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Executive SummaryQuality and efficiency is the key to American Connector Company (ACC) success.

has lost market share to DJC over the recent years, which will be exacerbated if DJC opens a production
facility in the United States. DJC has gained much knowledge from its Kawasaki plant and is going to
enter the US market with factories that will be efficient. ACC is in trouble and needs to drastically
change the way they do business if they want to survive.

Looking and emulating DJC is the first step American Connector needs to follow. American Connector
can regain market share and survive by focusing on quality and efficiency. ACC needs to do the following
to ensure success before DJC enters the US market:1)Redesigning their factory layout for a more
streamlined operation.

2)Purchase new equipment that is in better shape and more efficient. Institute a good maintenance
program to ensure the equipment runs properly.
3)Work with the consumer to create a good simplistic design.

4)Continue to keep employees happy to make sure they remain at the company and ACC retains this
intellectual property.

5)Implement a Quality Control Division. ACC cannot rely on identifying defective parts only after
production. They need to implement quality control throughout the process, which will reduce costs and
increase efficiency and profitability.

Industry BackgroundJapan and the United States have had a different mentality and work ethic over the
past centuries but it has become especially apparent over the last 30 years. The United States relies on
money, technological sophistication and reputation/name recognition. Japan has been able to get ahead
with hard work, innovations, and technological advances. To the dislike of many American companies,
Japan has taken technologies created by US companies and reverse engineered and improved on them
until they were the dominant company in...


Q1 How serious is the threat of DJC to American Connector Company?
Answer - 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 product and packaging cost is 14.89 which will
reduce to 8.93 in USA.As the raw material cost is almost half of the total finished goods cost, the raw
material cost reduction would be substantial.
Cost head
KAWASAKI ($/1000 Units)
Raw material, Product + Packaging
14.89 * 0.6 =8.93

As Sunnyvales 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 utilisation 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 standardised 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.

Q2 :How big are the cost differences between DJCs plant and American Connectors Sunnyvale plant?
Consider both DJCs performance in Kawasaki and its potential in the United States.

Answer: The major cost differences of DJC, compared to Sunnyvale are in respect to the following

a) Raw Material: - Current raw material cost for product and packaging in Kawasaki plant is relatively
high in comparison to ACC Sunnyvales plant. In the event of DJC setting up a plant in USA, there would
be a considerate cost reduction, as the cost indices US v/s Japan is lower (0.6:1).
Cost head
KAWASAKI ($/1000 Units)
Raw material, Product + Packaging
14.89 * 0.6 =8.93

b) Packaging Cost:- In comparison to Sunnyvale, the packaging cost of Kawasaki plant is lower due to
adaptability of standardised product packaging technology.

c) Labour Cost :- 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).

d) Electricity Cost: - In comparison to Sunnyvales plant the electricity cost of production is higher for
Kawasaki as electricity cost indices of US v/s Japan is 0.8: 1.
Cost head
KAWASAKI ($/1000 Units)
1.40 * 0.8 = 1.12

e) 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.
If we take into account cost indices of US VS JAPAN and above cost factors, cost of manufacturing
operations of DJC in US would be as low as 25% of the current production cost of 26.10 $.


Q3: What accounts for these differences? How much of the difference is inherent in the way each of the
two companies competes? How much is due strictly to differences in the efficiency of the operations?


a) There are many reasons for these differences:

Fixed Asset utilisation: Due to continuous factory runtime, the overall utilisation of fixed asset
increases for DJC Kawasaki in comparison ACC Sunnyvales plant.
Raw material cost: In Japan raw material cost is twice as much high as in America.
Production Process: Due to batch production system in ACC, there were changes required in
production line every time product was changed which lead to less efficiency and lower expertise in
churning out a product. This issue was not there with DJC continuous production process with lesser
number of product variations.
Quality issues: The number of defective finished goods is very less for DJC when compared to ACC.

b) The basic differences are:

Technological Advantage: In house R&D team which was bringing difference in terms of technology,
DJC was producing machines and customizing it according to their needs, thus eliminating the need for
external technology innovation.
Low inventory cost: DJC maintained low raw material inventory, where they ordered the raw
materials as per requirement and pull strategy for manufacturing.
Nearness to raw material suppliers and end users: The location of the company which played a
equally important role for eliminating transportations and logistic baggage. The company location was
chosen such that it was near the major Japanese electronics companies and also near the major raw
material suppliers.

c) 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.

Q4. What should American Connectors management at the Sunnyvale plant do?

Answer American connector management should look into the below points of consideration for
increase in productivity-

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.
Product design innovations which will not allow reverse engineering of product by competitors to a
greater level.
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 organisation to promote production oriented structure and greater
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 colour 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 utilisation 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.
Posted by Abhinav Aman at 5:01 AM
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