ACC v/s DJC*

American Connector Company (ACC) and DJC Corporation are two companies in the
electrical connector market that have chosen two different competitive and operating
strategies. DJC, the Japanese company has configured its layout, materials control system,
technologies and workforce skills to emphasize low cost. ACC, the US company, has a
strategy that emphasizes broad product range and customization. Until mid 1990s the two
companies have not been head-to-head rivals because DJC did not have a presence in the
US market. In late-1990s DJC was planning to build a plant in the US. Based on the data
they collected in a benchmarking study on DJC, ACC managers suspected that DJC could
have a significant cost advantage over ACC in the US market.

The Connector Industry

Electrical connectors are found in almost every electrical and electronic device, from
telephone, televisions, and cars, to office equipment and aircrafts. Each application requires
different types of connectors. Typically, cost of connectors used in any product accounts for
less than 2% of total product cost.

The US connector market was intensely competitive. While there were more than 700
competitors, total sales volume has been declining. At the same time, buyers (original
equipment manufacturers (OEMs) who produced electronic hardware) were beginning to
reduce the connector suppliers with whom they dealt. OEMs were demanding lower prices,
discounts, improved quality, and faster delivery.

ACCs Position

In mid-1990s, ACC was among the top ten competitors in the world market, with market
share of 5% and sales of $ 1 billion. It primarily served the electronics industry in the US. Its
gross margins had declined by over 20% in the last 10 years, to a level of 40% in late-1990s.
ACCs strategy was to offer a broad variety of products (including customized designs). Thus
it emphasized flexibility in operations.

DJCs Position

DJC too was among the top ten worldwide players, with market share of 4%. It served the
electronics industry in Japan. Its margins were historically about 50%. Its strategy was to be
a low cost producer by supplying a narrow range of relatively high volume connectors.

ACC v/s DJC

Cost per 1000 connector pieces was $ 34 at ACC and $ 20 at DJC. ACC produced far more
number of SKUs (product variants) than DJC, and hence had higher overheads. Engineers at
ACC were dictated more by marketings concern to customize products. ACCs capacity
utilization was lower than that of DJC. Higher capacity cushion probably reflected ACCs
policy of emphasizing customization.

DJC, on the other hand, emphasized cost reduction by: (i) focusing on product design
changes in order to reduce the cost of raw materials and manufacturing (for instance,
engineers at DJC emphasized greater standardization of product design so as to achieve
volume discounts for raw materials), (ii) constantly investing in process automation and multi-
skill training of workers. By these efforts DJC was able to progressively bring down the cost
of input materials and resources required in manufacturing. Process engineers and
production experts at DJC focused on incremental process improvement and in-house

** Extracted and adapted from the case American Connector Company, HBS.
automation. The objective was to improve efficiency and reduce running cost of
manufacturing.

Because of lesser SKUs, DJC was able to adopt a production policy of long runs without
building in-process inventory stocks. Its manufacturing lead time was shorter as it had built a
product-focused layout. DJC followed a combination of MRP and JIT scheduling systems.

ACC, on the other hand, stressed short production runs (in keeping with its strategy of
customization and larger SKUs). This, however, increased number of changeovers and
affected its lead time. It usually stocked high finished goods inventory and followed MRP
based system of production control. Demands were forecasted and material requirements
were derived from the forecasts. However, due to larger SKUs and complex resource sharing
in production, delivery delays were common.

Comparison of cost in late-1990s and change in cost in the last 6 years

Cost item Share in late-1990s Change in the last 6 years
DJC ACC DJC ACC
Raw material product 36% 28% 0.85 0.90
Raw material packaging 8% 6% 0.84 0.93
Labour 20% 30% 0.38 1.21
Electricity* 6% 2% 0.57 0.44
Depreciation 9% 15% 0.24 0.92
Others (overheads) 21% 18% 1.03 1.38
Cost ($ per 1000 units) 20 34
* DJC had higher electricity cost due to higher tariff in Japan

Comparison of production layouts:

Questions:
Are DJCs lower cost and apparently superior performance than ACC a result of pursuing
different strategy, or are they derived from more efficient operating capability? Compare the
two firms operating systems, costs, and performance.