With the threat of a Japanese competitor's plan to build an "ultimate" plant in the US, American Connector Co. is challenged and saw the need to look into its plant operations in Sunnyvale.
Gary P. Pisano; Sharon Rossi
Harvard Business Review (693035-PDF-ENG)
October 06, 1992
Case questions answered:
- How serious is the threat of DJC to ACC?
- 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.
- What accounts for these differences? How much of the differences are inherent in the way each of the two companies competes? How much is due strictly to differences in the efficiency of the operations?
- What should American Connector's management at the Sunnyvale plant do?
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American Connector Co. (A) Case Answers
American Connector Company – Introduction:
- American Connector Company, an American giant producing electrical connectors with a core competency on Quality and Customization, is facing a decrease in gross margins from 52% to 43% over the period 1984-91
- DJC Corporation, a highly efficient manufacturing firm with a focus on low variety-high volume production strategy, from Japan is looking to open a production facility in the US, which may pose threat to ACC’s leadership in US market
Dilemma:
- Does DJC Corporation pose threat to ACC’s leadership in the US market, if DJC is able to successfully implement its Kawasaki factory model in the US?
- How can ACC devise a robust operational strategy to counter DJC’s entry into the US market?
How serious is the threat of DJC to ACC?
- DJC poses a serious threat to ACC in the US
- DJC has the capability for in-built technology, while ACC relies on suppliers
- ACC does not have unique operations and processes, it can easily be imitated by the rival company DJC
- Raw material cost in the USA is lower than in Japan, so DJC would be able to save material costs in its US plants compared to that in Japan
- ACC’s focus on quality control is not any unique process; instead, the method is old
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.
Let us analyze the Cost Indexes of ACC Sunnyvale Plant and DJC Kawasaki Plant with respect to Currency exchanges.
Thus, we can observe that the Cost of manufacturing operations of DJC in the US would be 22.44% less than the current production cost of $26.10.
Q3. What accounts for these differences?
- Kawasaki plant has a target of 100% asset utilization and 99% raw material yields with the continuous production run. This accounts for the lean manufacturing process because of low start-up and shutdown cost
- Raw material cost is 1.66 times higher in Japan that account for the difference in the raw material cost
- Product technology: Low number of SKUs(640), limited product variation, Use of tin instead of gold reduced the cost in Kawasaki plant compared to Sunnyvale plant
- Process technology: due to standardization in Kawasaki plant, Moulding cost ACC-40000$ DJC-29000$
- Finished good inventory management: high for both, 56 days for DCJ
- Quality control: Better in case of DCJ
How much of the differences are inherent in the way each of the two companies competes?
- In Japan, DCJ has the advantage of a high barrier to entry for the new entrants, but in the US ACC has to compete with many more competitors.
- DCJ competes on high volume, less variety, and standardization while ACC competes in the USA with highly customized products with the competitors.
- DCJ focused on standardization, simplicity, and manufacturability, over innovation
- Power is shifted on the manufacturing side for DCJ, low customer bargain power, but that may not be the case for ACC.
Quality and low cost is the USP for DCJ to compete which is a clear advantage for them.
How much is due strictly to differences in the efficiency of the operations?
- Operation Efficiency is dependent on plant efficiency, labor efficiency, inventory management
- Due to high plant efficiency, DCJ’s production is continuous and smooth, quality is also high
- Raw material source is nearer for DCJ which create SCM efficient.
- Labors are young and highly skilled for DCJ
- Indirect labor investment –tech dev-(DCJ/ACC=12.8/6.8)
- Total labor cost (DCJ/ACC=3.77/10.30)
Q4. What should American Connector’s management at the Sunnyvale plant do?
- Cost control measures and focus on improving quality
- Quality control inspection at each process instead of end product inspection
- Product design innovation which will not allow reverse engineering of the product by competitors
- Improving compactness of connectors
- In house R&D to develop technical innovation
- ACC’s organizational hierarchy more inclined toward marketing and engineering rather production, changes may be beneficial
- Follow pull strategy of raw materials in the production line to minimize inventory
- Needs to control processing lead time from 10 days to a substantial extent – order management will be easy and less finished inventory pile up
- Increase fixed asset utilization by controlling startup and shut down cost –
- Using an increased amount of machinery to handle different modules
- The moulds producing less no. of a specific type of connectors can be for a frequent changeover
- using specific fixed lines for large size order which would run for longer period and frequent changing lines fixed for small orders