AMERICAN CONNECTOR COMPANY (A

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SUBMITTED TO PROF. JANAT SHAH COURSE : OPERATIONS MANAGEMENT SUBMITTED BY

GROUP 7
ANUPAM BARA - 111008 JASDEEP SINGH - 111018 P SWETHA - 111030 PRITESH - 111037 VAIBHAV BAWEJA - 111056

These relationships represented an important entry barrier in the Japanese connector market. The 1991. California since 1961. DJC adopted designs to economize raw materials and to simplify manufacturing so as to eliminate features which did not add perceived value to the customers. with 1986 being the peak year. DJC had not established itself in the US. The company’s design strategy emphasized simplicity and manufacturability over innovation. the Vice President of Operations at ACC felt that ACC’s position was particularly vulnerable at the moment and contemplated a major overhaul of the manufacturing operations at Sunnyvale. 2. wire-to-outlet. DJC Corporation of Japan was a dominant supplier of electrical connectors in Japan. ACC’s last major expansion occurred in 1986 bringing its capacity to 600 million units per year. or to attach PC boards to other boards. Connectors were used in a variety of product applications. a. attach wires. Denise Larsen. worldwide with sales greater than $100 million. 2. It had no plants in the US and only a small sales force. DJC cultivated and maintained close links with the major computer. Standard designs were established mainly by International Institute of Connectors and Interconnect Technology (IICIT). Competitive Strategy of DJC Corp 1. the Sunnyvale plant made no major investments in capacity or new technology since 1986. DJC’s connectors were designed for maximum compactness to suit Japanese OEMs b. There have been rumours in the last few years that the DJC would build a new plant in USA to launch an attack on the US market. Consequently. Electrical connectors are devices made to attach wires to other wires. a recently graduated MBA and her assistant concurred to her view that the future looked bleak. sales had fallen by 3. components or chips to PC boards. 2. Because of the depressed market conditions. there were over 700 standard connector product lines in North America alone.1. attach wires to outlets. In 1990. It was rumoured to be one of the most efficient connector plants in the world. the connector industry was characterized as a hostile environment. The 1991 utilization was 70% and was expected to reach 85% by 1996.9% over the last year and the industry was seeing a downward trend since 1987. In USA.1. the plant manager felt that it would not be easy for DJC to implement their strategy in USA. Andrew Li. Each application and often each producer called for different connector specifications. . Despite its success in Japan. item-to-board and board-toboard. ranging from military and aerospace equipment to consumer electronics and appliances. THE DJC CORPORATION DJC produced four basic connectors : wire-to-wire. telecommunications and electronics companies and distributors in Japan. ACC manufactured Electrical Connectors from Sunnyvale. the National Electronics Distributors Association (NEDA) or by the end use industries. Jack Mitchell. CASE OVERVIEW American Connector Corporation (ACC) is one of the 28 suppliers of electrical connectors.

Mr. The plant operated 24 hours a day.3. 2. DJC believed in low cost positioning of its products and built its operations to achieve the same. 4.Esaka had a vision with three goals for the plant. Yield on raw material of 99% 3. each of which was responsible for producing one of the four general types of connectors.2. The main advantage of this continuous running of the plant was to minimize start up and shut down costs. Customer complaints of not more than 1 per million units of output. 330 days a year. the plant layout was designed for mass production. The Kawasaki plant was organized in 4 cells.Esaka. needed to manufacture a complete connector were located in each cell Wire to Wire Connectors Plating Item to Board Connectors Wire to Outlet Connectors Board to Board Connectors DJC – Kawasaki Plant Layout . The Kawasaki Plant The Kawasaki plant was designed to produce a maximum of 800 million connectors per year. 2.3. Thus. Asset utilization of 100% 2. The company President. they were 1. Thus. product schedules. product mix and lead times were fixed and rigid. the major aim of DJC at the Kawasaki plant was to achieve “the ultimate rationalization of mass production”. With the exception of plating. seven days a week. Mr. all the processes. Plant Layout In accordance to the vision of the President of the company. DJC emphasized on the importance of manufacturing and the balance of power was tipped in favour of manufacturing.

This layout facilitates high equipment utilization.Cell Layout This arrangement can be classified as a typical product oriented layout and production process. with each line consisting of terminal stamping. In cases of insufficient demand. molding. 2. . housing. DJC – Kawasaki – Production Process . The product is standardized Disadvantages of Product oriented layout:    Not flexible to handle products of high variety.Each cell contained anywhere from two to six production lines. Advantages of Product oriented layout:     A Product oriented layout works best when the output required is of high volume and low variety.4. The line production process followed by DJC also guaranteed low work in process inventory. assembly and packaging The production process can be depicted with a process flow diagram as shown. High volume is necessary for this type of layout to prove profitable. given there is adequate demand. this may lead to high Finished Goods inventory. Product Technology The product design at Kawasaki reflected the goals of continuous and reliable operations and the need to economize on raw materials.

These suppliers had to meet rigorous quality standards. 2. Production and Inventory Control To minimize yield losses. DJC managed to keep it’s annual cost per mold at $29. a relatively small number for a plant its size. Kawasaki’s processing lead times and work-in-progress inventories each averaged 2 days. Thus. Even with such stringent measures. Process Technology There were several principles which guided the process technology.000 for ACC. 2. even though the industry standard was 1500 connectors per tape/reel. When Kawasaki received a shipment from a supplier. it was important to ensure the molds were fault free.Product design of most connectors was standardized to reduce the number of product variations. DJC’s engineers undertook extensive value engineering to implement cost saving designs which did not compromise on product quality or performance.99%. Process Technology Kawasaki maintained close relationships with a few suppliers of its key raw materials. Reliance on in-house technology development 5. less reliable one. Kawasaki’s sourcing policy demanded frequent delivery which allowed Kawasaki to maintain a raw material inventory that averaged five days. it had a relatively high finished goods inventory of 56 days. However. On average. To economize on raw materials.5. Absolute reliability on upstream molding process: As molding was an important process in the manufacturing of a connector. 2. . production runs were scheduled to be as long as possible. a production run of a particular model lasted one week.000 compared to $40. the plant produced only 640 stock keeping units (SKUs). In 1991. DJC packaged its connectors only on tape and reels 2000 connectors per reel/tape. Inter-functional co-ordination of all its technology development activities.6. the designers adapted some pins plated with tin rather than gold. Long runs were possible due to the limited number of SKUs. they were 1. Thus. though some product lines were run on an almost continuous basis. to simplify packaging. to ensure smooth runs. Emphasis was placed on eliminating unscheduled downtime. Regular maintenance and replacement kept the mold yields in excess of 99. Better to use an old reliable process than a new. processes were operated below maximum speed.7. 4. Also. 2. Pre-automation: These activities were done to make the production process suitable foe highly reliable automation. materials were used directly in production without further inspection. 3. Specifying raw material quality and process tolerance levels were also some pre-automation activities.

Workforce Production workers were directly responsible for all activities affecting conversion and material flows and were not specialized to particular processes or functions. The plant had started off with a capacity of 1 million units per year. while sales had grown from $252 million in 1984 to $800 million in 1991. but rebounded to 70% by 1991. ACC had been very profitable.8. Custom orders made up 15% of the company’s total production volume. However. 3. Utilization sunk as low as 50% in 1988. THE AMERICAN CONNECTOR COMPANY The American Connector Company operated four plants in the U. The Director of Production lamented the lack of new technology. Competitive Strategy of American Connector Company The American Connector Company’s competitive strategy emphasized on both quality and customization. its products were recognized for superior design and performance. Historically. sustaining margins as high as 52%. the company had established a reputation as a high quality supplier. 3. the Sunnyvale plant made no major investments in capacity or new technology since 1986. the plant was expected to reach 85% utilization by 1996. it paid below industry standards for experienced workers. Customization was an extension of ACC’s emphasis on quality. However.1. some of the equipment was no more leading edge. The Sunnyvale plant produced about 4500 different models of connectors. There were some nifty new molding presses in the market.2. Kawasaki paid above industry standards for new graduates from high schools and universities. 3. but the last major expansion in 1986 saw the capacity at 600 million units per year. Using current demand forecasts. So. it is to be examined whether ACC should buy them. The effect of this system of remuneration is evident from the organization chart that 6 of the 8 Managing Directors had changed over the past 3 yrs. Because of the depressed market conditions. The Sunnyvale Plant The ACC opened the Sunnyvale plant in 1961 in order to serve the emerging electronics industries in and around Silicon Valley.2. thus attracting people with high skill and aptitude who could be developed on the job. The plant’s utilization peaked in 1986 which proved to be a peak year of demand.S and two in Europe. gross margins had eroded from 52% to 43% during the same period. In the marketplace. The Finance department had not granted permission for the Sunnyvale plant to procure new equipment. Each of these plants produced all the four basic types of connectors and each services a particular customer segment. .

and packaging The layout can be termed as a repetitive focus or modular process. plastic housing molding. does not portray actual layout as the same is not evident from the case A batch process or modular process was followed for production which is be depicted by the process flow diagram as below ACC – Sunnyvale Plant – Production Process Advantages of Modular Process: 1. so that a large variety of output options can be obtained by combining various modules Disadvantages of Modular Process: . terminal plating.3. Low Volume production 3. Plant Layout The Sunnyvale plant was divided into 5 production areas: Terminal Stamping and fabrication. ACC – Sunnyvale Plant Layout* *Representative diagram to show process layout.3. assembly and testing. High degree of Product flexibility 2. Suitable for High Variety. The production takes place in modules.

Production and Inventory Control The production schedule on any day was supposed to be frozen thirty days in advance. High Work-in-progress Inventory 3. It offered a wide range of packaging formats ranging from 10-piece plastic bag to 1500 piece loaded reel. while the ACC Sunnyvale plant layout suggests that it was . Sunnyvale’s processing lead time averaged 10. while the processing lead time for a standard batch was only 10 days. The numerous defects were a result of new product designs which used increasingly complex pin configurations. the quantity has not been mentioned in the case. however. the schedule was routinely changed to accommodate rush orders and requests from important customers. Yields on newly designed products entering production for the first time were sometimes as low as 55%. The high WIP inventory helped Sunnyvale carry out rush orders as these were pre-produced molded housings and terminals. In reality. special orders took two to three weeks. Product Technology Customization was an extension of ACC’s emphasis on quality. yields improved to about 98% once a product was in production for at least one year. While it had high work-in-progress inventories. ACC carried a finished goods inventory of 38 days. Custom orders made up 15% of the company’s total production volume. 4.1.6. A large finished good inventory was not desirable as they ran a high risk of obsoletion. However.8 days. COMPARISION OF PRODUCTION PROCESSES OF DJC vs AMERICAN CONNECTOR COMPANY As is evident from the aforementioned process layouts and discussion regarding the same. Though customers found the quality impeccable. ACC prided itself for being responsive to customer’s needs in this regard. 3. 3. High cost and low utilization 3. the defect rate within the plant was relatively high (26000 per million units of production in 1990). the DJC Kawasaki layout is made primarily for mass production with high volume of standardized products being produced. Quality Quality has been identified as an area offering major opportunity for improvement.5.4. Not suitable for mass production 2.

Thus.designed for a high output variety with low output volumes. delivery rigidity will only make it more difficult for DJC to gain a strong foothold in the highly competitive US connector industry 4 Power Equation between Sales and Manufacturin g USA has more than 900 suppliers of connectors. Long runs were possible because of the limited number of SKU's produced at the plant. S. telecom and electronics companies and distributers in Japan. USA has more than 900 suppliers of connectors. 700 standard connector product lines in North America alone. DJC would have to compete in a new market without major customer contacts. Of these 900. Is DJC aiming for the mass market? If yes. whereas a custom designed connector such as one used in military electronics sold for several dollars. On average. 5. it cannot leverage this strength to compete in USA A standard connector would fetch considerably less margin compared to a custom designed connector. These relationships represented an important entry barrier in the Japanese connector market Situation in USA Remarks 1 Customer Contacts 2 Design Strategy 3 Production and Inventory Control The company's design strategy emphasized simplicity and manufacturability. a production run of a particular model lasted one week. as DJC does not have a strong customer base in USA. A former manager of DJC explained "Sales sometimes needs an unscheduled delivery. There isn't even a debate". The balance of power between manufacturing and the sales/marketing division was clearly tipped in favour of manufacturing.No In Terms of Existing Situation DJC cultivated and maintained close links with the major computer. with about 28 firms having market more than $100 million. CHALLENGES TO DJC IN IMPLEMENTING ITS KAWASAKI FACTORY MODEL IN USA A comparative analysis of the situation prevalent in USA versus DJC’s strategy in Japan is as below. . Also. Other designs were custom .produced. but manufacturing just does not allow it. over innovation. how low can it get in the price war given the standard connectors can cost a few cents or so. usually on a one-year contract with a single connector company and were often accepted as industry standard after the contract expired. A simple connector such as a phone jack sold for only a few cents. though some product lines were run on almost continuous basis. 28 firms existed with a sales of greater than $100 million. Is it a profitable approach to do so? 700 standard connector product lines in North America alone ACC makes 4500 SKU's Will DJC be able to maintain such long run times when they need to produce almost 8 times the number of varieties of connectors they produce at Kawasaki? Being rigid in delivery schedules will do DJC no good as the customers have a large number of suppliers to choose from other than DJC.

thus reducing cost. DJC’s capacity utilization rose to 99% while Sunnyvale plant’s capacity utilization fell to 70%.5 Cost cutting DJC's engineers undertook extensive value engineering to identify and implement cost savings design changes which did not compromise product quality or performance The standard designs were those which had been established by the IICIT. There would be significantly lower margins in orders which were standard compared to orders which were in R&D stage. if it sets up a plant in USA. It should be observed from Table 1. However. Observations from Cost Analysis: 1. DJC’s COGS were comparatively lesser than Sunnyvale’s. In this scenario. that in 1986. it formed only about 2% of the product cost of the end product. in Table 2. Given the connector was a very small and inexpensive component of electronic equipment. low variety production. in 1991. As electronic equipment has a short lifespan. Given the short life cycle of electronics. 8 Demand and FG Inventory The product oriented layout works best for high volume. 2. 7 FG Inventory DJC carried 56 days of finished goods inventory. would customers in USA be willing to take the risk associated with such changes? Large orders are the standard orders which were mass produced. However. we arrive at the below cost analysis for DJC Kawasaki plant.1. As the demand in USA was low and competition high. It is unknown whether DJC can achieve such high utilization in USA. Would American Institutions like IICT. if a similar plant was to be set up in USA. Cost Analysis of DJC Kawasaki in USA Using the data given in Exhibit 7 and 8 of the case. it’s cost were much higher compared to Sunnyvale. does USA have demand for such a huge volume of connectors from DJC? 6 Packaging Standards DJC packaged 2000 pieces onto packaging reel instead of 1500 which was the industry standard. NEDA or the end industries accept changes in design? Especially changes like replacing gold with tin where the effect of this change might become noticeable only after considerable use of the product. what about the risk of obsoletion of the connectors in inventory? It is evident that the DJC plant operated on high volumes and high yield and plant utilization rates. it is evident that running a plant at 99% capacity utilization will be a tough task for DJC. This resulted in lower consumption of reels. NEDA or by end industries. it was important to get large orders. To package 2000 connectors in a reel. thus flexible delivery is a more important . 5. while DJC’s capacity utilization was 80%-90%.

147 10.4 3.827 20.12 4.8 5.75 3.3 2.76 14. As DJC would be rigid with delivery dates.24 6.27 1. Product Raw Material.393 2.93 10.52 4.417 23. Direct Labour. Thus.53 2.644 Table 2: Cost of Goods Sold per 1000 connectors in 1991 if DJC setup a plant similar to Kawasaki plant in USA * We have considered depreciation in USA and Japan to be the same as per the Exhibit 8 : Cost Indices. Packaging Raw Material Cost Labour.59 10.1 TOTAL Selling Price per connector @40% GM Price of end product 26.65 7. of Types of Connectors Raw Material.592 10. But.934 11.32 8.033 1. ACC had 15% of its sales in custom build connectors. Direct Labour.63 8. Packaging Raw Material Cost Labour.037 1. As DJC made standard connectors it’s per connector price would hover around the below price.1 4.47 1. ACC’s standard products can be as competitively priced against DJC’s.923 8. Product Raw Material.89 3.1 8.02 0.976 1.825 4. a customer would pay a few thousand dollars more to ACC to have a special order made than lose out due to rigid schedules of DJC.38 0.203 0. Indirect Total Labour Electricity Depreciation Other DJC/Kawasaki (in $) 99% 400 12.241 0. 3.77 1.049 24.49 3.8 4.74 0.aspect than cost of the connectors.25 17.49 0.8 7. Thus. all the while making good margins in the sale of custom built connectors. Indirect Total Labour Electricity Depreciation Other DJC/Kawasaki DJC in USA ACC/Sunnyvale (in $) (in $) (in $) 80-90% 80-90% 85% --3500 14.39 1.3 1.278 9.554 12.41 TOTAL Selling Price per connector @40% GM 41.1 0. of Types of Connectors Raw Material.12 4.63 7.322 0.8 1.058 35.4 1.24 DJC in USA ACC/Sunnyvale (in $) (in $) 99% 70% 400 4500 7.962 2.13 2.53 9.034 Table 1: Cost of Goods Sold per 1000 connectors in 1986 if DJC setup a plant similar to Kawasaki plant in USA 1991 Capacity Utilization No. where it would be able to charge a premium. It should be noted that the prices below are the prices on an average.656 2. 1986 Capacity Utilization No.028 1. .63 5. ACC has the ability to reduce the prices of standard connectors below the price of DJC and offset the additional cost with higher margins from custom build products.12 0.

the same might not work in the US market. 85% of ACC's orders were standard orders while only 15% were custom built connectors. Though there was high variety in connectors. ACC is not completely safe. This was a typical modular process layout. ACC Sunnyvale Existing Situation Suggested Counter Strategy for ACC As ACC has 85% orders as standard orders. Designing a plant around 15% of the orders is not justifiable. b)Augmenting the plating capacity to eliminate the bottleneck might not be a viable strategy at the moment as there is inadequate market demand to justify expenditure for augmenting the capacity. There are many areas where ACC is found to be lagging behind and some suggestions for ACC’s future strategy are as below. SUGGESTED STRATEGY FOR ACC TO COUNTER DJC’S ENTRY INTO THE US MARKET It is evident from the above analysis that though DJC’s strategy succeeded in Japan. it is advised that ACC shifts its method of production from batch process to lean production for this 85%. ACC stands to lose it's 85% standard sales as DJC Would be selling the same standard equipment at almost half the price. Also. a)ACC could benefit from following DJC's strategy of running the line at lower than maximum speed. Having combination layout with a product layout for standard orders and process layout for custom orders will help achieve this. the volumes are not low.No In Terms of Threat from DJC 1 Process Layout The plant was divided into 5 production areas. DJC does pose some threats to ACC. Upon the entry of DJC into the US market.6. this holding area for holding finished housings can be eliminated. Nevertheless. S. ensuring better space utilization. ACC should be ready with a counter strategy to eliminate DJC’s threat and save its market share. Given the high rate Bottlenecks at which the 2 in connectors could be production molded. A product layout with product focus with a capacity of 510 million units may be implemented for standard orders while a modular process with capacity of 90 units be implemented for custom orders. Modular process layouts are designed to accommodate high variety and low volume production. a batch of housings was almost always ready for assembly before the terminal plating operations were completed . Thus.

3 Quality New 4 Molding Presses The defect rate within the plant was relatively high 26000 per million units of production in 1990. Making production of custom products and standardised products as two different manufacturing layouts. Also. Regular maintenance and replacement kept the mold yields in excess of 99. Even with such stringent measures. The Sunnyvale plant had always been a technology leader. There were some nifty new molding presses in the market. This will reduce the lead time for customers and also reduce shutdown and start-up cost all the while increasing the fixed asset utilization. This increased start up and shut down costs. it is to be examined whether ACC should buy them. Given the loss in fixed asset utilization and the additional shut down and start-up costs. For DJC molding was an important process in the manufacturing of a connector. investing in new molding presses would be a good investment. Kawasaki on the other hand minimized these costs by running the plant for 24 hours a day. 7 days a week and 330 days a year working of the plant. it would not serve any purpose in the present situation as the bottleneck was plating and not molding. it is observed that 28. for 5 days a week for 50 weeks a year. if the new molding presses were solely to increase output. if new molding presses could reduce the defect rate. The Director of Production lamented the lack of new technology. It is to be examined whether the new technology is the reason for DJC's high yield and low cost of Molds. Quality Losses 5 Plant Not Operating From Exhibit No 6 of the case.6% of loss in fixed asset utilization is due to plant not operating.000 compared to $40.000 for ACC. it was important to ensure the molds were fault free. 7 days a week and 330 days a year. Yields on new designs was sometimes as low as 55%. and having inspection at every stage (TQM) of production can reduce defects and improve the first time yield rate. DJC managed to keep it’s annual cost per mold at $29. However.99%. ACC might be out priced by DJC. Sunnyvale operated only for 3 shifts a day. . The Finance department had not granted permission for the Sunnyvale plant to procure new equipment. ACC should implement 24 hours a day.

This shows that the plant has fallen into improper maintenance. DJC would be marketing itself as a low cost supplier of connectors. REFERENCES [1] Jay Heizer and Barry Render. Also. ACC has the ability to reduce the prices of standard connectors below the price of DJC and offset the additional cost with higher margins from custom build products. Chapter 7 – Process Strategy th [2] Jay Heizer and Barry Render. Thus.2% 7 Marketing Strategy ACC was characterized by its emphasis on both quality and customization. with some changes in the production process.Quality Losses 6 NonScheduled From Exhibit No 6 of the case. where it would be able to charge a premium. It is important for ACC to schedule more frequent maintenance of equipment as the plant is aging. ACC has 15% of its sales in custom build connectors. 8. “Operations Management. 8 Edition”. 8 Edition”. Thus. all the while making good margins in the sale of custom built connectors. “Operations Management. 7.6% of loss in fixed asset utilization is due to non-scheduled outages. CONCLUSION It can be safely concluded that though DJC does pose a significant threat to ACC. Chapter 9 – Layout Strategies th . DJC's non-scheduled outages were only 13. some old and aging equipment might be replaced for newer ones to reduce this loss of asset utilization. ACC can effectively counter the threat of DJC’s entry into the US market. ACC’s standard products can be as competitively priced against DJC’s. it is observed that 28.

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