OPERATIONS STRATEGY

ASSIGNEMENT ON AMERICAN CONNECTOR COMPANY (A)

 If DJC enters the US market it can pose a serious threat to American Connector
Company for the following reasons.
•The dependence of DJC on in-house technology development developed in
house by engineers with strong competencies. There is a competitive edge over
ACC as it outsources its manufacturing process development. The same
technology can be utilized by the competitors like ACC generating similar
Question :1 products in terms of quality.
•For DJC manufacturing in US market the raw material costs for product as well
How serious is as packaging will reduce by 40% making it to $8.9 per 1000 units when compared
the threat of to $14.89 in Japan. Electricity costs will also decline by 10%. Though the labour
costs for both direct as well as indirect will increase by 10% the overall change in
DJC to ACC? costs will be negative reducing overall costs.
•Kawasaki plant due to standardization of its products has lower quality
losses as compared to ACC which offers custom products as per customer’s
requirements.
•Even if DJC copies the outsourcing manufacturing model of ACC the costs
will be substantially less as the raw material costs is lesser with superior
control over the manufacturing process (fully automated) by DJC will give it a
competitive edge over ACC.
 If DJC sets up manufacturing base in USA, as per the exhibit 7 and
exhibit 8 the raw material cost for DJC in USA will drastically reduce.
Current Raw material product and packaging cost is 14.89 which will
reduce to 8.93 in USA.As the raw material cost is almost half of the total
finished goods cost, the raw material cost reduction would be
substantial.
Question :1 •DJC has lower lead times averaging 2 days as compared to ACC for
which it averaged 10 days.
How serious is •The output per employee for DJC’s Kawasaki plant is 702.8% of ACC’s
Sunnyvale plant which is a primary reason behind DJC’s high
the threat of production. Also, utilization of fixed asset for DJC is-74.5% in
comparison with 30.2% for ACC’s Sunnyvale plant.
DJC to ACC?
Cost head KAWASAKI ($/1000 Units) PLANT IN USA

Raw material, Product + 12.13+2.76 = 14.89 14.89 * 0.6 =8.93

Packaging
 • At ACC 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, control over
manufacturing process and its costs is a grey zone which needs to be addressed
• Work in process inventory cost is very high in case of ACC in comparison to DJC.
Question :1 This in turn has reduced the connector output per square foot as extra space is
required for WIP and finished goods (15.1 of Kawasaki VS. 10.9 of Sunnyvale).
How serious is • The Kawasaki plant is working for 24hrs/day thus the asset utilisation is
the threat of maximum and Connector output per employee is very high. (75.4% of Kawasaki
VS. 30.2% of Sunnyvale)
DJC to ACC? • 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) But
customisation according to user needs keeps ACC in an advantageous position.
So better control over its processes is the need of the hour to compete with DJC
if it enters the market and also to improve upon the efficiency of ACC.
 • 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
Question :1 speed of customer order delivery of ACC is more than one day (because of
How serious is batch production process producing about 4,500 varieties of connectors).

the threat of But it is imperative for ACC to work upon its manufacturing efficiencies in
DJC to ACC? the areas detailed above to be remain competitive if DJC forays into US
market.
 There is also an argument as to why DJC would fail if it came to US .
 The edge 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. The factors that give ACC the advantage is quality
Question :1 assurance and customised end user offerings

How serious is • At ACC product quality and design are emphasised. Whereas DCC has
standardised products resulting in low number of SKUs. Product
the threat of Design reflects the needs of ,most of the customers. So if DJC fails to
meet the requirements of US market it would fail.
DJC to ACC? • ACC strategy calls for what customers want it and when they want it.
The focus is customer centric regarding delivery of products and
thereby customisation.DJC definitely lacks this capability as its focus
is more on automated process ,product quality and lower defects per
batch.
 • Quality at ACC-Rather than defining quality as conformance to
internal production schedules and product specifications the
company defines its quality as conformance to customer
needs.DJC quality is defined as low defect rates. The difference in
approach will be a determinant when it forays into US market that
has a customer centric approach and demand from customers.
Question :1 • DJC is a manufacturing process driven company whereas ACC is a
marketing and engineering driven company .DJC has to reorient
How serious is itself to capture the vibrant US market.
the threat of • ACC has configured its operations to emphasise flexibility and
responsiveness to customers. Whereas DJC’s competitive priority
DJC to ACC? is low cost. Product innovation and responsiveness to customer
needs is less valued at DJC thereby making it less innovative and
flexible to customer needs and thereby questioning its
competitive strength in US market and possibility of failure in US
markets.
 Some comparable metrics are listed below which lists out some of the
Question :2 differences.
How big are the  Product range: DJC had around 640 models while ACC had over 4500
models which impacts the changeover process of the plants.
differences
 Mold: DJC’s mold costs 29000$ which had a life of 3 years while ACC’s
between DJC’ molds cost 40000$ @ 8 years of life
plant and ACC’s  Plant Layout: DJC had a more product focused layout while the ACC had a
process focused layout.
Sunnyvale plant?
 Packing: DJC packed 2000 units per reel while ACC packed from 10 – 1500
Consider both units per reel as per customer requirements. Non standard packing would
DJC’s potential in usually increase wastage and inefficiencies.
 Turnover times: DJC had 5 days as RM inventory and 4 days of WIP
Kawasaki and its inventory and 56 days of FG inventory at hand. ACC’s metrics shows, RM @
potential in 10.8 days, WIP @ 10 days and FG at 38 days. ACC seems to higher costs
related to storing in process elements but lesser of FG compared to DJC
America which implies that DJC had higher serviceability.
Question :2
 Plant Utilization: DJC had around 90% utilization compared to the
How big are the 70% of ACC which shows that ACC had lot of unused capacity.
differences  Employees employed :DJC had 94 while ACC had close to 400
between DJC’ employees which meant DJC had the more automated plant.
plant and ACC’s  Production and effective utilizations: During 1991, DJC produced
700 mn units at 75.4% utilization while ACC produced only 420 mn
Sunnyvale plant? units @ 30.2% utilization.
Consider both  Production run: DJC averages 7 days while ACC averages 1.5 to 2
DJC’s potential in days which implies more frequent change overs and high setup
costs for ACC product runs.
Kawasaki and its The DJC plant seems to be better utilized, structured and more
potential in efficient compared to the ACC plant.
America
 Looking at the 1991 figures form Exhibit 7 and further calculated potential of DJC, USA
Question :2 Exhibit 7 Exhibit 8
How big are the DJC in Japan ACC in US Cost Index DJC in USA indexed
differences Product Raw Material 12.13 9.39 0.60 7.28
Packaging Raw Material 2.76 2.10 0.60 1.66
between DJC’
Direct Labor 3.02 - 1.10 3.32
plant and ACC’s Indirect Labor 0.75 - 1.10 0.83
Sunnyvale plant? Total Labor Costs 3.77 10.30 1.10 4.15
Consider both Electricity 1.40 0.80 0.80 1.12
DJC’s potential in Depreciation 1.80 5.10 1.00 1.80
Kawasaki and its Other Costs 4.24 6.10 1.00 4.24
Total Costs 26.10 33.79 20.24
potential in
America Based on the indexing info given and the DJC actual costs in 1991, we can safely say that
DJC in the US is a real threat to ACC in the market with 40 % lesser costs calculated.
Question :3 The differences could be inferred due to the below reasons.
What accounts for  Higher customisation and variations meant that ACC has reduced
efficiency and the average production run is only 1.5 – 2 days compared
these differences? to the 7 days average run in the DJC plant which meant lesser setup costs
How much of the and a more product focused plants.
 The higher plant utilization due to continuous runs implies increased
difference is efficiency in the DJC plant compared to the ACC plant. The metric itself is
inherent in the way a 75% to 30% comparison. The Pre-automation process flow adopted in
the plant only ensured better efficiencies.
in which these two  Cost of quality is another major difference where ACC has around 26000
companies per million as defect rates which amounts to 1.6% over total production
while DJC the comparable metric is 0.7% which is achieved through
compete? How process inspections and better control.
much is due strictly  Exhibit 8 indicates that the RM and Electricity are cheaper in US while
labour is cheaper in Japan.
to the efficiency of
 The cost advantages of ACC in the US will be totally lost if DJC enters US.
operations?
Question :3
What accounts for  We can say that the ACC plant is more process focused which makes it
these differences? more cost and time consuming while the DJC plant is product focused
making it work in an optimal cost and time utilization.
How much of the
 Efficiency of the operations per say are not the major source of cost
difference is difference as we see that the process on the whole may need to change
inherent in the way at ACC to be more competitive in the market. May be reduce the very
high number of customizations to reduce the change over stops / costs.
in which these two Even a simple process of going for a lesser costlier mold with lower mold
companies life would impact in lower depreciation costs in the long run.
compete? How  DJC allows lesser variations and operates at a higher efficiency which
gives them the edge over ACC even though both plants may be
much is due strictly optimized for higher efficiencies.
to the efficiency of
operations?