Kuiper_Leda_Problem_Solution_Paper

Running head: PROBLEM SOLUTION: KUIPER LEDA Problem Solution: Kuiper Leda Kirsten Garrett University of Phoenix Problem Solution: Kuiper Leda This paper will discuss the issues and opportunities facing Kuiper Leda and the necessary changes that have to be made to successfully meet Midland Motors needs. This includes how the company can better manage its inventory. This paper will also discuss the benefits of implementing Six Sigma and good supply chain management. I will also discuss each of the different stakeholders. This includes their interests, how those interests differ and create conflict. I will present what I see as Kuiper Leda’s problem statement and then proceed to address the end state vision and where I see the company ending up. A large part of this paper will be a presentation and discussion of different solutions and the risks they pose as well as how to mitigate those risks. My optimal solution will be presented and along with it how it needs to be implemented and finally how the success of my solution can be measured. At the end of the paper are six tables that put the information in tablature form allowing the reader to piece the information together systematically. Situation Analysis Issue and Opportunity Identification Kuiper Leda is a company that specializes in making electric components. Recently the company received a large order from Midland Motors, a large auto manufacturer. Kuiper Leda must decide how to best proceed. One of the first decisions the company faces is whether or not to outsource one or both of the products in order to be able to meet the increased demand. The decision was made to outsource the production of Electronic Control Units (ECUs) but to keep the production of Radio Frequency Identification Devices (RFIDs) in house. As the demand increases Kuiper Leda must decided how to best keep inventory. Holding too much inventory could greatly increase the company’s costs. “Establishing the correct quantity to order from vendors or the size of lots submitted to the firm’s productive facilities involves a search for the minimum total cost resulting from the combined effects of four individual costs: holding costs, setup costs, ordering costs, and shortage costs. Of course, the timing of these orders is a critical factor that may impact inventory cost” (Chase, Jacobs & Aquilano, 2005, p. 591). Deciding how to manage its inventory is an important decision for Kuiper Leda not only because of possible increased costs but also because the company must be able to meet the customer’s demands. Figuring out how much inventory to keep on hand can be hard. Kuiper Leda needs to use a fixed order quantity (FOQ) model to keep the optimal amount of inventory on hand. “Multiperiod inventory systems are designed to ensure that an item will be available on an ongoing basis throughout the year. Usually the item will be ordered multiple times throughout the year where the logic in the system dictates the actual quantity ordered and the timing of the order…The fixed–order quantity model favors more expensive items because average inventory is lower” (Chase, et al., 2005, p. 595). As the company continued to grow another issue that Kuiper Leda faced was unpredictable demand. These fluctuations in demand made it difficult for the company to know how much inventory to keep on hand at any one time. One solution to this problem is to forecast demands using exponential smoothing. “Exponential smoothing techniques have become well accepted for six major reasons: 1. Exponential models are surprisingly accurate. 2. Formulating an exponential model is relatively easy. 3. The user can understand how the model works. 4. Little computation is required to use the model. 5. Computer storage requirements are small because of the limited use of historical data. 6. Tests for accuracy as to how well the model is performing are easy to compute” (Chase, et al., 2005, p. 521). This allows Kuiper Leda to have a better idea of how much inventory to keep on hand in the upcoming months. Another option that could help is to implement the use of warehouses. By storing inventory in a warehouse Kuiper Leda ensures they have it when they need it as well as decreasing transportation costs and increasing service level capability. The use of a warehouse could also decrease the lead-time for delivery to the customer. Stakeholder Perspectives/Ethical Dilemmas The main stakeholders are Kuiper Leda senior management, Midland Motors, and the employees. Each group has different values and interests in the company yet they are all intertwined. The primary interest of Kuiper Leda is to effectively manage its inventory to meet the increasing demands and maximize its profits. Midland Motors is also a stakeholder. Midland Motors is dependant on Kuiper Leda to meet its supply demands. Midland Motors expects the products to be both timely and good quality. Ethical considerations need to be taken into account as Kuiper Leda is making decisions how to best meet the increased demand without compromising the quality of its products. Implementing Six Sigma may help the company eliminate any defects that may present themselves as the company feels the pressure of increased production. The employees’ primary interest is to ensure they have job stability and satisfaction. The employees do not want to feel overworked because of the additional workload Kuiper Leda has taken on. Should the employees begin to feel this way it will impact the morale and the overall wellbeing of the company. In a company like Kuiper Leda it is imperative that the senior leadership take note of the many different talents, educational backgrounds, ethnicities, generations, and family situations to find the best ways to increase motivation and overall productivity for the entire company. One way Kuiper Leda’s senior management might choose to motivate the employees is implementing a reward system based on production. Problem Statement Kuiper Leda will maximize its profits and ensure its customers are extremely satisfied by improving its supply chain management. This includes implementing new forecasting strategies, changing its distribution processes, and minimizing the amount of inventory on hand. End-State Vision Kuiper Leda needs to effectively manage its inventory to best maintain its cash flow as the demand for its products increases. In order to do this the company will have to implement the use of multiple warehouses, and change its inventory management so that the company has just the right amount of inventory, not too much and not too little. Making these changes will ensure that Kuiper Leda maximizes its cash flow. Kuiper Leda should implement Six Sigma, which will eliminate all defects from their products ensuring Midland Motors gets a quality product and is an extremely satisfied customer. Alternative Solutions Kuiper Leda is not currently prepared for the demands that they are facing. In order to become prepared the company needs to outsource its production of ECUs. This will free up some of Kuiper Leda’s resources for the time being and when they have implemented all the necessary changes they can resume production of all of their products. One of the first things that should be implemented is Six Sigma. This will ensure the quality of their product remains high as well as guarantees customer satisfaction is implementation is successful. Throughout the implementation of Six Sigma Kuiper Leda needs to focus on its inventory management to ensure excessive costs are not spent on holding and ordering inventory. One-way to do this is using a material requirements plan (MRP). An MRP uses bills of material, inventory data, and master schedule to determine the requirements for materials. This is beneficial for Kuiper Leda and will help them implement inventory forecasting. By effectively forecasting future needs the company avoids spending unnecessary money. Exponential smoothing is one way to forecast future needs and is optimal for is accuracy and simplicity. Finally Kuiper Leda needs to implement the use of a warehouse. Use of a warehouse allows Kuiper Leda to ensure they have inventory when they need it as well as decreasing transportation costs and increasing service level capability. The use of multiple warehouses placed strategically throughout the U.S. could also decrease the lead-time for delivery to the customer and also eliminate transportation costs. Implementing these changes will give Kuiper Leda better inventory management ensuring the company meets the needs of its customers efficiently and gives them the highest quality product for a good cost. Analysis of Alternative Solutions One of the first things Kuiper Leda needs to strategically place warehouses around the country and begin using them for inventory storage. This will cut costs and reduce delivery time to Kuiper Leda’s customers this goal was rated a three. Reducing the amount of inventory on hand has been very beneficial to Apple by increasing its cash flow leaving more cash and short-term investments on hand. Reducing inventory in this manner is relatively important so it was given a five. Lastly it seems that Kuiper Leda needs to be able to accurately predict future sales so that it is better able to maintain the necessary low level of inventory. This goal was rated a four. The optimal solution for Kuiper Leda is to strategically place warehouses, implement an exponential smoothing forecasting technique and implement the JIT method for the amount of inventory kept on hand. This alternative solution meets every one of Kuiper Leda’s goals and should be the perfect fix to the company’s current problems. Risk Assessment and Mitigation Techniques The alternative solution of strategically placing warehouses, implementing exponential smoothing and using the JIT method for inventory management poses really only one risk. This risk is that forecasting techniques could be off leaving the company with too much or too little inventory, probability medium. The consequences could be severe depending on the customer and the company’s financial status at the time. In order to mitigate this risk Kuiper Leda needs to have a plan for getting rid of excessive inventory in a timely manner. Similarly have a plan to obtain inventory quickly should the have too little on hand. Optimal Solution The optimal solution for Kuiper Leda is to step up its supply chain management practices. Kuiper Leda can learn from both Netflix and Apple. Both of these companies have figured out how to eliminate waste from their supply chain. The book states “seven prominent types of waste to be eliminated from the value stream: (1) waste from overproduction, (2) waste of waiting time, (3) transportation waste, (4) inventory waste, (5) processing waste, (6) waste of motion, and (7) waste from product defects” (Chase, et al., 2005). Netflix uses a number of strategically placed warehouses to cut down on costs of transportation as well as paying low rent and needing fewer employees. Apple also has figured out ways to reduce waste from its production. This is evident in the fact that the company only keeps on hand five days worth of inventory. Apple has reduced waste from overproduction and inventory and Netflix has reduced transportation waste and inventory waste. Kuiper Leda can implement a system like Netflix. Warehouses could be spread out around the country to reduce transportation costs and better serve customers. Learning from Apple Kuiper Leda needs to implement just-in-time inventory management. This will reduce Kuiper Leda’s inventory waste because the company will only carry what it needs on hand. Kuiper Leda will realize higher profits from reducing waste because it will also cut its operations costs, which means the company earns more profit for each product sold. Kuiper Leda has a long road a head being able to keep up with production of the new requirements that are coming its way. Supply chain management will be crucial and the lessons learned from the benchmarking research invaluable. Strategically placing warehouses around the country helps Kuiper Leda cut tranasportation costs and at the same time increases customer satisfaction by decreasing their wait time for the product. Using exponential smoothing Kuiper Leed can more accurately predict future sales and therefore inventory requirements. Implementation Plan In order to implement this plan Kuiper Leda needs to purchase 5 warehouses. The company has 6 months to make this purchase andt the CEO is responsible. Concurrently with this the company needs to implement exponential smoothing. It has 6 months to make this change. The other thing that needs to be done is for the company to lower its inventory to five days worth in the next six months. Evaluation of Results The success of Kuiper Leda is measured in the successful overhaul of its supply chain management. One of the metrics is to purchase and use 5 warehouses. This is easy to measure and is quantitative. The next thing is the accuracy of the exponential smoothing. This is also quantitative and can be measured. In order for Kuiper Leda to be considered successful its accuracy must be 95%, Lastly Kuiper Leda can be evaluated by the customer service reviews it receives. The number of good customer service reviews is a direct correlation to it supply chain management. This is also a quantitative measure. Conclusion Kuiper Leda has found itself in a situation that it did not quite have the production capabilities for. This paper has discussed several places that Kuiper Leda can make changes that will greatly enhance its inventory management practices and remove defects from its products and processes. The main thing Kuiper Leda should focus on is reducing its inventory and maintaining just as much as they need instead of leaving excess in storage. Using research from other companies Kuiper Leda can benchmark some of those ideas to better serve its purposes and improve its current situation. Good inventory management is the key to Kuiper Leda’s success and can enhance its current cash flow as well as give the company more room to expand. References Allon, G., (2009). Virtual Inventory Pooling in Netflix. Retrieved November 13, 2009 from http://operationsroom.wordpress.com/2009/08/04/virtual-inventory-pooling-in-netflix/ Berka, J., (2009). Analyst Says Apple Very Efficient at Managing Inventory. Retrieved November 13, 2009 from http://arstechnica.com/apple/news/2009/03/analyst-says-apple-very-efficient-at-managing-inventory.ars Chase, Jacobs & Aquilano (2005). Operations Management for Competitive Advantage, from University of Phoenix, Week Five, MBA/550-Resource Optimization Web site. Conley, L., (2007). 90,000 DVDs. No Shelves. Retrieved November 13, 2009 from http://www.fastcompany.com/magazine/74/netflix.html Table 1 Issue and Opportunity Identification |Issue |Opportunity |Reference to Specific |Concept | | | |Course Concept | | | | |(Include citation) | | |As Kuiper Leda sees an increase in business the cost of |Effective inventory |“Establishing the correct |Inventory Cost | |maintaining inventory becomes a factor. The company wants to|management will |quantity to order from vendors | | |keep its costs as low as possible while still being able to |minimize costs. Kuiper |or the size of lots submitted | | |meet the demands of its expanding business. |Leda is specifically |to the firm’s productive | | | |looking to minimize its|facilities involves a search | | | |holding costs. These |for the minimum total cost | | | |costs can be minimized |resulting from the combined | | | |by simply not having |effects of four individual | | | |too much inventory on |costs: holding costs, setup | | | |hand that must be |costs, ordering costs, and | | | |stored. |shortage costs. Of course, the | | | | |timing of these orders is a | | | | |critical factor that may impact| | | | |inventory cost” (Chase, Jacobs | | | | |& Aquilano, 2005, p. 591). | | |Kuiper Leda received a large order from the automobile |Implementing a |“Multiperiod inventory systems |Multiperiod | |company Midland Motors. This order requires Kuiper Leda to |multiperiod inventory |are designed to ensure that an |inventory systems – | |manufacture higher quantities that it is used to. The |system gives Kuiper |item will be available on an |fixed order quantity| |company has to figure out how it will manage its inventory. |Leda more control over |ongoing basis throughout the |models | | |its inventory. Kuiper |year. Usually the item will be | | | |knows the quantity of |ordered multiple times | | | |ECUs and RFIDs that |throughout the year where the | | | |need to be produced |logic in the system dictates | | | |each quarter so using |the actual quantity ordered and| | | |this type of inventory |the timing of the order…The | | | |system would benefit |fixed–order quantity model | | | |them to avoid having |favors more expensive items | | | |too much or too little |because average inventory is | | | |inventory at any time. |lower” (Chase, et al., 2005, p.| | | | |595). | | |As Kuiper Leda continues to grow the demand for ECUs |Switching to use |“Top management, though, feels |Analyze the | |fluctuates. The company starts looking for an alternate |warehouses could be |that integration of the product|components of the | |distribution strategy to deal with the varying demand |very beneficial to |at the warehouse is extremely |supply chain - | |pattern. |Kuiper Leda. It would |valuable because it allows |warehouse | | |decrease transportation|generic products to be sent to | | | |costs and increase |the DC with final configuration| | | |service level |of the product done just prior | | | |capability. The use of |to shipment to the customer” | | | |a warehouse could also |(Chase, et al., 2005, p. 627). | | | |decrease the lead-time | | | | |for delivery to the | | | | |customer. | | | |As Kuiper Leda continues to expand it needs a way to |Exponential smoothing |Exponential smoothing |Exponential | |forecast future sales so that it can be sure to have the |could be beneficial for|techniques have become well |Smoothing | |right amount of inventory instead of having too much or too |Kuiper Leda because it |accepted for six major reasons:| | |little. |is relatively accurate |1. Exponential models are | | | |and easy. Being better |surprisingly accurate. | | | |able to forecast future|2. Formulating an exponential | | | |sales allows the |model is relatively easy. | | | |company to have more |3. The user can understand how | | | |control over its cash |the model works. | | | |flow by being able to |4. Little computation is | | | |control the amount of |required to use the model. | | | |inventory that it has |5. Computer storage | | | |on hand. This control |requirements are small because | | | |is good for the company|of the limited use of | | | |and will help better |historical data. | | | |steer its growth. |6. Tests for accuracy as to how| | | | |well the model is performing | | | | |are easy to compute” (Chase, et| | | | |al., 2005, p. 521). | | Table 2 Stakeholder Perspectives |Stakeholder Perspectives | | | | |Stakeholder Groups |The Interests, Rights, and | | |Values of Each Group | |Kuiper Leda Senior Leaders |Kuiper Leda’s senior management team’s primary interest is to effectively | | |manage the company’s inventory while meeting increased demands. Kuiper | | |Leda is also concerned with maximizing its profits. The senior management | | |team needs to come up with the best way to handle increasing demands | | |defaulted payments without having too much or too little inventory on | | |hand. Kuiper Leda also needs to decide if it is in their best interest to | | |outsource some of its production. | |Midland Motors |Midland Motors expects the products received to be timely and good | | |quality. They also expect Kuiper Leda to meet the increased demands | | |without letting them down. | |Employees |The employee’s primary interest is to maintain their job stability. | | |Employees have a right to be included in the decision making process of | | |the company since the decisions being made may impact them. | Table 3 Analysis of Alternative Solutions [Click twice on table to change, see instructions on next page. The alternatives and their ratings as well as the goals and their weightings shown below are for illustrative purposes, you should enter your own. Delete this paragraph when done.] [pic] Table 4 Risk Assessment and Mitigation Techniques |Risk Assessment and Mitigation Techniques | |Alternative Solution |Risks and Probability |Consequence and Severity |Mitigation Techniques | |Warehouses, JIT method, and |Forecasting techniques could|Too much inventory has cost implications,|Have a plan for getting rid of | |exponential smoothing |be off leaving the company |severity medium to high |excessive inventory in a timely | |technique |with too much or too little |Too little inventory and the company is |manner. Similarly have a plan to | | |inventory, probability |not meeting is customers needs, severity |obtain inventory quickly should the | | |medium |medium to high |have too little on hand. | Table 5 Optimal Solution Implementation Plan |Deliverable |Timeline |Who is Responsible | |Purchase of 5 warehouses |1 year |Kuiper Leda CEO | |Reduce inventory to days worth |6 months |Kuiper Leda project managers | |Forecast with exponential smoothing |3 moths |Kuiper Leda senie leaders. | Table 6 Evaluation of Results |End-State Goals |Metrics |Target | |Optimal supply chain management |Customer service reviews |Number of customer revies | |Own and use warehouses |Number of owned warehouses |5 warehouses. | |Use exponential smoothing |Accuracy of forecasting method |95% accurate |