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13DM186

Sreev

Case Summary
The case describes the Problem of American connector company, which
was struggling with the quality issues with its Sunnyvale plant and a
probable threat of DJC setting up a plant with a quality standards of its
Japans Kawasaki plants.
The management of ACC was in a dilemma whether to be worried by DJCs
new proposed plant in US or if DJC doesnt have a strong backing which
could lead to a loss of competitive advantage for ACC.
The connector industry flourished in 1970s and faced a slowdown in late
80s due to many suppliers and too much capacity. This led to price wars
between suppliers and producers bringing down margin over the time.
This also led to the trend of mergers and acquisitions.
ACC was perceived to be an innovative company which collaborates with
its customers to improve the designs according to the need of the
customers. On the contrary, DJC just copied the designs of ACC and
modified according to the requirements of their markets.
DJC reduced their cost per product by reducing the extra things which
were not adding perceived value to customers.
The case further talks about the DJC strategies and their implementation
of the same in their Kawasaki plant. This plant was considered to be the
most efficient in terms of operations due to various factors such as, the
location, facility planning, inventory planning and efficient supply chain.
Moreover, while DJC was investing on in-house technology development
by partnering with suppliers, thereby keeping their cost low, ACC on the
other hand, had their hands tied by the finance department on upgrading
their technology. This led to a backlog in their technology up gradation
which could probably put them in a difficult position.
Quality audits in DJC happens at each and every process. This makes it
easy for DJC to find the bottleneck in the system and therefore fix it as the
process goes on. While in the case of ACC the process was done in the end
at the end-product. This led to a high cost of quality and thereby the cost
of goods increase for the end product.
DJCs competitive advantages is their internal process which includes, PreAutomation, Using reliable old techniques and processes, upstream
molding process, inter functional department coordination. On the other
hand ACC was relying more on PCD supervisors which set targets based

on forecast and which led to freezing of the schedule 30 days in advance.

Any deviation from the schedule wasnt appreciated well by the workforce.

Process Flow of
DJC

Process Flow of
ACC
Terminal
Stamping &
Fabrication

Terminal
Stamping

Plastic
Housing
Holding Area

Housing/Mould
ing

Assembly
Operations

WIP
Holding
Area
Plating

Assembly

Testing

Testing

Packaging

Packaging

Problems faced by American Connector Company (ACC)

Question 1: What are the major issues faced by ACC in their operation in US?
Answer: The major issues faced by ACC in their operations in US are:
Reducing gross margins: Though sales grew from $252 million in 1984
to $800 million in 1991, Gross margins eroded from 52% to 43% in the
same period due to increased competition in the industry and slacking
demand for connectors.
No new technology has been used by the company in their operations.
Large number of models leading to increase in the number of
SKUs: The number of individual products manufactured at Sunnyvale
expanded from 3500 in 1986 to 4500 in 1991.
High Work in progress inventory: In the past, high WIP was not
considered to be a problem by the plant as any extra inventory carrying
cost would be covered by growing sales and it used to provide them some
flexibility in their operations as it could be used to quickly respond to
unexpected demand. But later, plant viewed excessive WIP as a burden
and thus attempts were made to reduce it.
Yield on new designed products: Yields on newly designed products
entering production for the first time were sometimes as low as 55%.
However, Yields would improve to about 98% once a product was in
production for at least a year.
Processing lead time: The processing lead time for a batch of
connectors was typically 10 days for standard items and 2-3 weeks for
special orders items.
Production run: In some cases, production runs ran as long as one week.
However, mostly it ran for 1.5 - 2 days.
Finished goods inventory: Sunnyvale plant maintained an inventory of
38 days for finished goods.
Capacity of 600 million units per year: After the last major expansion
that occurred in 1986, the capacity of Sunnyvale plant reached to 600
million units per year.
Utilization at Sunnyvale Plant: Utilization at Sunnyvale plant sunk to
50% in 1988 but rebounded to 70% in 1991. Using the current demand
forecast, the plant was expected to reach 85% utilization by 1996.
Time for plastic housing is much less than terminal stamping and
fabrication, thus synchronization problem at assembly area.

 Schedule frozen for 30 days in advance: The production schedule for

any given day was supposed to be frozen thirty days in advance.
However, in reality, the schedule was routinely changed to accommodate
rush orders and requests from important customers.

Question 2: Should ACC be worried of DJCs new plant in America?

Answer: Yes, ACC should be worried of DJCs new plant in America. The reasons
are:
Strengths of DJCs operation: DJCS operations are highly efficient
possessing the biggest threat for ACC. These are:
o

Economize on raw material: The cost of raw material was low as

Kawasaki plant was located near major raw material suppliers.

Availability of skilled workers: DJC located its plant in Kawasaki

which had an ample supply of young and highly skilled workers.

The plant run at a continuous basis avoiding start up and shut down
costs.

Lower number of SKUs leading to lower cost of maintenance.

Use of Tin instead of Gold: Though Gold was most reliable and
durable material, company used Tin instead of Gold which worked
fairly well in low power application to reduce raw material cost.

Pre-automation: Pre-automation refers to activities undertaken to

make the production process more suitable for highly reliable
automation was conducted. For this, process flows were carefully
analyzed to determine ways in which the process could be
streamlined and inventories eliminated. Workers movement and
motion was studied, raw material quality and tolerance levels were
specified.

The plant relied on continuous improvement of existing processes.

Low Work in progress inventory leading to lower staff.

High finished goods inventory.

Raw Materials Cost is relatively cheaper for DJC if they move into the US
Markets.

Cost
Category

DJC
(Kawasaki)

DJC
(Plant in

ACC
Plant

US)
Raw
Material

12.13

7.28

9.39

Product
Packaging

2.76

1.65

2.11

Total

14.89

8.93

11.50

Labor Cost might increase a little but the impact of this with other factors
such as utilization of the plant negates this.(add cost)
Cost of Quality is also high for ACCs Sunnyvale because they only inspect
the final product while DJCs Kawasaki Plant has process level inspection to
dig into the details of the process that is the bottleneck to the process
overall.
Size of the Workforce is relatively large for ACC compared to DJC because
of the # of products produced. Either ACC can increase its product lines to
ensure maximum output and also have spare capacity or they should limit
the set of unique products they have. This also reflects in their indirect
labor cost.
The Product layout has to be designed in such a way that the utilization of
the resources such as factory space has to be maximized.
Raw Material inventory of ACC is almost double of DJC. Analysis of this
requires more data on availability of the same. Assuming the parameters
are same ACC should work on reduction of their Raw materials Inventory.
WIP Inventory as mentioned in the case has to be avoided due to
obsolescence risk. This reduces the connector output per floor area of the
factory space because more area is needed to store raw materials.
The DJCs Kawasaki plant works 24 hours a day for 330 days a year.
Millions of units are thus produced in this process and the fixed cost per
unit reduces, depreciation is more justified in this case. Imagine in a 24
hour cycle ACC having approx 2 shifts while DJC having 3 shifts. DJC could
produce more than twice as much as ACC due to its smaller SKUs
The Core Competency of ACC being its customizable production line is of
competitive advantage in the industry. Many customers could come to ACC
rather than DJC for solutions that can be designed to suit the needs rather
than adjust with a market standard. It will help to differentiate the client
from the lot of other producers.

Question 3: What should ACC do to avoid a loss of Market Share in case DJC
replicates the Kawasaki Plant in the US?
Answer: ACC should take the following steps as a preventive strategy to avoid a
loss of market share in case DJC replicates the Kawasaki Plant in the US:
Cost Control
Revamp Quality Control
Implement a Pull strategy for Raw materials
Probably Patent designs that make it an advantage as in IPR.
Rely on Internal Production Teams to come with process innovations
rather than relying on facts and figures of research.
Improved facility layout to ensure utilization
Decrease Inventory (FG or WIP). Reduces overall cost of goods sold.
Remove the least sold Packaging sizes from the lot and reduce some
cost.