Kulicke soffa Supply Chain

Melody Chan Tanaporn Prachantasen MIB

Kulicke & Soffa 1) What are the underlying forces that led to K&S’s desire to make changes to its current supply chain network? One of the main forces that led K&S want to make a change in their supply chain network is that many of their customers were moving to China and the Asia- pacific region, which made them react towards a rapidly evolving semiconductor industry, resulting in a higher demand for this market in this part of the world. Hence, Asia is offering larger opportunities of growth and that would help the company to reduce their supply risk since they are the largest worldwide provider of wire bonding tools and they need to enhance their capabilities tool bonding mass production. 2) What factors should K&S take into account in each decision to redesign its supply chain network? The cost of investment in each country is different, thus the company should consider whether that investment is worth compare to ROI they will get or not. Social is one of the factors because every country has different cultures, languages, lifestyles that affects the business operation such as operating in different countries can create miscommunications. In term of the legal and political aspect, as each country imposes different regulations and tariffs, some request for joint venture so that foreigners can establish a business. Different accounting principles can affect the alignment of the company. They also have to be aware of the occurrences of the natural disasters, since it can affect their capability performance in terms of logistics. Moreover, economic and technological factors are playing an important role in redesigning a supply chain network; K&S should think about the GDP, exchange rates, manufacturing wages, inflation and economic growth, that can have both positive and negative impact to the future investments of the company. The lack of insufficient infrastructures, within the country K&S will expand into, potentially affects to the technology development. This barrier can obstruct the company in term of developing those critical technologies that can be used to create competitive advantage over its competitors. Also keeping up with the new advancements will lead to productivity improvements. 3) Should K&S expand the current capacity in Israel or open a new plant elsewhere? K&S should not expand the current capacity in Israel. Looking at the data in Figure 11, the investment cost would be approximately $2 million dollars, lower than investing in other projects and in return they would have a high efficiency regarding to units/worker/hour. However, the average hourly manufacturing wage is $10.78, which is high compared to the other allocations. Israel also presents a heavy taxation, about 43% of total GDP in year 2000, meaning that in the long term it will affect the company’s profitability margins. They should open a new plant in Asia, many of their competitors and customers are shifting to that location. Expanding to Asia offers great advantages like being close to the customer and suppliers, providing low expenditures in side of labor, operations, property, and raw material costs. By doing so they will manage to keep their competitive advantage by providing the best quality, price, performance and delivery. 4) Assuming K&S opens another plant, what are the advantages and disadvantages of the different locations?

Melody Chan Tanaporn Prachantasen MIB Jordan Advantages: ​ close to Israel, English speaking country, low average hourly manufacturing wage at $1.05. Disadvantages: ​ there might be some problems regarding to religion believes between Jordan and Israel, since they must send Israelis workers to Jordan to train the employees, and this could create some conflicts. Singapore Advantages: ​ free-market economy, qualified workforce, exceptional infrastructure, highly industrialized, industry 21 program, and already established machines and logistic center. Disadvantages:​ high cost of living and high average hourly manufacturing wage at $9.19. China Advantages: ​ government tax stimulus and other benefits, low production costs, engaged private sector and a market economy with very competitive industries and international trade activities. Lowest average hourly manufacturing wage at $0.50. Disadvantages: ​ government control, language barriers, Chinese yuan not fully convertible. 4.1) What recommendation would you give K&S management regarding the location choice? They should definitely consider to invest in China, especially in Suzhou, and the reasons behind this are first it has low cost of living. Second, K&S is close to its existing customers. Third, the country has qualified infrastructure thanks to the partnership between Singapore and China, which it offers good transportations. Last but not least, it has availability of labor supply, and it is close to a metropolis which is Shanghai. This gives them the opportunity to take advantage of the convenience. If the company chooses to invest in China, they will have a higher capacity to satisfy their customer’s needs and have a higher profitability margin, due to very cheap labor and production costs. China’s regulatory and investment environment is developing and becoming more transparent. 4.2) What implementation challenges do you foresee? There is a high cost of investment in China at $6.5 million dollars. And it will take time to break-even, so they might not see any profits in the short term, even though they have the cheapest labor and production costs. Cultural differences and communication barriers with local suppliers and partners might affect and decrease the performance of the business. Another challenge is Government regulations by inquiring the tariffs that they might impose, and that the company might not have the same protection and benefits as local businesses. Also, the lack of expertise in Chinese market about potential suppliers and partners, which means that the company will inquire more expenses and time consuming to conduct operations efficiently. 4.3) How would you address those challenges? Before entering to China, they need to research to get to know the market overview such as limitation, culture, politics and economic growth. They can hire a local manager that can provide them with accurate information and how to do business in China, to ensure that they can take advantage of the great opportunities this market can offer and also increase their business performance.