Case- American

Connector Company
SECTION-B, GROUP-6

By:

NISHAT ALAM CHOUDHARY

(19FPM004)

AYUSH BHATNAGAR (19PGP031)

CHANDER LEKHA (19PGP037)

DIVYAM BHADORIA (19PGP052)

 The threat of DJC to American Connector Company is very high.
Following are the reasons:

 If DJC sets up manufacturing base in USA, as per the exhibit 7 and exhibit 8 the
raw material cost for DJC in USA will drastically reduce. Current Raw material
1. How serious is the threat of DJC to product and packaging cost is 14.89 which will reduce to 8.93 in USA.As the
American Connector Company? raw material cost is almost half of the total finished goods cost, the raw material
cost reduction would be substantial.

Cost head KAWASAKI             PLANT IN USA

 ($/1000 Units)
Raw material, 12.13+2.76=14.89 14.89 * 0.6 =8.93
Product + Packaging

 As Sunnyvale’s defect rates are at 26000 PPM of production which is relatively

high. The Quality control of DJC is process centric where each process is QC
monitored unlike in Sunnyvale its end product inspection. The quality losses of
DJC and ACC over total production are 0.7% and 1.6%. So, Quality is one grey
zone which needs to be addressed by ACC.

 Work in process inventory cost is very high in case of ACC in comparison to

DJC. This in turn is reduces connector output per square foot as extra space is
required for WIP and finished goods(15.1 of Kawasaki VS. 10.9 of Sunnyvale).
 As Kawasaki plant is working for 24hrs/day thus the asset utilization is maximum and Connector output per employee is very high.
(75.4%  of Kawasaki VS. 30.2% of Sunnyvale)

 Due to high number of product variations in customer orders of Sunnyvale which is employing batch production system there is
frequent changes in product manufacturing lines thus resulting in lower efficiency which could be obtained in case of standardized
products.(Product lines were as small as 1.5 to 2 days)

 The raw material inventories of DJC is averaging only 5 days as compared to 10.8 days of ACC. So, DJC is incurring less
Inventory cost which again reduces finished good cost. 

 The speed of customer order delivery of DJC is one day (because of highly automated production process at Kawasaki plant)
whereas the speed of customer order delivery of ACC is more than one day (because of batch production process producing about
4,500 varieties of connectors).

The Only positive point which ACC has over DJC is:
The flexibility of production process at DJC is less when compared to that of ACC. ACC has batch production process which allows it
to have high customization of products to its customers.
 Calculating the cost figures if DJC sets up its plant in Sunnyvale, USA.

DJC/Kawasaki ACC/Sunnyvale DJC/Sunnyvale

1991 1991 1991

Raw material, 12.13 9.39 7.278

2. How big are the cost differences product
between DJC's plant and American
Raw material, 2.76 2.10 1.656
Connector's Sunnyvale plant? packaging
Consider both DJC's performance in
Kawasaki and its potential in the Labor, direct 3.02 3.322
United States. Labor, Indirect 0.75 0.825
Total Labor 3.77 10.3 4.147
Electricity 1.4 0.8 1.12
Depreciation 1.8 5.1 1.8

Other 4.24 6.1 4.24

Total 26.10 33.79 20.241

 Raw Material (product and packaging): As mentioned in the case, since 1980s, cost of raw materials has always been
relatively higher in Japan than US market. From the data, Current cost of raw materials in DJC/Kawasaki (12.13) is
higher than the cost of raw materials in ACC/Sunnyvale (9.39). With DJC, setting up plant in US, costs would come
down to 7.728 and would give cost advantage to DJC. Same theory is applicable for packaging raw materials.

 Labor Costs (Direct and Indirect): As the WIP and finished goods inventory is high in ACC Sunnyvale plant  in
comparison to Kawasaki plant the manpower required to handle this excess inventory space is also increased thereby
increasing the complexity of the plant environment and labour cost.(Material handling cost of Kawasaki 3.2% v/s
10.4% of Sunnyvale).

 Electricity Costs: Per unit electricity costs are higher in Japan as compared to US. Hence shifting operations to US
would lower costs for DJC. To conclude, costs of manufacturing for DJC in US are much lower than their cost of
operations in US. Also they have lower costs than Sunnyvale, US plant.

 Runtime for moulding process: Due to high batch of housings assembled during plating operations resulted in lower
runtime for moulding operations which was already down to 1.5 days and any further reduction would affect costs.

3. What accounts for these
differences? How much of the
differences is inherent in the way
each of the two companies
compete? How much is due strictly
to differences in the efficiency of
the operations?
Reasons for Cost Differences-
 Design changes: Kawasaki Plant did many design changes as compared to Sunnyvale
that resulted in Material cost savings. Mold design change, Use of less expensive
Resin, Reduced mass of Housing, waste reduction, increased usage of Tin plating,
increased Reel size to 2000 piece were few changes incorporated by Kawasaki.
 Labor Usage: Kawasaki had nearly 1/4th the employee strength as compared to
Sunnydale. Since the Kawasaki plant was mainly automated, the number of workers as
well as support and overhead staff was less. On the contrary since Sunnydale was
focused more on customization strategy and thus the number of employees hired were
more leading to higher costs.
 Raw Materials Cost: In Japan the raw materials was approximately double to that in
USA and thus created a cost difference.
 Production Process: Kawasaki plant had a continuous production process and thus
eliminating the cost incurred due to yield or capacity losses. Production runs were
scheduled to be as long as possible and no unplanned orders were considered. On the
contrary Sunnydale offered customized products.
 WIP and SKUs: Sunnydale produced about 4500 different models and also kept high
WIP in order to respond quickly to unexpected orders. While Kawasaki produced only
460 SKUs and does not allow any alteration to production schedules, product mix or
lead times.
 Inventory: Sunnydale kept a finished goods inventory of 38 days while for Kawasaki it was only 5 days. Kawasaki also had close
relationships with its suppliers and the plant was located close to suppliers and distributors.

 Production Schedule: Sunnydale had a production schedule which was frozen thirty days in advance while Kawasaki plant worked with just
in time delivery.

 Process Technology: Sunnydale focused more on technology and invested in it to improve quality or productivity while Kawasaki
emphasized more on simplicity and manufacturability over innovation.

 Quality Standard: Defect rates were relatively high at Sunnydale, about 26000per million units of production while at Kawasaki the
allowable defects were only 1 per million units of output.

 Plant Layout: At Kawasaki plant the plating was organized separately to minimize costs while at Sunnydale there was a holding area where
terminals were held until they were ready for plating.

Both the companies have their own unique approach of production and also each have different parameters to customer satisfaction. Where
Kawasaki Plant is more focused on manufacturability, Sunnydale plant is more inclined towards customization and efficiency. The companies
are competing on the parameters of technology, cost and Quality. Considering the importance of each factor every plant has its own process.

The efficiency of Sunnyvale was very low as it was producing 26000 defected units in 1 million. There was quality issue which was leading to
overall effect on productivity and profitability decrement. If DJC comes to America and sets up a plant with a very high efficiency, as they did in
Kawasaki, American Connectors will lose their business to DJC.ACC finance teams were also not allowing funds to upgrade their technology.
This would also affect the efficiency of the operations. Further to this ACC organizational hierarchy was more inclined towards marketing and
engineering teams and lesser stress on production team which was different in case of DJC which had equal stress on the production team; this
was a motivational factor for increase in productivity.
 The Sunnyvale Plant needs a series of improvements steps to be taken irrespective of
the fact whether DJC sets up the manufacturing unit in USA or not.
4. What should American
Connector's management at the Some recommendations for the Sunnyvale plant are as follows:-
Sunnyvale plant do?  Cost control measures needs to be taken for the ACC current operations, as the same
has been increasing and the quality control figures are going down.
 
Quality control issues of high defect rate (26,000 in a million) implies imperfections
in the batch processing at Sunnyvale. It implies that there is quality control inspection
required at each process level unlike the current practice of end product inspection.

Improving the compactness of the connectors will bring some competitive

advantage.

There is requirement of in-house R&D to develop technical innovations for

production process. It would help in developing in-house machinery to have a
technological edge over competitors.

ACC organizational hierarchy was more inclined towards marketing and engineering
teams and lesser stress on production team which was different in case of DJC which
had equal stress on the production team; this was a motivational factor for increase in
productivity at DJC.ACC needs to follow similar model for operations set up in the
organization to promote production oriented structure and greater balance.
Product design innovations which will not allow reverse engineering of product by competitors to a greater level.

ACC needs to decrease mould recycling time. This saves time and also introduces new designs.

ACC need to line up the facility layout and minimize inventory holding costs. It needs to follow pull strategy for of raw materials in
production line.

ACC needs to focus on quality control as there quality control issues has been identified. Reducing design flaws through better R&D
support and good quality raw materials will help reduce the low yields. Flawless raw material needs no testing and adoption of
stringent standards for raw material eliminated the trouble to check every batch of raw materials.

ACC can save cost on color coded cables/connectors which may be beneficial in longer run.

ACC needs to control processing lead time from 10 days to a substantial extent so that it order management will be easier and less
finished product inventory pile up.

ACC can increase fixed asset utilization and decrease operational cost by controlling on start-up and shut-down costs. It can be
controlled using increased amount of machinery to handle different moulds. The moulds producing less no. of specific type of
connectors can be for frequent changeover. It can be controlled using specific fixed lines for large size order which would run for
longer period and frequent changing lines fixed for smaller orders.