KULICKE AND SOFFA INDUSTRIES,

INC:DESIGNING A SUPPLY CHAIN NETWORK

Introduction
About the company:

Founded in 1951, by Fred Kulicke and Al Soffa in Fort Washington , Pennsylvania

Company designed, manufactured, marketed, serviced and upgraded wire bonding equipment
and consumable tools used to assemble semiconductors

It presently holds facility in North America, Europe and Asia

Shary Torton is the general manager with Kulicke and Soffa Industries, Inc. (K&S)

Aim:

Expand firm’s capillary production facilities

Dilemma:
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Whether to expand in Israel or build a new plant in another location( specify location, (if any)
Forces that led to K&S’s desire to make changes to its current supply chain
network:

● Segregation of customer base from US to Korea, China and other Pacific Asia region
● Evolving demand for this market in China and the Asia- pacific region
● Larger opportunities of growth
● Reduced supply risk

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Advantages and disadvantages of different locations
Advantages
Jordan ● Close to Israeli state
● Many people understood English
● Low average hourly
manufacturing wage at $1.05
● Easily available workers
Singapore ● Free market economy
● Well trained workforce
● Excellent infrastructure
● Political, economic and social
stability
● Established machine and logistic
center
China ● Tax incentives and other
government benefits
● Lowest average hourly
manufacturing wage at $0.50
● Market economy with very
competitive industries and
international trade activities
Disadvantages
● The on-again, off-again Arab-
Israeli peace agreement affected
Jordan
● There would be security concerns
of sending Israeli employees to
train Jordan employees
● High cost of living
● High average hourly manufacturing
wage at $9.19
● High investment cost at $6 million
● Strictly controlled by centralized
political framework
● Language barrier
● Chinese yuan not fully convertible
● High investment cost at $6.5
million 4
Factors considered by K&S for each design to redesign its supply chain network

K&S should not be expanding their current capacity in Israel. Though this investment would cost
approximately $2 million dollars, lower than investing in other projects and in return they would
have higher efficiency regarding units/worker/hour which can be seen from figure 11. But the
average hourly manufacturing wage is $10.78, which is high compared to the other allocations.

Moreover, taxation is on the higher side for Israel. It was about 43% of the total GDP in the year
2000, which shows that in long term it will impact company’s profitability margins.

Also, many of the competitor and customers of K&S are shifting to Asia, so they should open a new
plant in Asia. This expansion would come with the added advantages like being close to the
customer and suppliers, providing low expenditures inside of labour, operations, property, and raw
material costs.

By doing this they will manage to keep their competitive advantage by providing the best quality,
price, performance and delivery.

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Recommendations to K&S management regarding the location choice

Management needs to consider to invest in China, particularly in Suzhou.

The reasons behind this are:

1. Availability of labor supply as it is close to metropolis Shanghai. If the company chooses
to invest in China, they can satisfy customers needs in a better way.They will also have a
higher profit margin, because of cheap labor and production costs.
2. Low cost of living.
3. The country has qualified infrastructure because of the partnership between China and
Singapore, which it offers good transportation.
4. K&S is close to its existing customers.

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Implementational Challenges:

1. 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.
2. Cultural differences might cause communication barriers with local suppliers and
partners which might decrease the performance of the business.
3. Lack of expertise in Chinese market about potential suppliers and partners.
4. China needs a high cost of investment at $6.5 million dollars so it will take time to cover
existing costs and achieve profits even though they have the cheapest labor and
production costs.

Ways to address the challenges:

1. Market research before entering into China

2. Hire staff so that they can reduce the cultural differences

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Thank You