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A Case Analysis

On American Connector Company

Issue discussed in the case:


US based electrical interconnector supplier company, American Connector Co. Worried because of probability of DJC co, japan based interconnector supplier, going to start its production facility in US. This situation lead ACC officials to think on manufacturing strategy of the ACC s Sunnyvale plant in comparison with DJC s last established plant at Kawasaki, Japan. Because Sunnyvale plant already facing problem of rising costs of the product and deteriorating product quality, ACC officials worry about this.

Industry Analysis:
The U.S. connector industry was grown very rapidly from 1970s to 1990s. Around 1200interconnect product suppliers were available worldwide. There was very high new entrant barrier, required high level of Economic of scale and economic of Scope , tight competition among revelry firms , Low switching cost, more bargaining power to buyer and supplier. The connector industry included 3 type of interconnect products: Connector, Cable assemblies and back panels. In 1991, The worldwide sales of this interconnect product totaled around $16 bn. Dominant company in the industry was AMP Inc., with 16% market share with sales of $2.6 bn approx. While DJC Corporation and ACC were second Tier Company in the connector industry and their sales were around $ 500 mn -$800 mn..DJC and ACC produce all kind of interconnector products, but in Sunnyvale (ACC) and Kawasaki (DJC), plants, they manufacture only connector. These connectors were basically 4 types: Component, Board to board connector, Wire to connectors and wire to wire connector.

SWOT Analysis:

DJC Corp. STRENGTH


# Products are standardized, improved copies of US-made connectors # Steps and features that do not add value are eliminated. # Continuous 24-hr a day production reduces variable costs and eliminates startup and shutdown expenses. # Goal is 100% utilization of plant and equipment. # Use of tin-plated pins and new type of resin maintains quality while reducing costs. # Processing lead times and work-in-process inventories average two days. # Products are delivered frequently, usually daily but sometimes hourly.

WEAKNESS
# Standardization and limited variety restrict the companys ability to meet customized needs. # Success of low-cost approach is highly dependent on full utilization of capacity to reduce costs. # Relatively high finished goods inventory adds to costs. # Production of standardized, low-cost connectors might not be optimal strategy if customers place a higher value on other product characteristics. # Production schedules are very inflexible. # DJCs production capacity could lag demand

THREAT
As the latest competitor in the US connector industry, DJC is more likely to pose a threat to other manufacturers than face direct threats itself. Indeed, was DJCs low-cost strategy to prove more effective than ACCs mass customization approach, the future prospects of many American connector producers would definitely be at risk.

OPPORTUNITY
DJCs opportunities include seizing market share from American connector manufacturers such as ACC through introduction of its low-cost, yet effective manufacturing strategy in the US market. If DJC can successfully implement in the US the manufacturing and production strategies that have brought it so much success in Japan, then the company can position itself as a major player in the US connector market and successfully challenge the dominance of American manufacturers.

American Connector

STRENGTH
# ACCs Sunnyvale plant produces a large variety (4,500) of connectors. This allows the company to provide just about any kind of connector that a customer could want. # Products are customized and state-of-theart. They also exceed customers expectations. # Batch processing and automated assembly facilitate production of large quantity of products (600 million units per year). # Processing lead times and work-in-process inventories are held down through efficient production scheduling. # Just-in-time (JIT) delivery results in minimal raw materials inventory. # Mass customization approach focuses on product innovation rather than cost reduction.

WEAKNESS
# Although defects are rising (approx. 26,000 per million units), ACC continues to employ post-production inspections rather than statistical process control. # Customization and high variety place tremendous pressure on companys forecasting and production schedules. # High level of work-in-process inventory promotes flexibility but increases finance costs. # Despite its commitment to technology and product quality, the company has not made any significant plant investments since 1986. # Although 15% of the companys products are geared toward meeting the specialized needs of customers, the remaining 85% are prone to price undercutting by rivals such as DJC. # A relatively high percentage (46%) of the companys workforce is employed in indirect labor activities.

THREAT
The threats faced by American Connector Co. are substantial. Unless the company completely changes its manufacturing process from a mass customization approach to a product-focused strategy, it faces the very real risk that it will be undercut by lowcost rivals such as Japans DJC Corp. Moreover, if low-cost rivals were to make a concerted push to enter the specialized connector market, ACC could feel that segment of its customer base threatened as well.

OPPORTUNITY
# Adopt a product-focused strategy for standardizing production of the 85% of connectors that do not require customization. # Decide whether it wishes to continue meeting the needs of both standard and specialty customers or concentrate on only one type of customer # Depending on which strategy it adopts, invest in new plant and equipment to meet the highly customized needs of the specialty market; or, rely on continuous improvement of existing plant and equipment to produce reliable, low-cost standardized connectors. # Decrease the percentage of employees dedicated to indirect labor by redesigning and improving product development and manufacturing activities

Strategic decision based on Industry & SWOT analysis:


On the bases of Industry and SWOT analysis, I propose that company should implement new manufacturing strategy whether DJC will enter in US market or not. Because existing manufacturing strategy has many limitations and weaknesses. If company improves on those issues then ACC can generate more profit with higher efficiency of plant and proper utilization of the assets. So it will give upper hand to ACC over DJC if it will enter in future in US market.

Proposed manufacturing changes. 1. Separate process line for standardized and customized product:
1. Separate process line for standardized and customized product. 2. Run plant for 24 x7 for 50 weeks, it will reduce startup & shut down cost. 3. Increase capacity utilization and increase production per employee. Assembly line 1: # Line 1 will work only for standardized products, which has order share around 85% in total orders. # This line will run exclusively for standardized product so we can increase batch time for production and reduce waste because of rapidly change in batch process. Assembly line 2: # Line 2 will work for customized products, which has order share around 15 % in total orders. This line will run exclusively for customized product where we can use our skilled labor for rapidly changeover for different batches. # In existing manufacturing strategy, company using same line and rapidly changeover for products, which need to hold work in process inventory often. Now because of separate lines this situation is removed. 2. More competent Production Control Department Now because of separate process line, complication to maintain schedule will be reduce for Production Control Department. So now PCD should expand its working area i.e. coordinating and managing activities of the product planning section, the material section, process engineering and improvement in product.

3. Quality control division:

In new strategy QC department should do quality control at post production time instead of at the finished goods time. So even defect will be identified, it will incur lesser cost for WIP goods. 4. Plant layout: Movement of men and materials need could be streamlined with the usage of Kanban cards or boards. While the entire assembly line need not be reconfigured, measures to isolate areas which manufacture one type of connector from the other enables easy materials management and monitoring. 5. Responsibility of marketing division: Marketing division should convince customer for standardized products. Marketing policy should be like less price offer for standardized product compare to customized order. 6. Change in inventory management: Inventory management can undergo a sea change. The Kawasaki plant for instance, carries finished goods inventory for about 58 days while it carries very low levels of work in progress and finished goods inventory. This allows them to meet demands of the customers dynamically by adopting the just-in-time philosophy while having a buffer to guard against. The Sunnyvale plant on the other hand carries a lot of raw material and work-in-progress inventory. Hence, when the customers place orders, the lead-times that they can promise would be higher. If they believe in carrying large finished goods inventory to cater to customer demands very fast or if they produce just in time, the amount of money tied up as work in progress (which neither ensures fast response nor enables greater working capital) would be much less. 7. Statistical Process Control: Implementation of statistical process control in the inspection process and materials release planning systems would significantly improve the operational efficiency of the plant. And that s a must for ACC irrespective of any threat from DJC is there or not.

Summary

In essence, ACC must decide whether it wishes to service the standardized connector market, the mass customization market, or both. First, if ACC decides to channel all its efforts to meeting the needs of the standardized connector market, it will have to make the changes noted above and become much more like its low-cost rivals. There is no guarantee that it can do this. Second, if ACC opts to focus exclusively on meeting the customized needs of its customers, then it will essentially be foregoing 85% of its core business. This would likely require a radical restructuring effort as well as massive layoffs of personnel. In reality, such a step might be too draconian to put into practice. Finally, if ACC chooses to continue catering to both segments of the market, customized and standardized, it will essentially have to bifurcate operations to meet the unique process engineering demands imposed by each type of manufacturing process. That such a system could work has yet to be proven. In sum, the challenges facing ACC are daunting, and it will require a concerted effort on the part of the companys management to establish clear priorities and select the best path forward in view of the companys strengths, weaknesses, opportunities and threats.