Regarding the case situation, there are quite a few things happening at KCC. KCC is a first-tier supplier to the equipment manufacturer OEM, and OEM is the sole customer of KCC requiring their full capacity. Krayden’s Cycle Components relies on its business with OEM to maintain financial stability. KCC executes the production process of their rolling chassis in-house, but some of the parts they acquire are delivered by different suppliers. Krayden’s Cycle Components employs four line-workers who perform various functions for the company, and these workers have been cross trained in their field. KCC delivers eight frames daily. The company implements the principal of just-in-time (JIT) manufacturing and just-in-sequence (JIS) which assists organizing their production based on what frame is unloaded from the truck. The company has implemented Lean principals at their workplace which means they attempt to hold very little inventory. KCC is a strong believer in maintaining relationships and has done this by supporting multiyear relationships with multitier suppliers. However, these multiyear relationships are not serving as a large cost to KCC, and they have been experiencing a decline in profits in recent years. They have made recent efforts towards retooling, and plant modernization. The company needs to make a decision on whether or not they would like to continue their multiyear dealings, or to find cheaper options to improve the company. Krayden’s Cycle Components produces a rolling chassis which has many variants. These rolling chassis is a key component in the manufacturing of motorcycles. KCC sells its product to OEM who produces motorcycles in three different variants which are: Sport, Cruising, and Retro. The suppliers for KCC are very important to their business because they provide the external parts to build the rolling chassis such as Wheels, Front Fork’s, Handlebars, Powder-coating, and Steel tubing. The first tier of the supply chain has a direct relationship with OEM. The second-tier suppliers could be the ones who are able to provide a specialized part based on what they themselves can produce. Lastly the third tier would be the suppliers who are able to produce the more basic goods, in the case of the tires, for KCC. The company purchases a variety of different parts from these suppliers in order to meet the orders made by OEM. If there is an issue with not being able to provide the parts required to construct the rolling chassis due to delivery or quality, it would impact the KCC and in turn their ability to provide service for OEM. KCC would be billed $2,000 per minute by OEM according to the contract they have. An OEM might use several supplier tiers because of the appeal to operational simplicity. They would only have to deal with a small amount of tier one suppliers to fulfill their orders.
1) What is going on at KCC? Summarize your thoughts regarding the case situation.
2) What does KCC produce? Relatedly, explain the importance of KCC’s suppliers. As part of your answer, consider KCC’s supply chain as illustrated in Figure 1. Notice that the supply chain consists of three tiers. Why might an OEM use several supplier tiers?
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