OM CASE

American Connector Company

Prepared by
Karan Das 2310132
Kanchan Hazarika 2310376
Arindom Basumatory 2310107
Kshitija Chauhan 2310139
Mayukha Pushkarini 2310146
Ninad Desai 2310117

Under the Guidance of

Prof. Milan Kumar
IIM Visakhapatnam
Case 7: American Connector Company (A)
Introduction
This Case Study analyses the situation where a US-based company (ACC) was in distress
when a foreign company (DJC) showed an interest in building their own production facility
in the US. Earlier DJC was reverse-engineering ACC’s products and selling them in their
own country and over the course of period DJC developed their own competence, but now
ACC was facing a significant problem as their gross margin went down from 52% to 43%
between 1984 and 1991, and on the other hand some foreign player is try to give a tough
challenge in their own home ground which make worse of a situation for ACC.

Q1.
Ans: Following are the potential threat of DJC to ACC if they are successfully able to
implement their Kawasaki Model in the US: -
1. In-house Technology: DJC developed their own In-house technology which give
them a competitive edge by relying on their highly experience engineers. Whereas,
ACC relies on outsourcing its manufacturing process development, which means that
same technology may be available to ACC’s competitors, leading to equal quality in
results. DJC further went down to reduce the no. of product variation in 1991 to make
standardized product whereas ACC was still focused on customized products.
2. Leading Time: DJC Kawasaki model’s processing lead time was offering as low as 2
days in average whereas ACC it was average of 10 days.
3. Lower Cost of raw material: Raw materials in the US for products and packaging’s
was almost half the cost of that was in Japan which will reduces by 40% of their raw
material cost from $14.89 to $8.9 per 1000 units, Electricity cost by 10% from $1.40
to $1.12, so this are the cost benefit DJC will gain if they were to establish their
production plant in the US.
4. Labor Utilization: Since DJC technology was very efficient and highly process
reliable which made them not to unnecessarily employ any extra mechanics to
repairment and help them to utilize their Labor better then ACC and save labour cost.
It was observed that only 32% out of 94 of the employees in Kawasaki were in
indirect positions, whereas Sunnyvale 45.8% out of 396 employees were indirect
labour handling the manual control of productions. This means the ACC couldn’t cut
cost in labour.
5. Utilization of Fixed Asset: DJC was utilizing their fixed asset better then ACC with
75.4% and 30.2% respectively.

However, there was one thing where ACC was better doing was:
1. The flexibility of production process of DJC is low when compared to that of
ACC production process. Since, ACC approach of batch production process
was allowing them to have highly customized products for customers.
Q2.
Ans: The major difference with regards to cost, between DJC’s Kawasaki model plant and
ACC’s Sunnyvale plants are given in following:
 Cost of raw materials: If we see in the case of DJC’s Kawasaki plant in the Japan
they were able to produce per 1000 units product with packaging was costing them
over $14.89, but not in the case if they were to set up a plant in the US, therefore there
was a possibility of cost reduction, as the cost ratio of Japan vs US (1:0.6) from cost
index Exhibit 7 and 8.
Cost Head Kawasaki ($/1000 units) Proposed plant in US
($/1000 units)
Raw Material (Product+ 12.13+2.76=14.89 14.89*0.6=8.96
Packaging)

 Cost of Standardize packaging: Since DJC was producing standardized products

with standardized packaging with their Technology, they were saving a lot of cost in
process while achieving a Economics of scale, On the other hand ACC was making
customized products with customized packaging which in sometimes cost ACC a bit
more than usual.
 Cost of Labour: The no. of work-in-process and lead time for the ACC’s Sunnyvale
plant was higher then DJC’s Kawasaki plant because ACC is like a Modular
production where labour excellence was preferred since they were making customised
products, so more no. of labour involvement required whereas DJC’s automation
technology advancement helped their operation process to be very reliable and
efficient, which leads to less involvement of labour in plant and that allowed them to
cost-cut.
 Cost of Electricity: Again, if DJC’s were to set up a plant in the US, there was a
possibility of cost reduction, as the cost ratio of Japan vs US (1:0.8) was not same,
cost index Exhibit 7 and 8.
Cost Head Kawasaki ($/1000 units) Proposed plant in US
($/1000 units)
Electricity 1.4 0.80*1.4=1.12

Q3.
Ans: The reason for these difference in both Company is in following:
 DJC’s Kawasaki plant layout was made primarily to produce in mass volume that’s
why the products were very standardized, whereas ACC’s Sunnyvale plant layout was
designed for high output variety with low output volumes that’s why their products
were very customizable.
 DJC’s used tin instead of gold in some types of connectors that use for pins to
economize on the raw material.
 One of the reasons was also that the raw materials cost was double the amount in
Japan compared to US for product and packaging per 1000 units.
  DJC operates in the policy of continuous production for 24 hrs a day, 7 days per week
and 330 days per year which help them in avoiding start-up and shut-down costs.
Whereas in ACC, due to batch production, any change or alteration in product or
packaging required change in production line. This led to lower efficiency.

The differences in the way each of the two companies compete are as follows:
 DJC developed their own core competence by investing in R&D and came up with
their own in-house technology which ultimately help them reduced their overall
production costs.
 DJC maintained a relatively low raw materials in inventory which allowed them to
follow a pull strategy in their manufacturing process. This led them to only orders the
required raw materials as per as their requirement and help them in saving cost.
 DJC’s Kawasaki Plant was near to major raw materials suppliers, this particularly
helped them to reduced logistics costs.

Efficiency Difference: -
 ACC’s Sunnyvale plant’s efficiency was very low as it was producing relatively very
high number of defected units (about 26,000 units per million). So, if DJC were to
come to US, then ACC would have lost to them since they were very efficient.
Apparently, ACC’s production department was aware of this issue and wanted to
resolve by investing or buying some new technological machinery, but the finance
department wasn’t allowing them.

Q4.
Ans: Following are the recommendation to ACC’s Manager at Sunnyvale plant to increase
their overall productivity:
 Improve product design innovations so that it’s become more and more difficult to
competitors to reverse-engineer or copy the product.
 Reduce the amount of SKU’s which is currently at 4500 and try to introduce some
level of standardisation in products or in operations.
 Investing on R&D is much recommended to innovation some in-house technology
like DJC which will help not only build a core competence but also in and edge over
production excellency and improve resources utilization, since labour and fixed asset
utilization is very low.
 ACC’s can cut costs on CC cables and connectors which could potentially provide
them with an advantage over competitors in the long run.
 ACC should go to their customers and convince them of the value of purchasing
customized products instead of standardised products that DJC was offering,