OPERATIONS MANAGEMENT

Case Study: Kulicke and Soffa Industries

Group 05
Ananya Singh
Darla Deny Sai Abhishek
Mohit Jain
Rajulapati Deepthi Sree
Shubham Sangwan

Assignment

Question 1: What are the underlying forces that led to K&S’s desire to make changes to its current

supply chain network?

Answer 1: The major underlying force that led to K&S’s desire to make changes to its current

supply chain network is that their consumer base was being shifted to Asia-Pacific region. And the

Asia-Pacific spending on semiconductors outpaced Europe’s slightly in the year 2000 and was

expected to grow more in the next few years. Another underlying force is that the competitors of

K&S had begun to set up their shops in China and Asia-Pacific region. As mentioned in the case,

dual course is advantageous to the company i.e., as they already had the largest market share, they

need to reduce the risk by opening up another plant.

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.

Answer 2: Based on the financial considerations, K&S should open a new plant in China. As per

the excel sheet made, the total three year cost for China is less compared to the other options.

Question 3: What factors should K&S take into account in each decision to redesign its supply

chain network?

Answer 3: There are various social, legal, economic, technological factors which are needed to be

taken into account while redesigning its supply chain network. The economic factors must include

the estimates of GDP, tax slabs and tax rate, exchange rate, manufacturing wages, inflation,

economic growth etc. The social factor includes the culture, lifestyle, languages etc of the

demographic area. In case of legal factors, the different rules and regulations imposed by the

country’s government should be taken into account. The presence of different technologies and

structural development is something which also plays an important role as a key deciding factor in

the decision making. The cost of investment and the forecasted revenue generated should also be

compared in order to gauge the profit/loss margin. Also the geographical factors and the

availability of land and labour including its cost and the type of venture should also be considered.

Question 4: Assuming K&S opens another plant, what are the advantages and disadvantages of

the different locations?

Answer 4: Jordan

Advantages:

Jordan is closer to Israel so setting up there will reduce the overall cost. There is a high

unemployment rate in and so the comparative wage rate is lesser at about 1.05 an hour. The goods

can also be brought in US duty free and so this will reduce the overall cost.Jordan shares a large

border with Israel where K&S has had a presence for over 30 years giving Jordan an immediate
strategic advantage, and although not the first language, English is quite commonly understood

and spoken.

Disadvantages:

Jordan does not have the required infrastructure for the business. There is an unrest situation been

created in Jordan due to certain religion related grievances and so this in turn could affect the

output as Israelis workers were to be sent to Jordan to train the employees.

(ii)Singapore

Advantages:

Singapore has a free market economy i.e. it is a free market with little or no government control

allowing little interference in the form of taxes etc. Singapore already have a production facility

of K & S therefore it will save time and money as machines and a logistics centre are already in

place. Its positioning is also a great deal closer to the market then Israel.

Disadvantages:

An educated workforce and stable government results in a high rate of average wage which is 9.19

per hour. A very high cost of living is one of the major drawbacks of setting plant in Singapore.

(iii)China

Advantages:

China has low production costs and average hourly manufacturing wage($0.50) which makes it a

suitable option for setting up of the plant. Foriegn investors were offered privileges and tax

incentives and other attractive offers. Suzhou and Wuxi, the two cities which are considered for

setting up a new plant have well developed infrastructures that can support large supply chains of
K&S and are located closely to several of K&S well established customers. Suzhou is located close

to the international hub of Shanghai and Wuxi has a cheaper cost of living . China also has a market

economy with very competitive industries and international trade activities.

Disadvantages:

There is a high initial investment in infrastructure if K&S intends on moving to China. The

government of China played a significant role in how business was conducted in China and the

chinese currency 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?

Answer 5: We recommend China as the required location for K&S management considering the

following:

● Low cost of living

● Close to existing customers

● Available to labour supply as it is close to the metropolis Shanghai

● Good transportation

Due to the above reasons, the production cost and the labour cost for K&S in China will

be less and they would have a high profitability margin

Implementation challenges:

● High cost of investment in China i.e, 6.5 Million dollars

 ● It may take time to break-even and so they may take time to see profits in short term

● Cultural and communication barriers with local partners and suppliers

● Government regulations

● Lack of expertise in China market

Plans to address those challenges:

● Research about the market before entering

● Hire a local manager

● Research about the culture, politics, economic growth in china market