain Defense

The automotive OEM industry is one that is characterized by long lead times, highly competitive design-in cycles, procurement and strategic sourcing strategies that demand a very high level of synchronization, and supply chains that can are continually attempting to manage unforeseen spikes in demand. Product assemblies can also significantly in mid-production as auto manufacturers and OEMs launch new models and products to stay competitive, attempting to leverage previous-generation componentry in the process. All of these factors contribute to very high degree of variability in supply chain forecasting, management and optimization. Kuiper Leda faces these uncertainties through a series of processes aimed at making the manufacturing of Electronic Control Units (ECUs) and Radio Frequency identification (RFIO) tags for automotive manufacturers and OEMs as accurate, efficient and profitable as possible.

The supply chain practices of Kuiper Leda form the basis of this paper, which seeks to defend their approaches and strategies and also define Key Performance Indicators (KPIs) and metrics of performance the company can use to better manage its supply chain performance. At the most strategic level, Kuiper Leda needs to concentrate on making their supply chain as efficient, transparent and quality-based as possible to. Inherent in this analysis is an assessment of the current level of supplier collaboration at the system and process level, and the ability of Kuiper Leda to also integrate suppliers into their new product development and introduction (NPDI) process as well. This latter process is illustrated by Kuiper Leda's introduction of a new RFID tag. The combined effects of supply chain collaboration and interprocess integration to support the NPDI process also evident how the company is using Just-In-Time (JIT) inventory management to increase inventory turns and reduce carrying costs.

Kuiper Leda Supply Chain Defense

The catalyst of Kuiper Leda's use of supply chain planning, collaboration and optimization strategies is their continual pursuit of lean manufacturing strategic objectives as evidenced in the combining Kaizen, supply chain management (SCM), schedule optimization and JIT inventory strategies. Lean manufacturing is widely considered to be the result of the maturation of JIT scheduling methods combined with intensive supply chain collaboration, knowledge transfer, and supply chain synchronization (Holweg, 2007). The impetus of the research that combined these factors originated and continues at the Massachusetts Institute of Technology (MIT) International Motor Vehicle Program (IMVP) and its studies of the Toyota Production System (Holweg, 2007). For Kuiper Leda, their efforts at knowledge transfer and knowledge integration is critical to their ability to transform having a series of disconnected supply chain processes and provides the impetus for them to be unified as part of a lean strategy (Ferdows, 2006). To see a progression of lean manufacturing from JIT please see Appendix A: Progression of Lean Manufacturing from JIT for an overview of studies that support the direction Kuiper Leda continues to take in this area of their supply chains.

JIT as a supply chain strategy has many implications on how effective Kuiper Leda will be in serving customers as well. As the simulation shows, there is an immediate and direct correlation of the ability of the company to manage JIT inventory and the ability to meet production and delivery dates. This in turn entirely defines if their customers' orders for Electronic Control Units (ECUs) and Radio Frequency identification (RFIO) tags will be able to be met or not. JIT then becomes a catalyst for meeting or exceeding customers' expectations or not. For Kuiper Leda this is a critical part of their role as a supplier in the automotive value chain as well. They need to concentrate on managing expectations of their customers from the execution of their own supply chain strategies as automotive manufacturers and OEMs typically have design-in cycles which are defined during the NPDI process (Quesada, Syamil, Doll, 2006). This translates into the need for Kuiper Leda to perform at a JIT level as a supplier as well to their customers. In effect this is the essence of an efficient, profitable supply chain, where lean manufacturing processes ensure a sufficiently high level of demand management and demand sensing (Truss, Wu, Saroop, Sehgal, 2006). JIT then for Kuiper Leda is essential to their ability to hold onto their OEM customers and gain new ones. The ability to earn and keep the trust of their auto manufacturer and OEM component customers is directly related to the ability of Kuiper Leda to execute JIT-based supply chain, sourcing and manufacturing strategies daily. There is also the direct influence of JIT on the cost of capital, which is a critical rate of interest that Kuiper Leda will have to pay for new development over time. The adherence and strong execution to a JUT strategy over time delivers all of these benefits with one of the most valuable being the reduction in cost of capital, increase in inventory turns and ability to meet or exceed the expectations of customers over time (Kros, Falasca, Nadler, 2006).

Also implicit in how Kuiper Leda is executing its supply chain strategies and systems is the reliance on collaboration at the order management, process and system level with key customers. This reliance on order management synchronization is apparent in how the company is defining forecasts with suppliers and then re-ordering manufacturing scheduling as a result. The progression the company has made from Material Requirements Planning (MRP) to Enterprise Resource Planning (ERP) is apparent in how the case shows Kuiper Leda sequencing production levels to align with production schedules. The progression from MPR to ERP is also seen in how well Kuiper Leda perceives their limitations in terms of production capacity for ECUs and the propensity of the processes involved in their manufacturing capable of being outsourcing. For all of these factors to be integrated from a process standpoint, an ERP system is critical. The role of ERP systems is to provide a means of unifying processes essential for the operation of a company, giving manufacturing companies the ability to attain their lean manufacturing and process objectives (Motwani, Akbulut, Nidumolu, 2005). Kuiper Leda's grasp of their limitations in terms of ECU and RFIO production also illustrates how the company has progressed beyond merely managing production via MRP and has a more enterprise-wide mindset. There are many dependent factors involved in constraint-based modeling of production schedules that are clearly evident in how Kuiper Leda defined their approach to outsourcing ECU product. The best possible decision is clearly to outsource ECU production for Midland Motors as the order dwarfs their production capacity. Yet it is not as simple as just the scalability of their production operations. Through the use of an ERP system the company has realized that the processes underlying the production of the ECUs are mature and stable enough to not change over time. This translates into a significant competitive advantage for Kuiper Leda relative to competitors who also may be considering outsourcing the production of large orders. For any outsourcing effort to be successful regardless of its scale there must be a very clear, well-understood series of processes that can be transferred to the outsourcing manufacturing partner (Ferdows, 2006). In many respects this is the same dynamic that occurs in the context of the Toyota Production System (TPS) as well, where knowledge transfer is the primary goal, as Toyota sees this as critical to their ability to withstand uncertainty in turbulent market conditions (Holweg, 2007). For the ECUs to be outsourced it is an absolute prerequisite that their underlying processes be well understood and capable of being taught by the teams responsible for getting the outsourcing manufacturer up to speed on them. This strategy of outsourcing them on such a large order confirms that the company has exceptional command of their ECU production process and also has the ability to train outsource partners, suppliers, and internal staff on them. To the extent an organization can capture and then communicate their production processes is the extent they can scale beyond reaction to market demands and attain their long-range objectives in the process (Ferdows, 2006). Just as the processes are in place for the outsourcing of the ECUs, it is apparent that the company must concentrate on capturing, creating meaningful context of, and packaging the knowledge for the production of the RFIOs as well

For Kuiper Leda, the foundational elements of being able to transform their supply chains from being reactive to market-driven is predicated on their ability to monitor and predict demand, integrate JIT processes, and coordinate with outsource partners for the production and delivery of the ECUs. All of these strategies however must be solidified around demand management quantified through forecasts. To the extent a manufacturer can ensure their supply chains are demand-driven vs. being defined by internal process inefficiencies is the extent to which they will be able to scale to fluctuations in customer orders and unique requests (Barrett, 2007). Staying market driven also requires a continual focus on improvement as connoted by the Kaizen processes, systems, and strategies in place at Kuiper Leda as well. It takes an exceptional level of discipline within any organization to align knowledge, insights and intelligence in the direction of staying demand driven vs. falling into a functional rut. This is exemplified in the approach Kuiper Leda also takes with regard to optimizing lead times throughout the productions scheduling and fulfillment processes as well.

In summary, Kuiper Leda has many of the foundational processes, systems and roles in place to enable an efficient demand-driven supply chain network (Barrett, 2007), including the ability to synchronize suppliers, inbound quality management and inspection, production scheduling, manufacturing, and fulfillment. The maturation from MRP to ERP is evident in the same factors which illustrate how the company is becoming more adept at accomplishing its lean manufacturing objectives, beginning with attainment of JIT. Outsourcing excess demand for the ECUs also indicates a relatively high level of process maturity, knowledge management (Ferdows, 2006) and quality management expertise as well (Yamazaki, 2003). Kuiper Leda shows the potential to scale into more collaborative processes with their suppliers, opening up the opportunity to create even greater cost reductions, more accuracy in their measurement and reporting of supply chain performance, and as a result create even more profitable operations as a result.

Kuiper Leda Measures and Metrics

It is common to find manufacturers measuring a limited set of processes that are often siloed or only in a specific area of their companies -- often the ones that have the highest levels of performance over time that are not dependent on any other departments' cooperation. Myopic and mis-guided as this strategy is, it often happens in companies with extensive supply chains that rival Kuiper Leda's. What this manufacturer of Electronic Control Units (ECUs) and Radio Frequency identification (RFIO) tags for automotive manufacturers and OEMs must concentrate on is more of a quantifying of the performance of bringing more collaborative processes into their supply chains. The ability of manufacturers in OEM-centric industries to create more collaborative process workflows through these of key performance indicators (KPIs) and metrics of performance has been shown to enable greater shared accomplishment over time (Chatterjee, Satpathy, Ganguli, Kumaresh, 2002). Kuiper Leda needs to re-evaluate the processes that are in place with suppliers and revise them to be more collaboratively-based so that both risk and more accurate knowledge is shared. As Dr. Kasra Ferdows (2006) has commented in his analysis of the variations in the roles and knowledge generated by factories and the supplier relationships that support them, the greatest differentiator over time is the ability to capture and transform knowledge into a competitive advantage. Measuring collaboration throughout their supply chain and rewarding it can set in motion the dynamics to turn knowledge generation and use as a competitive advantage. The Toyota Production System (TPS) is often held up as an example of this type of strategy, where knowledge has become the greatest competitive asset and the ability to manage costs to lower levels through shared collaboration and trust has been shown. Measuring shared, collaborative processes is going to be the most efficient strategy for Kuiper Leda to accomplish this level of competitive performance.

Specifically looking at measuring and improving the extent to which Kuiper Leda can increase their supply chain performance through more effective collaboration, the use of the framework of Collaborative, Planning, and Forecasting & Replenishment (CPFR) needs to be considered (Truss, Wu, Saroop, Sehgal, 2006). Figure 1 provides a graphical representation of this framework, which has been used extensively in auto components manufacturers globally.

Figure 1:

Collaborative Planning Forecasting & Replenishment (CPFR)

Applied to the Automotive Components Business

Source: (Truss, Wu, Saroop, Sehgal, 2006)

Putting into place a CPFR framework will give Kuiper Leda the ability to more effectively manage inventory levels and through more effective collaboration, be able to manage variation in demand as well. The CPFR framework can also serve as the basis for quantifying shared processes throughout the supply chain and creating measures of shared performance. The use of the AMR Research hierarchy of supply chain metrics (Hofman, 2004) where functional measures of shared process performance serve as the foundation for transaction-based metrics of order accuracy lead to the development of measures of order accuracy are also critical for Kuiper Leda. The use of the AMR Research hierarchy of supply chain metrics to define when the right order is delivered to the right customer, at the right price, in essence the perfect order (Hofman, 2004) needs to guide the use of metrics to measure collaboration as it relates to streamlining the Kuiper Leda's supply chains' use of metrics.

Second, the use of JIT in the context of broader supply chain collaboration and synchronization metrics needs to be put into the context of process and system integration, not measured by itself. The reliance on JIT as a means to reduce costs of capital and increase inventory turns while meeting customer delivery dates and expectations needs to become much more of a process based on shared ownership throughout the supply chain. Instead of being centered only within Kuiper Leda, JIT needs to have implications in Service Level Agreements (SLAs) and contracts with suppliers, partners, and support partners. Increasing the accuracy, accountability and auditability of JIT will result from this broader integration of the metric, in addition to discovering as to what creates causality of its values over time. JIT can also be used as a metric to evaluate how mature and therefore teachable upstream processes in their suppliers' supply chains are standardized enough, and therefore capable of being outsourced as well. For Kuiper Leda to gain knowledge, not price, as their greatest differentiator over time they need to transform the role of JIT away from being purely for measuring lean manufacturing and re-architect its structure to also encompass supplier management, supplier learning and knowledge transfer throughout a supply chain (Ferdows, 2006).