American Connector Co. (A) – Case Solution

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American Connector Co. (A) Case Answers

American Connector Co. – Introduction:

American Connector Co., an American giant producing electrical connectors with a core competency in 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 the 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 American Connector Co.?

• DJC poses a serious threat to American Connector Co. 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 its 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 which accounts for the difference in the raw material cost
• Product technology: Low number of SKUs(640), limited product variation, and the Use of tin instead of gold reduced the cost in the Kawasaki plant compared to the Sunnyvale plant
• Process technology: due to standardization in the Kawasaki plant, Moulding costs American Connector Co. $40000 while DJC is $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, with low customer bargain power, but that may not be the case for ACC.

Quality and low cost are 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
• The raw material source is nearer to DCJ which creates SCM efficiency.
• 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 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 is more inclined toward marketing and engineering rather than production, changes may be beneficial
• Follow the 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 the startup and shut down costs –
  • Using an increased amount of machinery to handle different modules
• The molds producing less no. of a specific type of connectors can be for a frequent changeover
  •  using specific fixed lines for large size orders which would run for a longer period and frequent changing lines fixed for small orders