Kulicke & Soffa Case StudyEssay Preview: Kulicke & Soffa Case StudyReport this essay1. What are the underlying forces that led K&S’s desire to make changes to its current supply chain network?The first underlying force we can name which led K&S’s desire to make changes to its current supply chain network is the fact that there was a shift in K&S’s customer base towards Asia and other Pacific Rim countries. The opening of new markets, the opening of competitor’s new plants in Asia and the erosion of the application server provider market were also motives for K&S to make changes in their current supply chain network.
As showed in figure 2 of the case, Asia-Pacific spending in terms of semiconductor equipment overtook Europe’s spending in the year 2000 and this gap is expected to grow more in the years to come. As the Asian demand keeps growing, K&S needs to increase its production capacity by expanding.
The fact that K&S holds the largest market share is another underlying factor to make changes in their supply chain. In fact, K&S has to reduce the risks associated with having the largest market share in the world by opening up another plant. As mentioned in the case, a “dual source” is advantageous to the company, it will allow it to produce more.
2. Based on financial considerations, should K&S expand the current capacity in Israel or open a new plant elsewhere? Use the data in the case to calculate the three-year cost for each of the options as well as the amount of demand (Asia versus other parts of the world) to be satisfied from each location. Show your calculations.
As mentioned in the case, demand in the year 2000 was equal to 6 000 000 units. This demand was although expected to grow to 8 000 000 per year. In the table below, we thus computed the demands for the time period (2000-2002).
Year 2000Year 2001Year 2002Asia (87%)4 980 0006 640 0006 640 000Rest of the world (17%)1 020 0001 360 0001 360 000Global demand6 000 0008 000 0008 000 000To know whether K&S should expand in Israel or open a new plant elsewhere we are going to compare the costs of doing so for each respective region. We will be computing these costs for Israel, Jordan, Singapore and China.
The parameters we will take into account in our computations are:Shipping costsNumber of workersLabour costsCost of investmentWe know that the construction of the plant will take two years (year 2000 and year 2001), during these two years, K&S will only be able to satisfy a demand equal to 6 000 000 units. It is only in 2002, the third year, that it will be able to satisfy the 8 000 000-unit demand. According to figure 3 in the case, Asian demand represents 83% of global demand, we assume that this figure will remain stable throughout the 3 years.
We also made the assumptions that employees work 252 days per year and 8 hours a day. We also assume that shipping costs remain stable over the three-year period as well as the labour efficiency.
EXPANSION COSTS IN ISRAEL IN USDYear 2000Year 2001Year 2002Satisfied demand6 000 0006 000 0008 000 000Shipping costs (USD)5 745 0005 745 0007 660 0001 USD for Asia0,75 USD for ROWNumber of workers(Satisfied demand)/((Labour eff. x 8 x 252))Labour costs(USD)6 468 0006 468 0008 624 000Number of workers x average wage x 8 x 252Cost of Investment(USD)2 000 000TOTAL COST14 213 00012 213 00016 284 00042 710 000For the total cost computations of Jordan, Singapore and China, in years 2000 and 2001 the cost structure (without investment cost) will be exactly the same as the cost structure of Israel in those same two years. In fact, since the construction takes two years, the extra plant being implemented in Israel, Jordan, Singapore and China will only be functioning in year 2002.