American Connector Company

Q1 How serious is the threat of DJC to American Connector Company?

Ans: DJC viewed highly competitive manufacturing as absolutely critical to its competitive strategy. Utilization:  This plant worked for 2 hrs! day" # days ! week and $%& days in a year. Due to this"

the plant was on path to achieve an asset utili'ation of (&&). The yield on raw material would reach **) and customer complaints were e+pected not to e+ceed ( per million units of output. These approaches" if successful would make the new DJC plant ,uite competitive to ACC-s unnyvale plant. Organise !ayout: The plant layout at /awasaki plant was organised into  large cells and each

cell contained two to si+ production lines. 0ach line consisting of terminal stamping" housing moulding" assembly and packaging. The lines were located close to one another and in a straight line in order to minimi'e material handling steps and to reduce the distance work in process had to travel. 1lating process was organised separately in order to utili'e high fi+ cost e,uipment and to protect the rest of factory from corrosion. The /awasaki plant delivered shipments to its customers on daily basis and sometimes even within few hours. Cost "a#ing "trategi "trategies: es:  Designers preferred preferred to use tin in place of old to simplify simplify production

and reduce costs. 3an other cost saving strategies were also used such as change in mold design" less e+pensive resin" and waste reduction to name a few. The ob4ective was to make the  production cost effective. $re Automation:  as most of the process was automated" manual intervention reduced to a great

e+tent. The assembly lines were also automated and this made it possible for one operator to run two assembly lines. /awasaki people relied more on continuous improvement rather than taking chances with new technology. !ea %ime:  /awasaki-s processing lead times and work in process averaged two days compared

to unnyvale-s (& days.

Capacity:  The capacity of unnyvale plant was 5&& million units per year whereas the capacity

of /awasaki plant was 6&& million units per year. &n#estment in %echnology : The unnyvale plant had no plans to invest in new technology as

they were saving money due to slowed growth demand. "'U: The unnyvale plant produced appro+imately %&& different models whereas the

/awasaki plant based on continuous improvement plan was trying to reduce its /7-s to 5&. $reference to (anufacturing:  The head of 8perations 3r. 8kada always gave preference to

3anufacturing over sales!marketing divisions.

Calculating the cost figures if DJC sets up its plant in unn yvale" 7A. DJC)'awasa*i

ACC)"unny#ale

DJC)"unny#ale

1++1 *.$*

1++1 #.2#6

2.(&

(.5%5

(&.$ &.6 %.( 5.( 4425+

$.$22 &.62% .(# (.(2 (.6 .2 032061

,aw

(aterial-

1++1 (2.($

$rouct ,aw

(aterial-

2.#5

$ac*aging !a.or- Direct !a.or- &nirect %otal !a.or /lectricity Depreciation Other %otal

$.&2 &.#% $.## (. (.6 .2 0213

(. ,aw (aterial 7prouct an pac*aging8:  As mentioned in the case" since (*6&s" cost of  raw materials has always been relatively higher in Japan than 7 market. 9rom the data" Current cost of raw materials in DJC!/awasaki (2.($; is higher than the cost of raw materials in ACC!unnyvale *.$*;.
2. !a.or Costs 7Direct an &nirect8:  /awasaki has limited number of /7s and hence using long production runs. All aspects of /awasaki-s process and plant layout is designed to achieve minimum <=1 inventory. And hence fewer resources are re,uired to handle fewer <=1s resulting in lower labor costs as compared to unnyvale" 7. $. /lectricity Costs:  1er unit electricity costs are higher in Japan as compared to 7. >ence shifting operations to 7 would lower costs for DJC.

To conclude" costs of manufacturing for DJC in 7 are much lower than their cost of operations in 7. Also they have lower costs than unnyvale" 7 plant.

42

9hat accounts for these ifferences? How much of the ifferences are inherent in

the way each of the companies compete? How much is ue strictly to ifferences in the efficiency of the operations?

?easons for Cost Differences 1

Design changes:  /awasaki 1lant did many design changes as compared to unnyvale

that resulted in 3aterial cost savings. 3old design change" 7se of less e+pensive ?esin" ?educed mass of >ousing" waste reduction" increased usage of Tin plating" increased 0

?eel si'e to 2&&& piece were few changes incorporated by /awasaki. !a.or Usage: /awasaki had nearly (!th the employee strength as compared to unnydale. ince the /awasaki plant was mainly automated" the number of workers as well as support and overhead staff was less. 8n the contrary since unnydale was focused more on customi'ation strategy and thus the number of employees hired were more

4

leading to higher costs. ,aw (aterials Cost: =n Japan the raw materials was appro+imately double to that in

6

7A and thus created a cost difference. $rouction $rocess:   /awasaki plant had a continuous production process and thus eliminating the cost incurred due to yield or capacity losses. 1roduction runs were

scheduled to be as long as possible and no unplanned orders were considered. 8n the 

contrary unnydale offered customi'ed products. 9&$ an "'Us: unnydale produced about %&& different models and also kept high <=1 in order to respond ,uickly to une+pected orders.


times. &n#entory: unnydale kept a finished goods inventory of $6 days while for /awasaki it was only % days. /awasaki also had close relationships with its suppliers and the plant

5

was located close to suppliers and distributors. $rouction "cheule:  unnydale had a production schedule which was fro'en thirty

;

days in advance while /awasaki plant worked with 4ust in time delivery. $rocess %echnology: unnydale focused more on technology and invested in it to improve ,uality or productivity while /awasaki emphasi'ed more on simplicity and

+

manufacturability over innovation. Quality "tanar: Defect rates were relatively high at unnydale" about 25&&&per  million units of production while at /awasaki the allowable defects were only ( per 

million units of output. 13 $lant !ayout: At /awasaki plant the plating was organi'ed separately to minimi'e costs while at unnydale there was a holding area where terminals were held until they were ready for plating.

@oth the companies have their own uni,ue approach of production and also each have different  parameters

to

customer

satisfaction.


/awasaki

1lant

is

more

focused

on

manufacturability" unnydale plant is more inclined towards customi'ation and efficiency. The companies are competing on the parameters of technology" cost and uality. Considering the importance of each factor every plant has its own process. The 8perating efficiency of unnydale is poor when compared to /awasaki. unnydale allows higher defects and longer lead times. The production schedule is very fle+ible and high =nventory and <=1 is kept. All these lead to reduced efficiencies and thus impact productivity of a plant.

Q62 9hat shoul American Connector
Answer =

The unnyvale 1lant needs a series of improvements steps to be taken irrespective of the fact whether DJC sets up the manufacturing unit in 7A or not. ome recommendations for the unnyvale plant are as follows:B

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=mplementing theory of constraints would be a good start. The higher management seems to be unaware of the bottlenecks and the system

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constraints. Due to which high levels of <=1 inventory is causing high costs. The plant operates only for % days a week and for %& weeks a year" once the systems

•

constraints are identified" they should start operating on weekends as well for ma+imum •

e+ploitation of the constraints. Currently there is a system of ,uality control  inspection identification of defects; but there is no system of ,uality assurance prevention of d efects;. 3anagement at unnyvale

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should focus on minimi'ing the ,uality defects" through T3 tools and innovations. Also" the ,uality inspection should be done before the bottleneck workstation so as to

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 prevent the bottleneck from working on defective pieces and thus increase its utili'ation. Currently the higher management measures productivity through individual system utili'ation" instead they should focus on the utili'ation levels of the bottleneck. This is

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also resulting in creation of high piles of <=1 inventory 9ocus on innovative methods to reduce the number of /7s. tandardi'ing /7s through innovation Just like DJC-s /awasaki 1lant; would help reduce the setup times"

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inventory levels and thus reduce the overall production costs a lot. The production schedules should not be tampered with currently management believes that fle+ibility is a good thing. @ut there should be a statistical and financial analysis of  this perception. 9re,uent e+pediting for certain orders increases the number of setups" thus delaying other orders which lead to increase in overall lead times and decrease in

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system output. unnyvale plant should strictly follow the production schedules. 8ther cost cutting innovations like eliminating product design features which used materials but were not adding value to the consumers" and reducing other wastages  4ust like DJC-s /awasaki plant; can be applied in unnyvale plant.