Kuiper Leda Supply Chain Defense: Strategy & KPIs

Introduction to Kuiper Leda's Supply Chain Environment

The automotive OEM industry 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 are continually attempting to manage unforeseen spikes in demand. Product assemblies can also change significantly 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 a 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 (RFID) 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. At the most strategic level, Kuiper Leda needs to concentrate on making their supply chain as efficient, transparent, and quality-based as possible. 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 integrate suppliers into their new product development and introduction (NPDI) process. This latter process is illustrated by Kuiper Leda's introduction of a new RFID tag. The combined effects of supply chain collaboration and inter-process integration to support the NPDI process also illustrate how the company is using Just-In-Time (JIT) inventory management to increase inventory turns and reduce carrying costs.

Lean Manufacturing and JIT Strategy

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 of 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 are critical to their ability to transform a series of disconnected supply chain processes and provide the impetus for unifying them as part of a lean strategy (Ferdows, 2006).

JIT as a supply chain strategy has many implications for how effectively Kuiper Leda will serve customers. As the simulation shows, there is an immediate and direct correlation between the company's ability to manage JIT inventory and its ability to meet production and delivery dates. This in turn entirely determines whether customers' orders for ECUs and RFID tags can be met. JIT thus becomes a catalyst for meeting or exceeding customers' expectations. For Kuiper Leda, this is a critical part of their role as a supplier in the automotive value chain. They need to concentrate on managing customer expectations through the execution of their own supply chain strategies, as automotive manufacturers and OEMs typically have design-in cycles 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 to their own 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 is therefore essential to Kuiper Leda's ability to retain existing 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 Kuiper Leda's ability to execute JIT-based supply chain, sourcing, and manufacturing strategies on a daily basis. 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. Strong adherence and execution of a JIT strategy over time delivers all of these benefits, with one of the most valuable being the reduction in cost of capital, an increase in inventory turns, and the ability to meet or exceed customer expectations over time (Kros, Falasca, & Nadler, 2006).

ERP Integration and Outsourcing Decisions

Also implicit in how Kuiper Leda executes its supply chain strategies 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 defines forecasts with suppliers and then re-sequences manufacturing schedules accordingly. The progression 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. This progression is also seen in how well Kuiper Leda perceives their limitations in terms of production capacity for ECUs and the extent to which the processes involved in their manufacturing are capable of being outsourced. 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 RFID production also illustrates how the company has progressed beyond merely managing production via MRP and has adopted 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 production. 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 the scalability of their production operations alone. 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 not to change over time. This translates into a significant competitive advantage for Kuiper Leda relative to competitors who may also 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), 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 the underlying processes be well understood and capable of being taught by the teams responsible for getting the outsourcing manufacturer up to speed. This strategy of outsourcing on such a large order confirms that the company has exceptional command of their ECU production process and the ability to train outsource partners, suppliers, and internal staff accordingly. To the extent an organization can capture and then communicate their production processes is the extent to which they can scale beyond reaction to market demands and attain their long-range objectives (Ferdows, 2006). Just as the processes are in place for outsourcing the ECUs, the company must also concentrate on capturing, contextualizing, and packaging knowledge for the production of the RFID tags.

Conclusion

Kuiper Leda needs to aggressively pursue more collaboratively-based processes throughout its supply chain, inclusive of Balanced Scorecards and CPFR, and including SLAs that tie JIT inventory performance to suppliers as well. Not only does this spread the risk of supply chain performance, it also serves to internalize the shared goals and priorities of the company with its suppliers. In conjunction with these initiatives, the company's reliance on MRP for production scheduling and sequencing needs to be re-evaluated in light of the more integrative nature of the processes it is relying on. Data in the case study suggests that order management is a crucial system and process workflow. By definition, ERP systems concentrate on distributed order management workflows and are also adept at production scheduling, pricing, and supply chain management. Modules are often added to ERP systems to make them capable of integrating into supply chain planning, management, and optimization workflows as well.