American connector company case study

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Presented by
SHASHIKANTH PATIL, IIM(A) SMP BL06 20122
American Connector Company (A) – Case study
1. Introduction
Electrical Connector Industry in Early 1990
2. Profile of DJC Corporation
3. Profile of American Connector Company
4. Exhibits for the Case Study
5. SWOT Analysis, Discussions and Recommendation
INDEX

2. 2
Case Overview :
Ms. Denise Larsen (Vice President ACC) reading report of DJC , DJC, who built in Japan the most efficient connector plant of the world, is planning to build its first connector plant in
the United States. It can utilise its highly efficient manufacturing process and supplying electrical connectors at a lower cost thereby causing a serious threat to ACC's market share.
In this Presentation an effort is made to analyse the DJC;S strength and SWOT analysis for ACC as considering DJC as thereat in present highly volatile Market.
DJC Corporation of Japan was a dominant supplier of electrical connectors in Japan. It was rumoured to be one of the most efficient connector plants in the world. Despite its success
in Japan, DJC had not established itself in the US. It had no plants in the US and only a small sales force. There have been rumours in the last few years that the DJC would build a
new plant in USA to launch an attack on the US market.
Products : Electrical / Electronic devices were devices made to attach
 Wires to wires
 Wires to Outlets
 Attach wires to outlets, wires, components, chips to PC boards
 PC boards to other boards
Market Application : Military , Aerospace, Electronics,
Industrial Electronics, Telecom Equipment, Computer &
Office Equipment, Automobiles, Consumer Electronics
Military
Aerospace
Electronics
Industrial
Electronics
Telecom
Equipment
Computer &
Office
Equipment
Automobile
Consumer
Electronics
ELECTRICAL CONENCTORS -
MARKET
Product Variety / Mix: 1990 there were 700 product variety in NA alone.
Product compliance : (USA)
 Standard design established by International Institute of Connectors and Interconnect
Technology (IICIT)
 National Electronics Distributor Association (NEDA)
 Custom design with 1 year contract with single company
 1992 efforts were made to further standardize the products
 Challenge for suppliers to meet various specifications from different industries
Product Technology :
 Connector types were made from different materials Varies from Very High to low
 Connector cost @ end product cost was approximately 2%.
 During 1990’s Electrical connectors engineering intensive, as electronic circuitry more
miniaturized and operated at higher speeds the connectors have to meet demanding
requirements for space, weight, cost, quality, reliability and performance
Market Size & Demand Fluctuation:
 1970 Rapid Growth as firms built capacity to meet growing demand
 1980 demand slowed down, too many suppliers and too much capacity, others
entered US Markets
 1990 The US Market was characterized as Hostile environment, 900 Suppliers and
sales continued to Slacken
 1991 sales were down by 3.9% overall for Connector Market, while 10 industry
leaders down by 7.9% average
 The abundance of suppliers gave customers leverage to demand reduced price
improved quality and faster delivery
 OEM now depending lesser suppliers
 This hostile Marker spurred a trend of Mergers and Acquisitions
 1991 the sales totaled roughly $ 16 billion, top ten accounted for $ 6.67 billion
 AMP was market dominant and held 16% market share $ 2.6 billion
 6 Second tier companies $ 500 million to $ 800 million , DJC / ACC were in this Tier
 Third tier companies $ 250 to $ 500 million, 28 Firms more than $ 100 million
ACC & DJC produced all types of
interconnect products but
Sunnyvale and Kawasaki were
manufactured only Connectors

3. 3
Competitive Strategy
Team roles
Communication plan
Milestones
Budget management
Resource planning
Status reports
Project goals
Quality of deliverables
Team performance
Retrospective meeting
Project closure report
Kawasaki Plant Produces
4 Basic types of Connectors
Close links with Telecom,
Electronic Industry in Japan
ACC cannot think of
Entering Japan Market
Design Strategy : Simplicity
and Manufacturability,
1965 DJC copied and did
reverse engineering R&D
focus on design
improvements, 1975 attains
similar quality
DJC design were compact
economizing on Raw
material
DJC viewed highly efficient
MFG as absolutely CRITICAL
to Competitive Strategy
Mr. Okada as Head of
production heading 4
domestic PWP reported
directly to Mr. Esaka
President
Balance of Power for
decision making was MFG
oriented and Sales had less
power to fle MFG for order
booking.
Profile of DJC Corporation
1980 Japanese Market
Increased labor, Raw
Materials
Vision for Kawasaki Plant
was Rationalization of Mass
Production
100% Asset Utilization
Yield on Raw Material 99%
Customer complaints less 1
per 1 million connectors.
Kawasaki Plant operation in
1986.
Location of Plant Best
Suited with several reasons
Logistics, Major Electronic
Companies
Near to RAW material
suppliers
Material Supply on Daily /
Weekly Basis
Young Work Force Available
Capacity at 100% - 800
million Connectors per Year,
Achieved 80 to 90%
75% of above Domestic
Market, 25% for Asian
Market
Plant operated 24hours per
day, 7 days week, 330 days
Year. Minimum Shut Down,
High Availability
Kawasaki Plant Plant Layout Product Technology Process Technology
C
Sourcing & Quality Control Production and Inv Control
Organized in 4 Cells what we
call as PWP each of which
are responsible for each
type of Connector
Each Cell Contained
contained 2 to 6 assembly
Lines
Plating was common to
assembly lines for safety
purpose and high cost of
plating
Each Assembly Line
Sequenced Stamping,
Housing, Molding, Assembly
and Packing
Assembly Lines were
designed to Minimize
Material handling
Assembly operations were
Automated to Maximum
extent
The Speeds of Processes
were synchronized to suit
Process Lead time
Packaging was done using
STRIPS containing 2000
units
Central Shipping
Department responsible for
shipping
Automation was BASIC
principle, DJC followed
process called Pre
Automation activities to
analyze before process was
implemented for
Automation, significant
resources dedicated to
ensure reliable automation
Micro Motion Studies done
for Worker Movement during
Pre automation.
Ware House centrally
Located to minimize
material movement, Each
press dedicated for
assembly line.
ONE operator could run 2
assembly lines
Notion of Old and reliable
process than Innovative
unproven
Absolute reliability on MOLD
processes. Polymer Experts
Molds rigorous repair
maintenance schedule,
Average life of mold was 3
years, cost was $ 29000
annually, yielding 99.99%
In-house Technology for
Tools, Molds development
Technology Development
Division central point,
Optimization of Product
$20.90 to 14.89 per
thousand unit.
Refer Exhibit
Kawasaki Maintained Close
relationship with Suppliers
Suppliers had to meet
rigorous quality standards,
required to certify their
products for every supply
Materials were directly used
on process without
Inspection
Quality Improvement was
considered as Joint effort
between DJC and Suppliers
Daily and Weekly delivery ,
frequent delivery allowed
Kawasaki to maintain
Inventory for 5 Days
Low level raw materials,
small ware house
Just in Time and MRP were
used for short and Long
term material requirement
QC Division 5 objectives
a) Improve Quality control
standard
b) Improve Process
Inspection
c) Precision of Molded
component
d) Quality of Product
designs
e) Minimize waste
Long RUN of assembly lines
Long RUN of Assembly
Possible due to minimum
Down time , SKU were
Minimum
Few hours to Inventory
control due to smooth
process of Materials
Kawasaki processing Lead
time and WIP Inventories
Each averaged 2 Days
Kawasaki relatively
maintained high Finished
Goods Inventory, 56 days
RAW Material INVENTORY at
ACC was 10.8 Days
Product Design Reflected
the goals of continuous and
reliable operation, need to
economize raw materials
Product design analyzed for
easy manufacture
1991 the Plant Produced
only 640 Stock Keeping
Units ( SKU) relatively small
number compare to size of
the Plant
Economic design, Tin was
used for plating rather Gold,
even Gold was most
reliable. Tin was reliable for
low power applications
Extensive Value Engineering
Sessions to identify Cost
Saving design changes that
did not compromise on
performance.
Refer to Exhibit 3 as Value
Engineering out put from VE

4. 4
Work Force
Team roles
Communication plan
Milestones
Budget management
Resource planning
Status reports
Project goals
Quality of deliverables
Team performance
Retrospective meeting
Project closure report
Explicit Goal of Kawasaki
was to reduce work force
and Overhead Staff, Direct
labors requirement will go
down as automation
enhances
General hiring approach,
New Graduates fro Schools
for Low Level ( Blue Collar)
and University Graduates
for High Level ( White Collar)
Above avg salary for New
Hires, Below avg salary for
experienced
Training , Job orientation to
enhance Multi Skills
Retention Rate was Low
deliberate – 3 years
Average employee stayed
with Kawasaki for 9 years,
against Japanese 14.5
years in large companies
Profile of DJC Corporation
Mr. ESAKA was driving force
for KAWASAKI plant,
however there was greater
autonomy within the ORG
structure
Goals were set by Mr, Esaka
Due to minimum Inventory,
Minimum Shut Down,
Minimum Change Over, High
Automation Process
developed overall Men
Power requirement
remained low.
Refer Exhibit 4 and 5
Only 32% of the employees
were at Indirect Positions, of
these Most were part of
Technology Development
Division
Organization
2 to 6 assembly lines
Wire to Wire
Connectors
Wire to Outlet
Connectors
Item to Board
Connectors
Board to Board
Connectors
Plating and
Ware House
DJC – Kawasaki Plant Layout
Advantages of Product oriented layout:
 A Product oriented layout works best when the output required is of high volume
and low variety.
 This layout facilitates high equipment utilization, given there is adequate
demand.
 The line production process followed by DJC also guaranteed low work in
process inventory.
 The product is standardized
Disadvantages of Product oriented layout:
 Not flexible to handle products of high variety.
 In cases of insufficient demand, this may lead to high Finished Goods inventory.
 High volume is necessary for this type of layout to prove profitable.
DJC Plant Layout

5. 5
Competitive Strategy
Team roles
Communication plan
Milestones
Budget management
Resource planning
Status reports
Project goals
Quality of deliverables
Team performance
Retrospective meeting
Project closure report
ACC Operated 4 Plants in
USA and 2 in EUROPE
Each of these produced 4
types of connectors catering
to different customers
ACC competitive strategy
was based on emphasis on
Quality and customization.
At times ACC had a
reputation of high quality
supplier, considered as key
success. Customization was
an extension to quality
Custom orders were up to
15% of total production
volume, many custom
products from ACC become
industry standards
ACC had high sustaining
profit of 52%
1983 and 1988 several
investment globally.
From 1984 to 1991 sales
had grown from 250 million
to 800 million where profit
margin dipped from 52% to
43% same period due to
slack in demand and
operation issues.
Profile of ACC Corporation
Sunnyvale Plant started in
1961 in and around silicon
Valley, leased facility with 1
million connectors per year
1986, as the demand grew
new facility set up capacity
enhanced to 600 millions
connectors per year.
Demand slowed down in
1987,
1988 Utilization of the Plant
sunk to 50% and 70% in
1991, expected to reach
85% utilization by 1996.
Sunnyvale plant produced
up to 4500 product
Sunny Vale Plant Plant Layout Production Control Department Process Technology
C
Quality Control
The Plant was divided into 5
PRODUCTION areas,
Stamping, Fabrication,
terminal Plating, plastic
housing and molding,
Assembly and Testing,
Packaging.
Batch production due to
customization, require 10%
manual assembly.
Packaging was 10 peace a
bag to 1500 units per reel.
Process lead time for batch
of connectors was 10 days
and 2 to 3 weeks for special
orders
Finished goods inventory 38
days
Each area had production
supervisor who reported to
plant director
Production Control
Department was
responsible for Planning
and coordination across 5
plant
Based on Sales Target PCD
set target for year, every
3months forecast reviewed
monthly. Production
schedule is FROZEN 30
days in advance for each
area. However schedule was
routinely changed to
accommodate rush orders.
These schedule demands
from sales or customers
were disruptive causing
inefficiency
Marketing and Engineering
won on debates.
Pressure on PCD to
minimize WIP inventory.
Conflicting KPI, Goals,
caused low Utilization.
Flexible LAYOUT, Manual
Intervention
In 1984, the plant produced
3000 different Connectors,
3500 in 1986 and 4500 in
1991
Due to Increased Product
Variability and Schedule
changes, the PCD resources
had to be increased from 42
to 65.
New Computer system was
introduced and software for
Production Planning
Quality had been identified
major opportunity for
Improvement
Over Period Quality was
deteriorated over 26000
defects per Million in 1990
More Thrust on Quality
Control than Quality
Assurance – We inspect to
assure defect material don’t
reach customer.
Quality department felt low
quality was cause of high
engineered products
Yields on newly developed
products were as low as
55%, until the production
was streamlined then
reached 98% within ONE
year.

6. 6
ACC – Sunnyvale Plant Layout ACC – Sunnyvale Plant – Production Process
Advantages of Functional Layout
 High degree of Product flexibility
 Suitable for High Variety, Low Volume production
The production takes place in modules, so that a large variety of output options can be obtained by combining various modules
Disadvantages of Functional Layout
 Not suitable for mass production
 High cost and low utilization
 High Work-in-progress Inventory
J
ACC Plant Layout

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Sr NO Kawasaki SunnyVale
94 Employees 396 Employees
1 Indirect Labour
a Control 11.70% 16.70%
b Technology Development 12.80% 6.80%
c Materials Handling 3.20% 10.40%
d Mechanics 4.30% 11.90%
2 Direct Labour (Production) 68% 54%
Kawasaki Production estimated to be 700 million units
Sunny Vale production estimated to be 420 million units
Ratio of PLANT PRODUCTION 1991
Kawasaki to Sunny Vale 1.666666667
Sunny Vale to Kawasaki 0.6
Ratio of Employee, SunnyVale to Kawasaki 4.212765957
Exhibit 5, COMPARISON OF LABOUR USE 1991
Sr No Description
DJC Kawasaki
1986
ACC SunnyVale
1986
DJC Kawasaki
1991
ACC SunnyVale
1991
JAPAN USA JAPAN USA
0 Capacity utilization 90% 85% 90% 70%
1 Raw Materials, Products 14.32 10.4 12.13 9.39
2 Raw Materials, Packaging 3.27 2.25 2.76 2.1
3 Labour Direct 7.63 3.02
4 Labour Indirect 2.3 0.75
5 Total Labour 9.93 8.53 3.77 10.3
6 Electricity 2.47 1.8 1.4 0.8
7 Deprecitation 7.63 5.52 1.8 5.1
8 Other 4.12 4.41 4.24 6.1
9 Total 47.74 32.91 26.1 33.79
Note : 135 Yen = 1 USD, 1989 Exchange rate used for conversion
DJC Vs ACC Cost of Goods Sold
For Standard Chip to Board Connector ( Dollars per 1000 units)
A
Raw Materials, Products Reduction 15.29%
Raw Materials, Packaging Reduction 15.60%
Total Labour Reduction 62.03%
Electricity Reduction 43.32%
Other cost Increased -2.91%
Deprecitation Reduction 76.4%
Overall COST Reduction 45.3%
DJC performance Improved over period , from 1986 - 1991
B
Raw Materials, Products Reduction 9.71%
Raw Materials, Packaging Reduction 6.67%
Total Labour Increased -21%
Electricity Reduction 55.56%
Other cost Increased 7.61%
Deprecitation Reduction -38%
Overall COST Reduction -2.7%
ACC performance suffered marginally over period , from 1986 -
1991
ANALYSIS
DJC
Kawasaki
1991, JAPAN
DJC
Kawasaki
1991, USA
ACC
Sunnyvale
1991, USA
$ $ $
0 Capacity utilization 99% 99% 70%
1 Raw Materials, Products 12.13 7.278 9.39
2 Raw Materials, Packaging 2.76 1.656 2.1
Total Raw Material Cost 14.89 8.934 11.49
3 Labour Direct 3.02 3.322
4 Labour Indirect 0.75 0.825
5 Total Labour 3.77 4.147 10.3
6 Electricity 1.4 1.12 0.8
7 Deprecitation 1.8 1.8 5.1
8 Other 4.24 4.24 6.1
9 Total 26.1 20.241 33.79
10 GM @ 40% 10.44 8.10 45.79
Selling Price of Connector 36.54 28.3374 90.78
Price of End product 182.7 141.687 186.76

8. 8
SWOT ANALYSIS OF ACC,
S W
OT
WEAKNESS
OPPORTUNITY
STRENGTH
THREAT
 The American Connector Company’s competitive strategy emphasized on
both quality and customization. From 1984 to 1991 sales had grown from
250 million to 800 million where profit margin were between 52% to 43%
 Maintain the reputation as high Quality Supplier, Customization is an
extension to quality as competitive strategy
 Product Variety is Another Strength of ACC, with 4500 SKU’S. Better Product
Mix, High end product technology is more profitable business. Custom
orders were up to 15% of total production
 Historically ACC had been a very profitable organization, Margins eroded
only due to operational in efficiencies coupled with fluctuating market
Demand.
 DJC would have to compete in a new market without major customer
contacts. Thus, it cannot leverage this strength to compete in USA
 Positioning with Clear Competitive Strategy is KEY, ACC trying to cater to very hostile
Market with many operating inefficiencies off late
 Plant Layout : ACC need to look at complete plant layout seriously to minimize WIP
inventory and Process Lead times. KPI are not good indicators
 26000 defects per Million in 1990
 PCD resources had to be increased from 42 to 65.
 Yields on newly developed products were as low as 55%,
 Quality Assurance than Quality Control / Inspection –
 Process lead time for batch of connectors was 10 days and 2 to 3 weeks for
special orders
 goods inventory 38 days
 1988 Utilization of the Plant sunk to 50% and 70% in 1991, expected to
reach 85% utilization by 1996.
 No Value Engineering
 21% increase in Indirect Labour
 DJC Corporation in Japan is highly efficient and profitable with FOCUS
FACTORY approach, DJC with very Lean Manufacturing set up, as we can see
from exhibits the cost and productivity, yields, quality very high entering if it
sets up Factory following similar Manufacturing competitive strategy could
certainly grab the Major Market share on standard connectors. If DJC brings
in little flexibility or customization with same efficiency, may soon position as
Key Player in US market as well. This THREAT perception is for all Players in
US market in Electric Connector business. However it will NOT be easy SAIL
for DJC where product variety is driving the Market largely with Reliability
aspect of Product Design using high cost materials such as GOLD plating.
Given short life cycle span of low end, standardized connectors the Low Cost
strategy may not work when already there are plenty of suppliers in this
product range/ market.
 Need to come up with different Marketing Strategy for Different Region,
Europe, USA.
 Only 15% of the Market demand product variability where as 85% of market
still needing Standard Connectors in line with IICIT, NEDA. Opportunity for
ACC to optimize their cost on these products, enhance yield, productivity
through Lean or Focus Factory approach and Flexible / custom built
approach. Recommendation is to build separate lines for standardized
product with flexibility of design for 15%. Run the plant at optimum speed to
minimise shut down time
 ACC to Overcome on all their Weaknesses to Stay in Market and improve OR
retain their II tier position in Market
 ACC to introduce enhanced working time as Demands from 5 days a week to
7 days a week, 24 hours per day if need be and viable