Kulicke & Soffa Case Study

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TOTAL COST 41 896 375 45 422 25 41 183 714 Sum of both SUB TOTALS

Based on financial considerations it is safe to say that the best option is to expand to China since the total costs are the lowest.

Question 3. Suppose that the demand is uncertain and that it can increase (50% chance) and decrease (50% chance) by 15% for Asia and 5% for the U.S. in the next periods (so, in the first period it is stable and for the 2nd and 3rd period it is uncertain). Please provide the decision three and the calculations. Will it change your decision? Please explain your findings. (k = 0.1 for this exercise). The sales price/unit is $3.00 for the U.S. and $2.5 for China

Tree of expected demands.

2000 2001 2002

1/16 7 661 400

1/4 6 774 000

1/8 7 604 700

1/16 7 553 400

1/4 6 720 000

1/8 5 943 300

6 000 000

1/4 5 886 600

1/4 5 280 000

1/8 5 835 300

1/16 4 673 400

1/4 5 226 000

1/8 4 616 700

1/16 4 565 400

Profit 2000:

Israel: 0,83 x 6 000 000 x 2,5 + 0,17 x 6 000 000 x 3 – 14 213 000 = 1 297 000

Jordan = - 1 203 000

Singapore = - 2 703 000

China = - 3 203 000

Profit 2001:

Israel = Jordan = Singapore = China: 1/4 x [(84,54% x 6 000 000 x 2,5 +

15,46% x 6 000 000 x 3) – 12 236 100] + 1/4 x [(85,22% x 6 000 000 x 2,5 + 14,78% x 6 000 000 x 3) – 12 246 300] + 1/4 x [(80,17% x 5 280 000 x 2,5 + 19,83 x 5 280 000 x 3) - …

But it doesn’t enter in account as it is the same for the four countries.

Profit 2002:

Israel: 1/16 x () + 1/8 x (…) + 1/16 x (…) + 1/8 x (…) + 1/4 x (…) + 1/8 x (…) + 1/16 x (…) + 1/8 x (…) + 1/16 x (…)

Jordan: 1/16 x (…) + 1/8 x (…) + 1/16 x (…) + 1/8 x (…) + 1/4 x (…) + 1/8 x (…) + 1/16 x (…) + 1/8 x (…) + 1/16 x (…)

Singapore: 1/16 x (-4 946 250) + 1/8 x (-4 946 250) + 1/16 x (-4 946 250) + 1/8 x (-4 946 250) + 1/4 x (-4 946 250) + 1/8 x (-4 946 250) + 1/16 x (-4 946 250) + 1/8 x (-4 946 250) + 1/16 x (-4 946 250)

China: 1/16 x (-2 285 714) + 1/8 x (-2 285 714) + 1/16 x (-2 285 714) + 1/8 x (-2 285 714) + 1/4 x (-2 285 714) + 1/8 x (-2 285 714) + 1/16 x (-2 687 664) + 1/8 x (-2 687 664) + 1/16 x (8 995 125 + 2 902 050 - - 2 687 664)

Profit 2001 is the same for all the projects.

NPV Project Israel: 1 297 000 + Profit 2001/(1+k) + …/(1+k)²

NPV Project Jordan: -1 203 000 + Profit 2001/(1+k) + …/(1+k)²

NPV Project Singapore: -2 703 000 + Profit 2001/(1+k) + …/(1+k)²

NPV Project China: -3 203 000 + Profit 2001/(1+k) + …/(1+k)²

4. What factors should K&S take into account in each decision to redesign its supply chain network? What are the pros and cons of each location?

There are lots of factors K&S should take into account when it wants to redesign its supply chain network. The factors are the following:

Technological: K&S can fully take advantage of new technologies; it should choose a region where there is significant technological advancement in order to benefit from the opportunities it offers

Macroeconomic: The macroeconomic environment of the region also plays a very important role when it comes finding a new production location. In fact, K&S should take into account of the tariffs and tax incentives, it should look at indicators such as GDP, economic growth, inflation, exchange and demand rates. But it should also look at the freight and fuel costs, those are all variables that influence K&S’s decision.

Political: The political environment also makes a huge difference, in fact, a company has no interest in expanding to a country where there is political unrest. Conflicts, but also less dramatic elements such as regulations and policies deeply influence the way of doing business.

Infrastructure: Good infrastructure always attract firms, when there is enough infrastructure such as communication, technology, roads and other many examples, it makes it easier to manage the supply chain.

Competitive: K&S has to remain the most competitive firm in its domain, that is why it has to look for new competitive advantages in new regions

Logistics and facility costs: Lower costs of raw materials, distribution and transport is always attractive for a firm.

In the following table we will describe the different pros and cons of each location K&S might move to.

ISRAEL JORDAN SINGAPORE CHINA

PROS Good infrastructure

Highest

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