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Kunal Kochar Piyush Singh 111021 111033
Varun Mediratta 111057 Mahale Tanmay Meghsham 111022 Shefali Bhatnagar 111048
To Prof. Janat Shah
the US Connector Industry (this included connectors.Introduction: Overview of Industry: Electric Connectors were devices made to attach wires to other wires. quality. components or chips to PC boards. It was intended to meet the Company President’s three stated goals: 1) 100% asset utilization. They found use in a number of product applications – each of which called for a different connector specification. The plant was located close to both the major Japanese electronics companies as well as the major raw material suppliers. 2) 99% yield on raw material. its layout was one of Plants-within-a-Plant to minimise material handling and work in progress. was designed to be a highly automated. both ACC and DJC were second tier companies having sales between $500 million and $800 million. cable assemblies and backpanels) was an extremely hostile environment containing more than 900 suppliers even as sales continued to fall. By 1992 attempts were being made to standardise these product specifications among the many different industry associations. sales were down 3. In 1991.9% from the previous year while the 10 industry leaders were on average down 7. product mix and lead times than the marketing division. quality and organization and adopted techniques in these spheres to meet the stated goals. Globally. The importance of manufacturing was also reflected in the company’s organization. For example. production control. Also. continuously operating plant aimed solely at mass production. thus there were demanding requirements by the customers for cost. many of whom had built up large capacities in the 70’s to meet the then growing industry demands from the computer industry. which began its operations in 1986 amid threats to the company’s gross margins because of increased labour and material costs and a rising Yen. Hence. and 3) a customer satisfaction level of one complaint per million units of output. wires. The demand for electric connectors in the US had slowed in the mid to late 80’s and this had resulted in an excess capacity of suppliers. workforce. reliability and performance. The Plant’s management carefully integrated decisions and policies related to the product and process technologies. there was . Overview of DJC Corp and the Kawasaki Plant: The DJC Corporation’s adopted a typical Japanese competitive strategy in that it focussed exclusively on profit maximization through achieving highly efficient manufacturing processes and by emphasizing on simplicity and manufacturability over innovation. The competition was further exacerbated by the increasing number of offshore producers entering the US market. The manufacturing division had more power in altering production schedules. by the 90’s. wires to outlets. They operated in a $16 billion industry which was both highly competitive and highly fragmented.9%. Their Kawasaki Plant. electrical connectors were very engineering intensive products and were critical to product performance. or PC boards to other boards.
The defect rates. Though as a company. . Now the plant had to analyse the threat posed by DJC. The capacity of the plant had been expanded pre-emptively to meet the expected growth in demand i. it exercised strict process and inventory control by scheduling long production runs in order to minimize yield and production losses as well as work-in-progress inventory and it aimed at reducing the number of direct production workers as well as support and overhead staff by focussing on increasing automation. The company had opened the Sunnyvale Plant in 1961 to serve the emerging electronicsbased industry in and around Silicon Valley. it possessed a Technology Development Division that was responsible for inter-functional coordination of all development activities for effective resource utilization. this was the very area in which the Sunnyvale plant had been struggling lately. ACC had an outstanding reputation for quality. However due to the depressed market conditions prevailing since then. whenever it was estimated that capacity utilization would exceed 85%. as failure to do this could have resulted in them taking their designs to ACC’s competitors. it approach involved a greater reliance on in-house technology development rather than procurement from vendors. ACC had invested several hundred million dollars worldwide in new plants and equipment between ’83 and ’88. Its products were recognised for their superior design and performance. in-plant. were relatively high at around 26000 per million units and inspection of these had to be carried out in order to prevent the customers from being exposed to similar numbers. However. Custom orders made up 15% of the company’s total production volume and employees worked closely with large customers to develop unique solutions to specific connector problems. Overview of ACC and the Sunnyvale Plant: American Connector operated four plants in the US and two in Europe. This only added to the spiralling costs at the plant. bringing the capacity up to 600 million units per year. Many of these products later became industry standards. Its scheduling was flexible. The company’s competitive strategy was characterised by its emphasis on both quality and customization.emphasis on ‘pre-automation’ since that would better facilitate reliability during the actual automation processes. investments in capacity and technology had completely stopped. The last such expansion had occurred in 1986. The plant was divided into 5 production areas with each one having its own Production Supervisor who reported to the plant’s Director of Manufacturing. which was rumoured to open a first plant in the United States and decide its future course of action.e. in that it allowed for the scheduling to be changed in order to accommodate rush orders from important clients. In order to achieve growth and compete globally. falling demand for connectors had resulted in eroding its gross margins from 52% to 43% even as sales had grown from $200 million to $800 million. Production scheduling though had been suffering due to the growing number of individual products being manufactured which had prompted a corresponding increase in the number of Production Control staff.
One method 2000-unit strips loaded onto a large reel Average 2 days 200 units/minute $29. . Close relationships with Few Suppliers – this collusion formed entry barrier for new entrants.5% Production Focus No changes incorporated.000 8 years 10.Comparison Of Kawasaki and Sunnyvale Plants (1991) DJC .8 days Higher due to customized orders 38 days 70% Engineering and marketing focus Changes accommodated as they come. Sunnyvale Job Processing Batch Processing 15% 85% 420 million units (600 million units) 4500 5 Production Areas – each specializing in one Process area of producing connectors.5 – 2 days Design of equipment is outsourced to vendors.000 3 years 5 days 2 days 56 days 87.99% One week/continuous Most technology production is inhouse. Packaging Process Lead Time Assembly Line Rate Average Annual Cost per Mold Average Life of Mold Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Utilization Management Production Scheduling Yields Runs Technology Relationship with Suppliers 99. No such relationships formed. Were to be frozen 30 days in advance. Wide range From 10 piece plastic bag to 1500 piece loaded reel Standard Items : 10 days Special Orders : 14 to 21 days 500 units/minute $40. Kawasaki Production Method Production (Total Capacity) Stock Keeping Units (SKU’s) Production areas Continuous Flow Line 700 million units (800 million units) 640 4 large cells – each to produce one of the four types of connectors. ACC. 55% for a new product 98% after one year 1.
then taking cost indices into consideration.80 5.32 3. Indirect Total Labour Electricity Depreciation Other Total Hence.67% from its 1986 level ($32. if DJC establishes a Kawasaki – style plant in the United States.39 2.0. its cost for producing 1000 units comes out to be 40.74 .79 Difference (B .30 1.241 Sunnyvale Plant (B) 9.278 1.0.60 3. ACC can potentially lose a significant portion of its market if DJC decides to establish a plant in the United States.40 1.825 4.A) 2.2.Case Analysis: 1) Analysis of Current Cost Comparison (USD per 1000 Units) between Kawasaki and Sunnyvale Kawasaki Plant (A) 12. 2) Analysis of Forecasted Cost Comparison (USD per 1000 Units) between Kawasaki and Sunnyvale if DJC establishes a similar plant in the US Kawasaki Plant (A) 7. .80 5.A) . Direct Labour. Hence.153 .10 33.09% less than the cost for the Sunnyvale Plant.66 ------6. Packaging Labour. Another way to look at their comparative performance is the decreasing cost for the Kawasaki Plant. Product Raw Material. the current cost for the Kawasaki plant is 22.86 13.47% from the 1986 level ($47. had experienced an increase in cost by 2.69 Raw Material.13 2.75 3.10 6.74).91).24 20. Sunnyvale on the other hand. which has decreased its cost by 37.53 .10 ------10.77 1.75% less than the cost for the Sunnyvale Plant. Indirect Total Labour Electricity Depreciation Other Total Hence.147 1.10 ------10.80 4.656 3.39 2.76 3.10 6.112 0.549 Raw Material.0.30 1.24 26.12 1. Product Raw Material.86 7.02 0.322 0.30 0.30 0.80 4.10 Sunnyvale Plant (B) 9. Packaging Labour. Direct Labour.444 ------6.79 Difference (B .10 33.
9%) 214 (54%) We see that the Kawasaki plant employs less employees overall due to a high degree of automation.7%) 12 (12.8%) Sunnyvale Plant (396 Employees) 66 (16. . However. The presence of a relatively continuous process flow eliminated the need of such personnel at the Kawasaki plant. the Quality Control team has to manually inspect the units produced. The Kawasaki plant relied on a continuous improvement of existing proven processes to ensure that unscheduled downtime was eliminated. Also. Kawasaki has a higher percentage of employees engaged in Technology Development because the plant concentrates on the inter-functionality of all its technology development activities in order to achieve a consistent set of explicit goals. due to the absence of defect preventive measures during process control. In comparison. for which mechanics were required.3) Comparison of Labour Usage between Kawasaki and Sunnyvale: Kawasaki Plant (94 Employees) 11 (11. which made it unnecessary to employ mechanics for repairing purposes.67%) 27 (6.8%) Indirect Labour Control Indirect Labour – Technology Development Indirect Labour – Materials Handling Indirect Labour – Mechanics Direct Labour (Production) 3 (3. Thus it requires a significantly larger workforce in the Materials Handling department. This is due to the fact that scheduling is often done on a daily basis because of the acceptance of rush orders placed by large customers to the plant.67% of Sunnyvale’s total employees are engaged in Control Department. Owing to its short production runs and emphasis on customised orders. the Sunnyvale plant employs more manual labour for the production of very low volume products (about 10% of its total volume). 16. Sunnyvale with its emphasis on new product designs was more prone to faults.3%) 64 (68%) 41 (10.4%) 47 (11.2%) 4 (4. the Sunnyvale Plant has a large Work-In-Progress and Raw Material inventory in comparison with the Kawasaki plant.
the housings had to be sent to a holding area until the terminals were completed. as according to the company policy whenever the long term forecast indicates that utilization would exceed 85% for sustained . given the high rate of moulding. Its utilization is also low because it needs some buffer capacity for its flexible operations.6% 23. The difference between Fixed Asset Utilization due to non-operation for the two plants is because of the differences in the legal rules and conventions that exist in Japan and the US.7% 13. Thus. It is seen that Connector output almost doubles in the case of Direct Employee for Sunnyvale while Kawasaki only experiences a 46.8% 1.1 Sunnyvale Plant (396 Employees) 10.0% 0.06 10.5% 8.0% 2. Sunnyvale is operational only for 50 five-day weeks throughout the year.93 1.4% 4.0% 2. This can be attributed to the fact that Kawasaki uses a high degree of automation in its processes which eliminate the need for labour. Non-scheduled processes create a difference in fixed asset utilization because of the fact that at Sunnyvale. This was done because the moulded housing and terminals had to be produced in an efficient batch size.7% 28. The five-day week is adhered to more strictly in the latter and hence.2% 1.45 1.7% increase. it is not appropriate to compare the two plants on this basis.6% Kawasaki has a comparatively high connector output per thousand square feet since it has a very low Raw Material and Work-In-Progress Inventory and hence does not need to devote space for the storage of these inventories.96 5.9% 2. whereas Kawasaki is operational for 330 days in a year.4) Productivity Comparison between Kawasaki and Sunnyvale Plants Kawasaki Plant (94 Employees) 15.9 Connector Output Per Square Foot (in thousand units) Connector Output Per Employee (in million units) Connector Output Per Direct Employee (in million units) Fixed Asset Utilization % Plant Not Operating Non-Scheduled Process Failure Preventive Maintenance Process Changeover Quality Losses 7. The relative differences between connector output per employee and the connector output per direct employee show that the Indirect Labour force forms a larger part of the Sunnyvale plant than the Kawasaki plant.
price sensitive customers. which at 26000 per million units are pretty high in number. Case Results: Analysis of the Threat in Case DJC Opens a Plant in the US: In the case of DJC establishing a Kawasaki – style plant in the US. While only 15% of ACC’s total production volume was custom orders. Sunnyvale would be competing directly with Kawasaki’s high volume / low cost products and faces the possibility of losing lower margin. which is more prone to faults and hence lower yields.periods the capacity was increased. the Sunnyvale plant had production runs that barely lasted 1. reliable processes rather than new. which concentrates on old. Sunnyvale suffers from a lack of defect preventive measures due to which manual inspection of faults need to be carried out. a DJC plant could have a cost advantage of over $13 with respect to ACC’s Sunnyvale plant due to the reduced cost of raw materials and electricity in the US. A plant modelled on DJC’s Kawasaki production facility would also have a great manufacturing advantage over ACC’s Sunnyvale facility. Kawasaki is a mass producer using a continuous flow line for production while Sunnyvale is a custom producer using batch processing. As it has already been shown in the Case Analysis. Finally. This will be the market segment that will be the hardest to compete with DJC. it is inappropriate to compare the two plants on the basis of the above productivity factors as they completely differ in their competitive strategy. Both Process Failure and Preventive Measures take up a higher chunk of the Fixed Asset Utilization for Sunnyvale in comparison to Kawasaki because unlike the latter. This would mean that along with the price penetration strategy that DJC is sure to undertake to quickly corner a share of the market. Sunnyvale emphasises on new product design. 1% was prototype orders and 10% were very low volume orders. Kawasaki maintained a highly . The difference between the Fixed Asset Utilization due to Process Changeover exists for the two plants because while Kawasaki was run on a nearly continuous basis to avoid start up and shut down costs. this cost advantage could potentially take away a number of mass-market ACC customers who are not too keen on customization. since the process speed of the process had to be slowed down in order to synchronise fabrication and assembly process. Scheduling of the moulds was a slightly lesser problem at Kawasaki as well. and hence it underwent a large amount of process changeover in comparison. the difference in losses due to quality exist because while the Kawasaki plant places a lot of emphasis on maintaining equipment during process runs to eliminate unscheduled downtimes.5 – 2 days. the remaining share of the volume can be assumed as high volume / standard product. To conclude. less reliable ones in addition to focussing on continuous improvement of existing proven processes to ensure the elimination of unscheduled downtime. upon entering the US market.
. Finally. the customers have been given the leverage of demanding reduced prices and faster delivery. The cost at the Kawasaki plant is $26. DJC would have to fundamentally change its production method in order to attain the same level of flexibility that ACC offers its larger customers. it may be reasonably assumed that the customer is not that price-sensitive about these products but instead would rather have the suppliers supply to be flexible and of a high quality. increased automation and fully implemented continuous improvement plans. Moreover. compare with 10 days for Sunnyvale.efficient. Hence. DJC even refuses to entertain any rescheduling requests from its customers and if such a policy is carried into the United States ACC need not worry because this lack of flexibility would prevent it from seriously harming ACC’s large-customer base. Also. it is clear that the company’s focus is on customers who demand customization and flexibility. Hence it can certainly be seen to be a huge potential threat to ACC if it establishes a plant in the same country. Hence. Thus it will be difficult for the mass marketed product lines from DJC to challenge ACC in this aspect. All this means a process lead time of only a couple of days. looking at the other side of the argument if we rate the threat of DJC entry on the Operations parameters of Quality.79 per 1000 units. a DJC plant would clearly outperform the ACC plant. looking at ACC’s corporate strategy. Though the share of such customers is only 15% of the company’s total production volume. This despite the cost of raw materials being significantly higher in Japan than in the US. integrated production facility with methodically maintained equipment. Cost. the market has a high demand for quality for which the company has already built an outstanding reputation.10 per 1000 units while the cost at the Sunnyvale plant is $33. even with the entry of DJC this would be an area where ACC would continue to have a stranglehold because the former is only competent at mass production. though the Kawasaki method of production may be give you low delivery times and costs. it may be reasonably assumed that such custom orders would have a high profit margin. of two important parameters of cost and delivery time. However. which manages to eliminate 26000 defects per million units. In the current market climate of an abundance of suppliers. While the DJC plant is still based in Japan: The current cost at the Kawasaki plant is 22. Sunnyvale manages to provide high quality to its customers due to a strict inspection process at the end of its assembly process. we see that the cost of connectors only form 2% or less of the customers final product price. a low workforce requirement. Delivery Time and Flexibility.75% less than the cost at the Sunnyvale plant. Based on ACC’s experience. In fact in Japan. Hence. both factors on which DJC scores high marks. we find that there are two major areas in which the Kawasaki method of production and processing is severely lacking when it comes to the American market for connectors. Quantum of Difference between ACC and DJC’s Plant Costs: I.
This allows it to keep costs like start up and shut down as well as costs spent on labour and materials handling as low as possible in order to compete favourably in the market. both of which demand a higher input cost as they mean more costs being put into new product design. we find that Sunnyvale could save a depreciation cost $2. Cost Difference due to Company Strategy i. Sunnyvale with a much lower production output as compared to the Kawasaki plant has a significantly higher depreciation cost per 1000 units as compared to the latter. This is best reflected in the Depreciation costs for the two plants. This difference exists because the Kawasaki plant has a lower labour cost (due to the higher automation adopted by DJC). The price indices in the case show that the cost of raw materials and electricity is higher in Japan while the labour costs (both direct and indirect) are higher in Japan. Firstly. The cost at the Sunnyvale plant is $33. Finally. the way each company competes: $6. Fourthly. the cost at the DJC plant could be as much as 40. Thirdly. lower packaging cost (due to DJC packing 2000 pieces onto a packaging reel in comparison with ACC.24 per 1000 units. the Kawasaki plant has achieved an economy of scale which is difficult for the ACC plant to match.09% less than the cost at the Sunnyvale plant.e. resolving unscheduled downtimes and rescheduling on-going operations to accommodate rush orders from large customers. DJC and especially its Kawasaki plant is exclusively focussed on mass production where a large part of the production process is automated and the plant is run on a continuous basis. Both these factors add to the already existing cost difference between the two companies. due to its adherence to mass production. If the DJC Plant is established in the US: In such a scenario. a significant portion of the cost saving achieved by Kawasaki over Sunnyvale is due it’s the adoption of material cost saving measure such as the use of Tin in plating instead of Gold. Sunnyvale follows Customization and Flexibility. In fact on taking this factor into account. Reason for DJC and ACC Cost Differences: There are a number of reasons for the existing and predicted differences in cost between the DJC and ACC plants. which customises this processes according to the customers’ needs) and lower electricity costs (due to increased automation). Secondly. the cost difference also owes its origins to the varied markets in which the two companies operate. using less expensive Resin etc.187 per 1000 units cost difference between the Sunnyvale and Kawasaki plant exist because of the difference in strategies adopted by the two plants to compete in the market.II.04 per 1000 units if it produces the same volume as that produced by Kawasaki. Waste Reduction.79 per 1000 units while the cost at the DJC plant could drop as low as $20. . This is because the average depreciation cost is split over a fewer number of output units for the Sunnyvale as compared to Kawasaki.
ACC could try to collude with the Government.252 per 1000 units cost difference between the Sunnyvale and Kawasaki plant exists because of the inefficiencies in operational processes at the former. it must be realised that the two companies have vastly different corporate and competitive strategies. in order to create entry barriers for any new entrant. Thus even with the establishment of DJC’s new plant in the country.Cost Difference due to Company Operational Inefficiency i.89 per 1000 units. While DJC has tailored the entire working of its Kawasaki plant towards attaining the maximum possible resource utilization in order to perfect mass production and supply to regular customers. the way each company operates: $3. It is shown that if ACC operated its current plant in Japan. This difference exists because of the Kawasaki plant managing to reduce its costs through easily adoptable operational techniques like better mould design with narrower runners. focussing on trying to reduce its operational inefficiency through adopting the same measures as those undertaken at the Kawasaki plant. reducing the mass of housing material. i.e. it would have cost them $20. Final Recommendation for the ACC Management at the Sunnyvale Plant: Although the threat of DJC’s rumoured foray into the US market by way of establishing a plant in the country is certainly a substantial one. Most of these were measures that could have been easily adopted by ACC to improve the operational efficiency of its plants. . ACC continues to adhere to its stated goals of providing a high product quality in addition to delivering greater customization/flexibility for its customers.e.252 per 1000 units in comparison with to its prior operations. the one which demands customization and flexibility from its suppliers. Instead the Sunnyvale plant should simply try to concentrate on getting the easy things right. ACC should not try to change its strategy but instead should try to reduce its own cost. using less expensive resin. waste reduction and replacing Gold with Tin for the terminals’ plating. Finally. This is a parameter on which the DJC plant would not be able to compete without a major overhaul from its existing operations in Japan.90 per 1000 units whereas it only cost the DJC $14. suppliers and customers over industry rules and customer – supplier contracts. Sunnyvale could also try to integrate itself vertically by producing some of its own equipment and moulds so that it can save on transaction cost economics. Adopting these methods could allow Sunnyvale to save up to $3. In a nutshell. it would be ill advised to change its strategy completely as a retaliatory measure because that would mean giving up on main profitable customer base for connectors in the country.
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