- How can differential analysis be applied here to determine if it would be profitable to invest in new equipment to increase capacity for a constrained resource?
The basic product is known as a rolling chassis a key component used in manufacturing motorcycles. While there are variations across the industry, a rolling chassis typically consists of a motorcycle frame, front forks, wheels and tires, and KCC is a first-tier supplier to an original equipment manufacturer (OEM) that produces motorcycles in three versions; gearbox, wiring and gauges sole customer as it essentially requires KCC's full capacity. these parts to the each name from steel tubing but purchases a variety of parts from suppliers. Workers at KCC atta these parts to the frame to complete the rolling chassis. Figure 1 illustrates the supply chain. The suppliers of wheels frame . The tire vendor is considered a third-ties supplier, The company that heads the messages andched to the contract specifications directly nego the front fork and rent fect ly negotiated by the OEM) and provides a complete wheel assembly ready to be attached to KCC has had numerous problems with delivery and quality over the past several years. Because the problems have been supply chain has difficulties; unfortunately, there is virtually no room for error in meeting delivery schedules and product over the past three years. See Tables 1-4 for KCC cash flows, and unit cost information). commit ended around the summer of 2009 has enabled the OEM to expand production and sales the OEM: management believes this level of output represents capacity. Thus, production above 30,000 units is not Management at KCC has received notice that the OEM plans to increase production by 3,750 units next year (12.5%) and emand price concessions of $200 per unit as specified in the contract THE PRODUCT MIX AND OUTSOURCED PARTS The OEM produces motorcycles for three different market niches; therefore, KCC produces three distinctly different frame geometries as follows: Sport bikes emphe . Cruising bikes emphasize power and comfort. They allow riders to enjoy long-distance touring. . Retro bikes appeal to customers who appreciate classic designs. They are typically small stable than sport bikes. For each frame geometry, the OEM offers three possible handlebar types. Because riders are various sizes, handlebars can be configured in a variety of heights, widths, and lengths (straight bars or bars pulled back toward the rider). The OEM offers three different wheel set possibilities. Wheel sets consist of one front wheel and one rear wheel. The different wheel designs are: . Cast aluminum polished (silver) alloy wheels. ock) alloy wheels. models to meet market demand coffee , for each frame type hiree frame types x four different tires per frame). Factors that differentiate the ties : Bias ply (characterized by a round profile and tall sidewalls). Grip (soft-better road grip but shorter tread life; hard-poorer road grip. but longer tread life). " wonder officers simones is the my peer of grooves in the tire pattern). receives and gout has gone into i compacts directly with the tire manufacturer to supply specific tires to the wheel manufacturer. Much mounts the appropriate timeframe the proper tires and wheels for each type of I set and then delivers the set to KCC. The tremThe wheel vendor products to different OEMs, as well as to aftermarket customers. ompleted motorcycle is test driven. Engineers at KCC have traced the source of the problem to the tire manufacturer.. heel/tire combination that is not balanced properly causes vibration and is a control and safety issue. The solu equires placing the wheeltire set on a machine to determine the location of the imperfection coming the imbalance OEM to deliver a quality chassis, KCC purchased a wheel balancing machine and tested each set before their chassis. The quality delivered to the OEM has improved, but management at KCC is unhappy b increase the contract price to help offset KCC's addingus onal cost of equipment and ,unhappy because the OEM supply chain has additional also a subsidiary of the holding company that owns KCC. This supplier has contracts with manufacturers of bicycles. cooters, and power chairs. of several occasions, this supplier has missed scheduled deliveries. When confronted. xceeds the supplier's ability to meet it. As a result. KCC management has scrambled to find suitable suppliers (at much greater cost) in order to meet their own delivery schedules. ROCESS DESCRIPTION receivestate employs four production line workers who are cross trained to perform there's asset ilustrates the most factwing process for BCC amans ceased to perform multiple functions. 1. Tube cutting and assembly. Steel babes arrive by forklift at Step 1. the cutting and welding process. uitties for me to the capintering design specifications for each frame type sports cent and cut to proper angles and tack welds each joint, which is a temporary weld to hold the assembly in preparation for final welding Once the me is completely assembled by tack welds, the robot permanently welds the joints. Step 2. Weld cleanup and preparation. The welded metal wder coating proceds then to a cleaning bath where the frame is cleansed of oils and surface contamination prior to the Step 3. Powder coating. KCC powder co nes. Consistent with environmental sustainability be captured and reused Powder coating is a dry powder that does not require a solvent. The powder coating is robotically adheres to the grounded frame. The frame is headed to approximately 400 degrees Fahrenheit for around three minutes to der that flows to produce a smooth, strong, glossy finish. Step 4. Fork assembly. The forks are manually attached to the frame. Step 5. Tire balancing. The wheel/tire set is tested for balance, and any necessary modifications are made. Step 6. Wheel tire assembly. The wheel/tire assembly is manually attached to the frame. tep 7. Handlebar mounting. The handlebars are mounted on the frame. Step S. Loading the frames. The frames are carefully loaded into a cargo trailer for transport. KCC'S JUST. IN-TIME/ JUST.IN SEQUENCE INVENTORY SYSTEM period. The frames are delivered just-in-time (JIT) and just-in-sequence (JIS). JIS delivery implies the first frame unloa wheel type, and tire specifications for each order. anagement at KCC has been working to improve operating efficiency and profitability. Because KCC operates of purchased parts are crucial to keep production lines operating at desired output levels. If KCC causes the OEM to stop its line because of delivery or quality problems, the contract allows the OEM to bill KCC for lost production time at a brought to a halt. In some cases, KCC has passed these costs along to second-tier suppliers that caused KCC to miss a KCC has met on several occasions with its suppliers to try to resolve supply issues. Vendors have been frustrated by the sponded by increasing inventory levels. Additionally, some suppliers have purchased redundant manufacturing editor try production processes that can be used if the primary equipment fails further adding to match is Management at the OEM believes in developing long-term strategic partnerships with its suppliers. Thus, each supplier with two (or more) different companies for a component. KCC has the exclusive contract to produce rolling chassis for he OEM, and has recently been awarded the next contract covering five years of production. As a result, KCC made not increase KCC's capacity sufficiently to meet expected demand. current year. Unfortunately, the investme THE MANAGEMENT DILEMMA multitier suppliers and a demanding delivery schedule. Further, stockholders are expressing concern over KCC's declining the OEM, nor have they developed an understanding of the financial e Third Tier Tires Cash Flow Statement for Year Ended December 31, 2015 Direct labor. per year x $50 per hour/ 30.000 anita 50 weeks coaster on a per shik basist Foucher costing madness lossact labor Plant supervision and Memorials, WIP. and FG Inventory handing fixed in totall Total per cash Sow staterrent $16.500.000 00 total unit cost
