Case study ACC: AMERICAN CONNECTOR COMPANY CASE STUDY Page 1 of 5

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AMERICAN CONNECTOR COMPANY CASE
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Q1 How serious is the threat of DJC to American Connector

Blog Archive Company?
Answer - The threat of DJC to American Connector Company is very high.
2010 (1)
Following are the reasons:
October (1)
AMERICAN
CONNECTO Ø If DJC sets up manufacturing base in USA, as per the
R COMPANY exhibit 7 and exhibit 8 the raw material cost for DJC in
CASE
STUDY 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 PLANT IN USA ·
($/1000 Units)
Raw material, Product 12.13+2.76=14.89 14.89 * 0.6 =8.93
+ Packaging

Ø 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.
Ø 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).
Ø 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)
Ø 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)
Ø 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.
Ø 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:

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Case study ACC: AMERICAN CONNECTOR COMPANY CASE STUDY Page 2 of 5

Ø 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 DJC’s plant and American
Connector’s Sunnyvale plant? Consider both DJC’s performance in
Kawasaki and it’s 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
Sunnyvale’s 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 PLANT IN USA
($/1000 Units)
Raw material, Product 12.13+2.76=14.89 14.89 * 0.6 =8.93
+ Packaging

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 Sunnyvale’s 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 PLANT IN USA
($/1000 Units)
Electricity 1.40 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 $.
DJC KAWASAKI

DJC/USA

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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?

Answer-

a) There are many reasons for these differences:

Ø Fixed Asset utilisation: Due to continuous factory runtime, the

overall utilisation of fixed asset increases for DJC Kawasaki in
comparison ACC Sunnyvale’s plant.
Ø Raw material cost: In Japan raw material cost is twice as much
high as in America.
Ø 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.
Ø Quality issues: The number of defective finished goods is very less
for DJC when compared to ACC.

b) The basic differences are:

Ø 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.
Ø Low inventory cost: DJC maintained low raw material inventory,
where they ordered the raw materials as per requirement and pull
strategy for manufacturing.
Ø 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 Connector’s management at the Sunnyvale

plant do?

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

Ø 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.
Ø 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.
Ø Product design innovations which will not allow reverse engineering of
product by competitors to a greater level.
Ø Improving the compactness of the connectors will bring some
competitive advantage.
Ø 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.
Ø 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 balance.
Ø ACC needs to decrease mould recycling time. This saves time and also
introduces new designs.
Ø 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.
Ø 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.
Ø ACC can save cost on colour coded cables/connectors which may be
beneficial in longer run.
Ø 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.
Ø 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

4 comments:

zunair jamshaid November 1, 2011 at 1:14 PM

well thanks so much for uploading , a great attept by you its really appericated by
me and group ..........................ommah

Reply

Replies

NIKLANK JAIN September 3, 2017 at 10:12 PM

Yes

Reply

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Case study ACC: AMERICAN CONNECTOR COMPANY CASE STUDY Page 5 of 5

vgnavy December 21, 2011 at 2:41 PM

very nicely analysied.keep it up.vg

Reply

Unknown July 14, 2019 at 7:06 PM

Very aptly analysed & explained. Fantastic study.

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