You are on page 1of 10

CASE ANALYSIS

On

AMERICAN CONNECTOR COMPANY

SUBMITTED TO
PROF. D. KRISHNA SUNDAR
On 17-07-2015

As part of Manufacturing Strategy Course in Term 4

By Group-11
Mohit Khaitan-1401033
Ramesh Tanjavuru-1401050
Agila Sampath-1401063
Renu Chowdary-1401073

Industry overview
The electrical connector industry supplied connectors with various specifications to industries
like military, industrial electronics, telecommunications, computer etc. Connectors were
basically classified into two types- standard and customized. In the 1970s, the US connector
industry was growing very rapidly and firms had built up capacity to fulfill the growing demand.
But demand started to slow down during mid to late 80s and as a result there were too many
suppliers and too much capacity.
During 1990s the industry turned into a hostile environment. With the presence of more than 900
suppliers sales started to fall rapidly. This gave buyers the power to bargain reduced prices,
improved quality and faster delivery. Suppliers which produced many types of connectors were
finding it very difficult to meet the increasing number of specifications. The industry was very
fragmented with the top ten leaders accounting for $6.67 billion out of $16 billion of total sales.
DJC and American Connector Company were classified as the second tier company with sales
within $500 million to $800 million range. DJCs competitive strategy was that of a cost leader
by providing more standardized products than the customized products. DJC focused on mass
production and hence they had experienced shorter process time. In DJC the manufacturing
department was given top priority and they had the final say over sales and marketing. Whereas
the strategy applied by ACC was that of a differentiator by providing customized products based
on customer requirements. Variety, quality and flexibility were the top priorities in the
manufacturing processes. The sales and marketing had the power to influence the decisions of
manufacturing team since they always prided themselves on being responsive to customers
needs.
Now after their successful stint in the home market DJC is planning to start another plant in the
USA in order to foster sales there. Their arch rival ACC has been contemplating various
scenarios that they would face after the entry of DJC in the US market.
THREAT OF DJC TO AMERICAN CONNECTOR COMPANY
THE AMERICAN CONNECTOR COMPANY
Strengths
Quality: Sunnyvale plant, being a technological leader, had latest production equipment
which manufactured high quality products. Also, delivering high quality products (even
when defect rate was 26000 per million units) to customers was achieved because of
quality inspection checks put in place.
Customization: High emphasis on customization was given. Custom orders made up 15%
of the companys total production volume.
Superior design and Performance: The Companys products are recognized for superior
design and performance and had market reputation of being a high quality supplier.

Develop Unique Solution: ACCs employees used to collaborate with large customers to
develop unique solutions to their specific connector problem. This kind of involvement
many times resulted in ACCs custom products becoming industry standard.
High responsiveness: The Company had high responsiveness to customer needs in
delivering perfect connectors without missing scheduled delivery. This was possible
because rush orders and request from important customers were accommodated by
changing the production schedule.

Weakness
Plants equipment not up-to-date: Sunnyvale had always been technological leader. One
of the reasons for this was that they always had latest production equipment which helped
them improve quality or productivity.
Process lead time is high: Process lead time is 10 days for standard items and 2 to 3
weeks for special order items.
Higher number of control staff: Production control staffs were increased from 42 to 65
due to increasingly complex production schedule.
High defect rates: Sunnyvale plant had a defect rate of 26000 per million units produced.
Production supervisors felt most of these defects were due to new product design. Yields
on newly designed products entering production for first time were at times as low as
55%
Unable to implement Statistical Process Control and other defect preventive measures.

Low labor productivity (1.06 million connector outputs per employee).

Opportunities
Mergers and Acquisitions: During 1990s, there were too many suppliers and too much
capacity. Thus, analysts predicted that number of suppliers might drop to 400 from 1200
by the end of 1990s due increasing consolidation in the industry.
Exploring developed Asian markets

Effective implementation of the defect preventive measures to increase the yield.

Use of advanced and effective technologies for flexibility and cost minimization

Increasing demand for customized connectors

Threats
Competition due to High Efficient Plant: DJC building a plant on U.S Mainland and get
access to cheap raw material which would make them provide connectors at very low
cost
Price War: Increasing rivalry among the competitors can lead to price wars.
The American connector industry demands lower prices, high quality and faster delivery, and
since DJC is already proficient in these aspects, it is poised to do well in American market.

Although ACC is strong in customization of products according to customer demands but only
15% of the revenue is generated from that segment, rest is from standard products only. So with
high rivalry, ACC is highly vulnerable to the threat posed by DJC Corporation of Japan.

Comparison of DJC and ACC over different attributes


Attribute
Competitive Strategy
Design
Product Variety
Relationship
Customer

Production & Inventory

DJC - Kawasaki
Highly efficient manufacturing with
high quality and low cost position
1. Simplicity & Manufacturability
2. Economizes raw materials
High - more than 4500 SKUs as of
1991
Maintained close relationship with
suppliers
Majority of the customers are from
Japan while only 25% come from Asia
1. Maintained high run time (some
were up to 1 week and some on a
continuous basis) to minimize yield
and capacity losses and reduce start-up
and shutdown cost and time.
2. Work in process inventory is around
2 days significantly less compared to
that of ACC.
Low
High (approx. 75 %)

Flexibility of Operation
Capacity utilization
Intra
Departmental
relations
High Inter-functional coordination

ACC Sunnyvale
focus on high
Customization

quality

&

Superior Design & Performance


only 640 different SKUs
Highly responsive to customer
needs
Global Market

1. Low runtime at an average of


1.5
days.
2. WIP is very high at 10.8 days
which
increases
inventory
carrying costs.
High
Very low (approx. 30%)
Marketing and engineering has
a higher say over production.

Workforce

Focus on maintaining low direct,


support
and
overhead
staff.
Compensation system focused on
attracting young qualified workers.

Total number of employees in


both Direct and Indirect labour
are significantly high compared
to DJC

Process

1. Decentralization of decision making


power
2.
Pre-automation
3. Absolute reliability in upstream
moulding
process
4. Designed all moulds in-house and
manufactured half of them

1. Customization of products
2. Processes getting obsolete
3. Lower runtime of process
leading to higher lead times
4. High defect rate (26,000 per
million production)

Comparison of Manufacturing Costs


DJC vs American Connector
Cost of Goods Sold (1991)
(dollars per 1000 units)
Expense Item
Raw
Material,
Product
Raw
Material,
Packaging
Labour, Direct
Labour, Indirect
Total Labour
Electricity
Depreciation
Other
TOTAL

Cost
Index

ACC/Sunnyva
le

DJC/Kawasa
ki

DJC/Kawasa
ki
after
adjusting

0.60

9.39

12.13

7.28

0.60
1.10
1.10
0.80
1.00
1.00

2.10
10.30
0.80
5.10
6.10
33.79

2.76
3.02
0.75

1.66
3.32
0.83

1.40
1.80
4.24
26.10

1.12
1.80
4.24
20.24

Difference in cost per 1000 units = 13.55 dollars


In 1991, Kawasaki production was estimated to be 700 million units. The total difference in cost
for 700 million units is 9.484 million dollars.
Reasons for differences in cost
Raw Material Product Use of tin which was far cheaper than gold
Raw Material Packaging Kawasaki packed its connectors only on tape and reels compared to
Sunnyvale which offered a wide range of packaging formats ranging from 10 piece plastic bag to
1500 piece loaded reel
Labour - There is a considerable labour cost difference between two plants because of the
following reasons which reduced the number of employees in Kawasaki plant.

Kawasaki plants technology and operating policies were designed to reduce the sources
of problems that create a need for control staff
High process reliability made it unnecessary to employ mechanics for repair
Lack of work in process inventory reduced the inventory control workers
The plant became increasingly automated

Depreciation Depreciation is lesser at Kawasaki since the production volume is high (700
million units) compared to Sunnyvale (420 million units).

Material Cost Savings for Kawasaki


Material Cost Savings
Cost per 1000 units
Kawasaki's Material Cost with ACC's design & packaging

20.90

Mold Design

0.21

Less Expensive Resin

0.48

Reduced Mass of Housing

0.18

Waste Reduction

1.05

Tin Plating

3.50

2000 piece reel

0.59

Total Cost Saving by Kawasaki

6.01

Current Kawasaki Material Costs (1991)

14.89

Current Kawasaki Material Costs - Adjusted for Cost Index

8.93

Sunnyvale Material Costs

11.49

Difference in cost

2.56

Difference in cost per 1000 units = 2.56 dollars


The total difference in cost for 700 million units is 1.789 million dollars.

Challenged could be faced by DJC in US market


1. DJC existing competitive strategy stresses on Simplicity and manufacturability with no
focus over innovation and customizability, whereas the US market has product requirement
varying from high customizability to low. In this case DJC, with its existing capability of
producing high volume standardized connectors has to focus on mass market. If it aims mass
market can it compete in the highly fragmented US market for low margins else if it targets
customer designed segment, can it beat the competition which has expertise in producing
customized connectors?
2. The current production runs were scheduled for as long as 1 week and some are run
continuously as there are limited number of SKU's but if they target the US market can they be
able to maintain the long runs while targeting the customized connector segment in which
ACC has more than 4500 SKUs.
3. Compared with ACC, production schedule is not very flexible in case of DJC. Hence when
it targets US market, will it change its schedule from rigid to flexible if not it will be difficult
for DJC to sustain in US market where the number of suppliers are very high which give high
bargaining power to customers. As they don't have a foot hold in US rigid delivery schedules
will make it more difficult for them to sustain in a highly competitive market like US.
4. Unlike in Japan, DJC doesn't have a strong customer base in US which will make it difficult
for DJC to compete in highly competitive market with more than 900 suppliers.
5. In order to cut costs, DJC opted for Tin plating instead of Gold plating in Japan market but
will the customers accept it in US and compromise on reliability which is high in case of Gold
pins.
6. As the DGC carried finished good inventory for 56 days, it increased the risk of obsoleting
which is already high due to shorter lifecycle of electronic goods.
7. In overall, it is evident from the DJC Kawasaki plant that, it operated on high quality and
high volume with lower costs and higher utilization rates but will the same work in US. Does
US has demand for such high volume connectors, if at all there is demand how much feasible
for it to penetrate in US market? And what will be the other marketing costs that may incur in
order to penetrate more.

Suggested Strategies
Though it is questionable if DJC can operate a plant like Kawasaki in US, it nevertheless poses a
threat to ACC and they should strategize to avoid any loss of market share to DJC when they
enter US market.
Production system:

At ACC, the plant was divided into 5 production areas which follows a batch flow production
system and functional layout.In this kind of layout, there are low volumes and high variety
whereas at DJC Kawasaki plant follows a cellular layout . About 85% of ACC's orders were
standard orders and 15% were custom built connectors. If DJC were to replicate their existing
model in US, they would be creating a plant which is suitable for low volumes and high variety
when 15% of orders were only custom built. Hence, ACC should consider using suitable
production lay outs for different types of orders(standard and custom)as having a functional
layout which suites for high variety to produce 85 % of standard orders is not efficient.
Losses due to Non-operation of Plants:
We can see from exhibit 6 in case that 28.6% of loss in fixed asset utilization is due to nonoperation of plant. Kawasaki runs the plant for 24 hours a day, 7 days a week whereas Sunnyvale
operated only for 3 shifts a day, for 5 days a week. By implementing 24/7 production system and
reducing shut down, start-up costs would increase production and improve fixed asset utilization.
Losses due to Non- Scheduled outages:
Non -scheduled outages resulted in 28.6 % loss in fixed asset utilization at ACC whereas at DJC
it is only 13.2%.Hence, better and frequent maintenance of equipment is need to be done at ACC
plant.
Training of workers:
ACC should consider investing in improving the technical know how about products and
processes to improve efficiency and productivity of workers.
Workforce:
ACC can reduce number of direct production workers , support an overhead staff to reduce
operational costs. Making process more automated will result in fewer direct workers and results
in reliable process.
Sunnyvale direct labour 54% ( out of 396 employees) i.e, -214 employees where as in
Kawasaki plant it is 64. It is also worth noting that production is almost 1.7 times higher at
Kawasaki as compared to Sunnyvale.
Technology Upgradation:
Sunnyvale plant had made no major investment in capacity nor technology since 1986. Some of
its equipment is no longer leading edge stuff. They should consider investing in technology as it
would hit their sales badly down the lane if they dont have upgraded and nifty molding presses.

Coordination among departments:


Intern functional coordination plays a critical role in achieving the set goals.They result in
efficient resource utilization, design quality and manufacturability. It reduces development cycle
and results in continuous process improvement. It also results in synergies across teams and
coordination among various functions helps in improving product characteristics. Information
sharing across departments would yield better results.
Product and Process Improvements Kawasaki:
Like Kawasaki has developed a new resin to improve connector durability and they tried to
understand consumer needs. This contact helped them in understanding that a material connector
would help differentiate DJC product in the customers syes. Materials team also learned about
new materials and requirements of manufacturing process by having discussions with process
engineering groups. Though ACC gives high priority to customer needs and preferences, it is not
able to come up with innovative process and product improvements due to incoherence in
information flow across teams.