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American Connector Company

Case Study
Submitted by:
Group 5
Shruti Mittal 13DM180
Sonakshi Govil 13DM186
Sreevatsan Natarajan 13DM190
Tarun Mangal 13DM204
Udit Jain 13DM206
Vanshika Gupta 13DM212
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 DJC’s new proposed
plant in US or if DJC doesn’t 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.

DJC’s competitive advantages is their internal process which includes, Pre-Automation,


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 wasn’t appreciated well by the workforce.
Process Flow of DJC Process Flow of ACC

Terminal
Stamping &
Fabrication Plastic
Terminal Stamping Housing

Holding Area
WIP Holding
Area
Housing/Moulding

Plating

Assembly
Operations
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 DJC’s new plant in America?

Answer: Yes, ACC should be worried of DJC’s new plant in America. The reasons are:

 Strengths of DJC’s operation: DJC’S 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.

o Availability of skilled workers: DJC located its plant in Kawasaki which had an ample
supply of young and highly skilled workers.

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

o Lower number of SKU’s leading to lower cost of maintenance .

o 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.

o 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.

o The plant relied on continuous improvement of existing processes.

o Low Work in progress inventory leading to lower staff.

o High finished goods inventory.

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

Cost DJC DJC ACC


Category (Kawasaki) (Plant in Plant
US)
Raw 12.13 7.28 9.39
Material
Product 2.76 1.65 2.11
Packaging
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 ACC’s Sunnyvale because they only inspect the final product
while DJC’s 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 DJC’s 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.