OM Assignment

Kulicke And Soffa Industries, Inc: Designing A Supply Chain Network

Group 3

Shivendra Kadam Madhukar- 049

Rane Tanvi Tukaram-041

Sarvana Kumar Murthy-045

Sonali Rajore-053

Suman Sharma-057

Unadkat Meet Harshadbhai-061

Question1: What are the underlying forces that led to K&S desire to
make changes to its current supply chain network?

The geographical shift in the electronic in the electronics manufacturing

industry to Asia and other Pacific Rim countries affected supply chain
network. The firm followed suit to be more closely connected to their
customer and can take advantage of low labor, operating property and raw
material cost.

Question 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.

After analyzing the exhibits and data given in the case it’s not advisable for
K&S to expand the current capacity in Israel, rather it should go with an
opening in the new plant in Asia. Looking at the data in Figure11, the
investment cost would be approximately $2 million which is lower than
investing in other projects. And their return would also be high efficiency in
terms of units/workers/hour. But on another hand, the average
manufacturing wage is $10.78, which is quite high when compared to other
allocations. In 2000 Israel is also dealing with higher taxation about 43%of
total GDP so it would imply the lower profitability margins in the long run.

They should consider opening the new plant in Asia as their

competitors and customers are locating in Asia and also the location is very
close to the customers and suppliers providing low expenditures like labor,
operations, property, and raw material cost.

Investme Efficie Capaci Hourl Shipping Shipping cost

nt Cost ncy ty y cost to to US and
wage Asia other int
s

China 6500000 7 40000 0.5 0.5 1.5

00

Israel 2000000 10 25000 10.78 1 0.75

00

Jordan 4500000 8 35000 1.05 1 0.75

00

Singapore 6000000 8 30000 9.19 0.5 1.5

00
Labour Total shipping Total shipping cost to US Overall (for 3
cost/year cost to Asia and other years)

285714 1660000 1020000 15397143

2695000 2075000 318750 17266250

459375 2905000 446250 15931875

3446250 1245000 765000 22368750

After analyzing the exhibits and data given in the case it’s not advisable for
K&S to expand the current capacity in Israel, rather it should go with an
opening in the new plant in Asia. Looking at the data in Figure11, the
investment cost would be approximately $2 million which is lower than
investing in other projects. And their return would also be high efficiency in
terms of units/workers/hour. But on another hand, the average
manufacturing wage is $10.78, which is quite high when compared to other
allocations. In 2000 Israel is also dealing with higher taxation about 43%of
total GDP so it would imply the lower profitability margins in the long run.

They should consider opening the new plant in Asia as their

competitors and customers are locating in Asia and also the location is very
close to the customers and suppliers providing low expenditures like labor,
operations, property, and raw material cost.
 Investme Efficie Capaci Hourl Shipping Shipping cost
nt Cost ncy ty y cost to to US and
wage Asia other int
s

China 6500000 7 40000 0.5 0.5 1.5

00

Israel 2000000 10 25000 10.78 1 0.75

00

Jordan 4500000 8 35000 1.05 1 0.75

00

Singapore 6000000 8 30000 9.19 0.5 1.5

00

Labour Total shipping Total shipping cost to US Overall (for 3

cost/year cost to Asia and other years)

285714 1660000 1020000 15397143

2695000 2075000 318750 17266250

 459375 2905000 446250 15931875

3446250 1245000 765000 22368750

Question 3: What factors should K&S take into account in each

decision to redesign its supply chain network?

The factors they should consider are

1.economic factors:

GDP, exchange rates, manufacturing wages, inflation ,economic growth

which can have both have positive and negative impact to the future
investments

2. Technological factors:

Lack of infrastructure may halt the technological development of the

industry, this lack of technology may become an advantage for the
competitors

3.Social factors:

Culture, language, lifestyles of the people and the industry should not face
hindrances because of these factors

4.Political and legal factors:

The industry should do a proper research on different tariffs and

regulations, acquiring some local companies or joint venture with small
companies may help in this aspect
Question 4: Assuming K&S opens another plant, what are the
advantages and disadvantages of different locations

Jordan

Advantages:

1. It is closer to Israel site and lower labour cost

2. Qualified industrial zones which will allow goods produced through

partnership between Israeli and either Jordan or Egypt to enter the
United States duty free.

3. Due to high unemployment (14%) plenty of opportunity to find

workers.

Disadvantages:

1. Major concern about opening business in Jordan was uncertain

diplomatic relationship. Yhe on again and off again of Arab-Israel peace
agreements affected Jordan because more than 50% of its citizen were
of Palestinian origin. Any unrest would impede the training of Jordan
employees due to security concerns of sending Israeli employees there.

2. Issues related to infrastructure- whether Jordan would be able to offer

advanced communication channels, computerization, manufacturing
capabilities and adequate access to local suppliers.

Singapore
Advantage:

1. Well trained workforce

2. Excellent infrastructure

3. Economic, Political and Social Stability

4. Closer to customer as compared to Israel facility

Disadvantage:

1. Biggest drawback of location was high cost of living

China

Advantages:

1. Special economic Zones in the south, foreign investors were offered

tax incentives and other privileges

2.Low production Cost, conveniently located close to several K&S

customers

3. Reliable infrastructure, plentiful public transportation will be helpful

4. Abundant supply of labor, Excellent growth potential

Disadvantage:

1. Language barrier
2. Government Barrier
3. Chinesse Yuan is not fully convertible
 Question 5: What recommendations would you give K&S
management regarding the location choice? What implementation
challenges do you foresee? How would you address those
challenges?

Ans: K&S should consider investment in Suzhou, China, Because

1) low living cost

2) Facility near Existing and emerging customers

3)Partnership between Singapore and China which offer good

transportation

4) Well established Chinese Infrastructure, Readily available supply of

labour and close to Metropolis Shanghai. Higher profit margin due to
cheap labour and production cost

Implementation challenge:

1) High cost of investment (6.5 million dollar)

2) Cultural differences and communication barriers
3) High regulation and tariffs
4) Lack of expertise in Chinese market about potential suppliers and
partners

Addressing Challenges
1) Research to know Chinese market overview such as culture, politics
and economics growth
2) Research to get accurate information and how to do business in
China
3) Hire local manager to break the Cultural and communication barriers