Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge

American Connector Company

The intent of this paper is to address an operational management situation regarding American Connector Company ACC! as they react to a competitor"s announcement to #uild a ma$or plant near ACC"s main manufacturing facility% &n the following pages, we will address the conte't of the two respecti(e company #ackgrounds, strategic and financial elements of their operations, and a $ustification for a recommended plan of action for the ACC"s response to their competition%

Background and Overview American Connector Company ACC! and DJC Corporation DJC! were #oth second tier competitors in the fragmented )*+ #illion electrical connector industry% ACC and DJC each maintained distinct theories related to the roles of manufacturing within their respecti(e corporations% DJC, a Japanese corporation, relied hea(ily upon efficient manufacturing processes as the #asis for their competiti(e strategy and as the means to achie(e their annual profit goals% ACC (iewed their success as dependent upon their a#ility to offer customi,ed connector solutions and high end products% DJC recently announced the construction of an -./#ased manufacturing facility located near ACC0s .unny(ale, CA facility% 1aced with the threat of a highly efficient competitor launching a near#y production facility, ACC must de(elop a plan of action to limit DJC0s intrusion into their esta#lished 2orth American market%

The Strategic and Financial Elements of D C Corporation DJC is easily percei(ed as the typical Japanese manufacturer when considering their core principles% DJC0s corporate o#$ecti(e was profit ma'imi,ation% 3igh product 4uality was the prere4uisite for this and low production costs would deli(er long term success% &nitially, inno(ation in product technology was #ypassed and American made products, which were the most ad(anced in the world, were copied% These American designs were adapted to fit the re4uirements of the Japanese markets and to a#sor# the most (alue from high raw material costs in Japan% The marketing strategy of DJC hinged on (olume and standardi,ation% To this end, DJC concentrated on refining their manufacturing process in

Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge order to make it as efficient as possi#le% 5(en DJC0s leadership reporting structure was concentrated on manufacturing, with the head of production reporting directly to the president of DJC% DJC0s key to winning orders in the marketplace centered around price, deli(ery, speed, and relia#ility% To this end DJC de(eloped their Kawasaki facility in the face of increased la#or and raw material costs, a rising yen, and escalating import penetration% This new facility was designed to #e 6the ultimate rationali,ation of mass production7 as en(isioned #y DJC0s president% The Kawasaki manufacturing segment was to #e highly automated and continuously operating% 1urthermore, three goals were to #e met8 *! *99: asset utili,ation, ;! <<: yield on raw material, and =! a customer satisfaction le(el of one complaint per million units of output% This high le(el of customer satisfaction is the #asis of .i' .igma methodology, which has its roots in Japanese manufacturing philosophy% The Kawasaki facility offered se(eral ad(antages in terms of its geographic location and workforce% The facility was located near ma$or Japanese electronics manufacturers and their source of raw material suppliers% The draw of the near#y electronics manufacturers was the a(aila#ility of a sta#le workforce of young, highly skilled workers% Kawasaki0s Technology De(elopment Di(ision TDD! implemented waste reduction measures and eliminated se(eral non/critical design features% 5(en though raw material costs were nearly twice as much as those of ACC, TDD0s measures reduced the cost of manufacturing to )*>%?< per thousand units, compared with ACC0s )**%>< per thousand units% 3ad Kawasaki mimicked ACC0s production methods, design, and packaging, their costs would ha(e #een );9%<9 per thousand units%

The Strategic and Financial Elements of ACC Corporation American Connector Corporation operated a total of si' international manufacturing facilities, each producing four #asic types of electrical connectors% ACC de(eloped a reputation as a high 4uality supplier and 4uality #ecame the focal point of company pride% ACC0s products were recogni,ed for their superior design and performance, #ut it was their dedication to the customer that differentiated ACC from their competitors% The company0s commitment to customi,ation and technical solutions solidified their reputation% ACC0s commitment to their customi,ation strategy was considered an e'tension of its

Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge emphasis on 4uality, #eyond $ust meeting manufacturing specifications% ACC0s custom orders accounted for *@: of their total production (olume% These custom products were conceptuali,ed through early colla#oration with their customer0s engineering di(isions and through implementation, would e(entually de(elop into industry standards% ACC0s corporate o#$ecti(e was profit% They had historically #een successful with margins approaching @;:% Management reali,ed they needed to compete glo#ally to maintain future profita#ility, so they su#se4uently in(ested se(eral hundred million dollars in plants and e4uipment worldwide% &ncreased competition and decreased demand eliminated the possi#ility of reaching profit goals% Ahile sales had grown from );@; million to )?99 million #etween *<?> and *<<*, margins had eroded from @;: to >=:% .unny(ale relied hea(ily up on a marketing strategy dedicated to a #road product range and significant customi,ation capa#ility% .unny(ale0s leadership understood that 4uality, technical support, and design leadership was the key to winning orders in the marketplace% ACC0s .unny(ale plant was concei(ed in *<+* to ser(e the electronics industry of near#y .ilicon Balley% ACC in(ested in the e'pansion of production capacity when demand was forecasted to grow for sustained periods% The depressed electronics market of the late *<?90s resulted in no capacity e'pansion or impro(ement of production technology% The production e4uipment that had once made ACC the high technology leader in the manufacture of electrical connectors was outdated% ACC #ecame more concerned with current financial returns than planning for future profits and was set to suffer the conse4uences of such action%

Comparing and Contrasting D C and ACC DJC Corporation, dedicated to process positioning and ro#ust systems engineering, re4uired that the Kawasaki facility #e highly automated% Carticular emphasis was placed on what they termed 6pre/ automation%7 DJC0s #elief was that a production process could only #e fully automated following when the process was fully understood and properly designed% They were concerned that automating a production line too early might result in in(esting in an inefficient process% This pre/automation process helped analy,e process flows, worker mo(ements, and raw material consumption% As a result, the warehouse

Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge facility was centrally located and intentionally right/si,ed, lea(ing no room for e'cess material or products% Additionally, each production line was e4uipped with a dedicated in$ection mold press, and was a complete line from raw material in/flow to packaging% DJC also #elie(ed it #etter to utili,e an older, more esta#lished process, rather than implementing newer unpro(en processes% Continuous impro(ement of e'isting processes was highly relied upon% DJC also emphasi,ed relia#ility of e4uipment and in(ested significantly in repair and maintenance to ensure the most critical portions of the manufacturing process were well maintained% DJC staffed e'perts in polymer physics and former employees of mold manufactures, and followed a strict process of mold replacement and upgrades% This dedication to process relia#ility helped protect DJC from une'pected down time and profit losses due to une'pected failures% 1urthermore DJC de(eloped in/house workshops in their factories in order to protect proprietary processes, #elie(ing their competiti(e edge would #e eroded if e4uipment suppliers had insight into their processes% DJC0s 6Technology De(elopment Di(ision7 coordinated the product planning session, materials section, process engineering, and the molding technology group% &t was TDD0s responsi#ility to make certain these sections operated together in the achie(ement of efficient resource utili,ation, design 4uality and manufactura#ility, smooth manufacturing introduction, shortened de(elopment cycle, and continuous process impro(ement% 1urthermore, TDD coordinated efforts to ensure product impro(ement% The remaining portions of the Kawasaki facility were sourcing, 4uality control, and production and in(entory control% .ourcing de(eloped close relationships with material suppliers and insisted they meet rigorous standards and fre4uent deli(ery% Duality control was tasked with impro(ing product 4uality control standards, impro(ing the process inspection system, impro(ing the precision of molded components, impro(ing the 4uality of product designs, and reducing the plant0s waste% Croduction and in(entory control0s responsi#ility was to minimi,e yield and capacity losses% DJC0s goal with respect to their workforce was to gradually reduce direct production workers, support, and o(erhead staff% As the processes matured and #ecame more and more automated, fewer direct production workers would #e re4uired%

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Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge American Connector Company0s .unny(ale facility was di(ided into fi(e separate production areas8 terminal stamping and fa#rication, terminal plating, plastic housing molding, assem#ly and testing, and packaging% Typically, terminals were cut or stamped, then transported to a holding area to await plating% Concurrently, the molding di(ision fa#ricated the plastic housings, which were then shipped to the work/in/process holding area to await plating of the terminals% 1ollowing plating, the #atches of housings and plated terminals were shipped to assem#ly, where most of the units were assem#led through an automated assem#ly process *9: of production we su#$ected to manual assem#ly!% The completed #atches of connectors were then tested and sent to packaging% Cackaging incorporated many different methods, from a *9/piece #ag to *@99/piece loaded reels% 1urthermore, .unny(ale0s manufacturing was handicapped when production runs were slowed or stopped in order to in$ect a specialty or custom order% Ahen the market was good, growing sales allowed ACC to co(er carrying costs of the finished goods in(entory% This work/in/process in(entory also allowed ACC to react 4uickly to customer0s needs% 3owe(er, due to increased competition and a deflated market, ACC0s Croduction Control section was under pressure to lower work/in/process in(entory% .unny(ale0s finished in(entory traditionally maintained for an a(erage of =? days% As a result, (arious production scheduling methods were implemented% .horter production runs, while a simple alternati(e, impacted costs through decreased utili,ation% ACC in(ested )@99,999 in a new computer system and software to assist in production scheduling% ACC0s 4uality had declined o(er time with defect rates reaching as high as ;+,999 per million units produced% These defects did not typically reach the customers as in/house inspection processes ensured these parts ne(er left the facility% .tatistical process control measures offered some progress, #ut defect rates remained high% 2ew products usually e'perienced yield rates as low as @@: as production #egan, #ut typically impro(ed to <?: following one year of production%

ACC!s Concerns with D C!s "ew #anufacturing Facility

Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge .unny(ale would #e competing directly with Kawasaki0s high (olume E low cost products and faces the possi#ility of losing lower margin, price sensiti(e customers% A plant modeled on DJC0s Kawasaki production facility has a tremendous manufacturing ad(antage o(er ACC0s .unny(ale facility% Kawasaki maintained a highly efficient, integrated production facility with meticulously maintained e4uipment, a low workforce re4uirement, with fully implemented continuous impro(ement plans% 1urthermore, the Japanese manufacturing philosophy of one defect per million ensures customer satisfaction% ACC0s .unny(ale facility and DJC0s Kawasaki facility are #est summari,ed in the following ta#le8 Sunnyvale Fear 1acility Built Croduction Type A(erage Croduction Rate Types of Connectors Competiti(e .trategy Models *<+* ?@: Batch Crocess *@: Jo# Crocess >;9 million units +99 million units ma'imum! > 1ocus on customer need $awasaki *<?+ *99: Continuous 1low G99 million units ?99 million units ma'imum! > How cost production, customi,ation and superior design +>9

>@99 @ .eparate Areas / Terminal > Croduction Cells with Terminal .tamping and 1a#rication, Terminal Croduction Areas .tamping, 3ousing Molding, Clating, Clastic 3ousing Molding, Assem#ly, Cackaging Assem#ly and Testing, Cackaging Multiple I *9/piece #agging to *@99/ Cackaging Jne I ;999/unit strips unit loaded reel *9 days for standard items, ;/= Crocessing Head Time ; days, no special orders weeks for special orders Runs Most are *%@ to ; days Jne week and some continuous A(erage Annual Cost per Mold )>9,999 );<,999 A(erage Hife of Mold ? years = years Raw Materials &n(entory *9%? days @ days Barious, #ut high to accommodate Aork in Crocess ; days special orders 1inished Kood &n(entory =? days @+ days Management 5ngineering and marketing focus Croduction focus Attempt to free,e =9 days out% Complete control #y the plant% 2o Croduction .chedule Could change daily for .J0s% *@: change to the schedule for of orders were custom orders% unplanned orders% -tili,ation @9/?@: *99: >+: / 3ea(ily weighted towards =;: / Aeighted towards &ndirect .taff control staff% Technology Department% Defects ;%+9: 9%999*:

Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge Fields Jther @@: to <?: after one year Jutsourced design of e4uipment% 5mphasi,ed cutting edge e4uipment% <<: All technology in house% 5mphasis on older technology%

American Connector Company!s %lan of Action &n order for American Connector Company .unny(ale facility to compete with a locally esta#lished DJC facility similar to Kawasaki, they should #egin with a re(iew of ACC .unny(ale0s current corporate o#$ecti(e of competing glo#ally, increasing growth and maintaining profita#ility% Aith sales growing from );@; million in *<?> to )?99 million in *<<*, #ut gross margins dropping from @;: to >=: during the same period, we recommend ACC .unny(ale re(ise their o#$ecti(e from simply maintaining profita#ility, to focusing on profita#ility enhancement #y increasing gross margins #ack to @;: within two years% ACC .unny(ale should then de(elop a comprehensi(e marketing strategy #y conducting a situational analysis of product markets including a competiti(e re(iew of the * st tier, top ten worldwide market leaders, accounting for )+%+G #illion in sales, and also the other fi(e ; nd tier of companies% &n addition, ACC .unny(ale will estimate future (olumes #ased on industry trends for the *@: custom order segment and the ?@: that comprises continuous #atch orders and determine the order winning criteria for each including product 4uality and relia#ility, deli(ery speed, and deli(ery relia#ility% The actions .unny(ale must undertake These actions may #e categori,ed into fi(e different efforts8 *! product analysis, acti(ity #ased costing, and pricing strategyL ;! production line optimi,ationL =! process reconfigurationL >! implementation of in(entory control measuresL and @! minimi,ation of indirect staff% ACC .unny(ale should immediately implement an acti(ity #ased costing system and an aggressi(e pricing scheme% This first action will in(ol(e a thorough e'amination and measurement of the current processes and their associated costs in order to determine minimum efficient #atch si,es% This data will permit surcharge pricing to #e applied to special or custom orders and will outline a plan for minimum order fees% Competiti(e pricing analysis com#ined with internal cost accounting will permit ACC to determine which product lines are profita#le at current (olumes and will determine what customers are

Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge willing to pay% ACC0s connectors should #e e(aluated for any potential optimi,ation as part of the cost analysis% This analysis might unco(er comple' design features that may #e remo(ed or modified in order to reduce costs further% The data gathered through cost and product analysis will allow for product line optimi,ation% This may lead to elimination of lower profit products which will further reduce .K-0s and the #urden on strained production resources% 1ollowing product line optimi,ation, the processes may #e reconfigured in order to capitali,e on efficient production% .unny(ale should reconfigure their facility with a continuous process #atch production line to support non/custom orders and speciali,ation cells to support custom orders% The continuous #atch orders account for ?@: of .unny(ale0s orders and impro(ed efficiency in production will impro(e product margins% &ndi(idual speciali,ation cells will cater to .unny(ale0s *@: custom order #usiness, for which higher premiums can #e demanded% ACC will still #e allowed to concentrate on their customers who re4uire speciali,ed ser(ices, #ut in an e(en more profita#le manner% &n(entory control measures must #e implemented in order to control cost associated with raw material and finished goods in(entory, #ut should #e coupled with optimi,ation of the plant layout to ensure a smooth material flow% This measure will impro(e margins on the traditionally low margin #atch process% The impro(ements reali,ed through optimi,ation of the product lines, production processes, and in(entory control will allow for opportunities to minimi,e indirect staff% ACC .unny(ale should follow DJC Kawasaki0s lead and further refine this process through scheduled ree'amination of these steps% This continuous impro(ement process will further impro(e efficiency and increase profit margins%