BY DEEPAK BOKARIASINCHAN GHOSHVIVEK S. NATHANKIT CHOKHANIRAKTIM SENGUPTA

COMPANY’S MOTTO

Our simple design is extremely reliable, and easy to install ~ Saving time 

Our experienced customer service personnel are available to answer any questions 

Most parts are in stock ~OR~ can be quickly manufactured to meet your needs

INTRODUCTION American Connector Company (ACC) and DJC Corporation (DJC) were

both second tier competitors in the fragmented $16 billion electrical connector industry.

DJC, a Japanese corporation, relied heavily upon efficient manufacturing processes as the basis for their competitive strategy and as the means to achieve their annual profit goals.

ACC viewed their success as dependent upon their ability to offer customized connector solutions and high end products.

DJC recently announced the construction of an US-based manufacturing facility located near ACC’s Sunnyvale, CA facility.

Faced with the threat of a highly efficient competitor launching a nearby production facility, ACC must develop a plan of action to limit DJC’s intrusion into their established North American market.

PROCESS & OBJECTIVES OF ACC

High quality supplier Customization Maximization of profit Marketing strategy

PROCESS & OBJECTIVES OF DJC

DJC’s corporate objective was profit maximization. The ultimate rationalization of mass production Highly automated Three goals were to be met:

1) 100% asset utilization

2) 99% yield on raw material

3) a customer satisfaction level of one complaint per million units of output

Customer satisfaction on the basis of Six Sigma methodology

Sunnyvale Kawasaki

Year Facility Built 1961 1986

Production Type 85% Batch Process15% Job Process 100% Continuous Flow

Average Production Rate 420 million units(600 million units maximum)

700 million units(800 million units maximum)

Types of Connectors 4 4

Competitive Strategy Focus on customer need Low cost production, customization and superior design

Models 4500 640

Production Areas

5 Separate Areas - Terminal Stamping and Fabrication, Terminal Plating,

Plastic Housing Molding, Assembly and Testing, Packaging

4 Production Cells with Terminal Stamping, Housing Molding, Assembly,

Packaging

Packaging Multiple – 10-piece bagging to 1500-unit loaded reel One – 2000-unit strips

ACC’s Sunnyvale facility and DJC’s Kawasaki facility are best summarized in the following table:

Processing Lead Time 10 days for standard items, 2-3 weeks for special orders 2 days, no special orders

Runs Most are 1.5 to 2 days One week and some continuous

Average Annual Cost per Mold $40,000 $29,000

Average Life of Mold 8 years 3 years

Raw Materials Inventory 10.8 days 5 days

Work in Process Various, but high to accommodate special orders 2 days

Finished Good Inventory 38 days 56 days

Management Engineering and marketing focus Production focus

Production ScheduleAttempt to freeze 30 days out. Could

change daily for SO’s. 15% of orders were custom orders.

Complete control by the plant. No change to the schedule for unplanned orders.

Utilization 50-85% 100%

Indirect Staff 46% - Heavily weighted towards control staff.

32% - Weighted towards Technology Department.

Defects 2.60% 0.0001%

Yields 55% to 98% after one year 99%

Other Outsourced design of equipment. Emphasized cutting edge equipment.

All technology in house. Emphasis on older technology.

RELEVANT QUESTIONS

HOW SERIOUS IS THE THREAT OF DJC TO AMERICAN CONNECTOR COMPANY?

DJC has a lower cost of production compared to the Sunnyvale plant of ACC. The cost per 1000 units for DJC is lower by around 40% compared to the Sunnyvale plant

The market in US has become very saturated and competitive. In such a market, DJC’s lower costs will give them a very good competitive advantage.

DJC manages to keep a low raw material inventory of 5 days due to which they will enjoy a strong advantage over ACC which has a raw material inventory of 10.8 days. This results in higher costs for ACC due to handling of this raw material

DJC enjoys an advantage in having a lower lead time than ACC (processing lead time of 2 days for DJC). This will allow them to ship products in a faster manner. One reason for this is due to the high variety in product mix for ACC.

Reasons why DJC can pose as a threat:

WILL DJC BE ABLE TO PERFORM SAME IN AMERICAN MARKET AS THEY PERFORMED IN JAPAN??

Reasons why DJC might not be able to replicate the success in US markets:

DJC has a very rigid production schedule and will not be able to satisfy the unpredictable demand requirements of US companies which need custom products 

If DJC enters the US market, they might have to introduce a higher variety in their product mix. There is a demand for flexibility in terms of design in the US market due to which ACC will enjoy a competitive advantage

DJC manages to keep a low raw material inventory of 5 days, but this is dependent on the frequent delivery by the suppliers. They will need to form strong relations with the suppliers in the US market to ensure that this competitive advantage is maintained. 

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. 

Q2 :HOW BIG ARE THE COST DIFFERENCES BETWEEN DJC’S PLANT AND AMERICAN CONNECTOR’S SUNNYVALE PLANT? CONSIDERING BOTH DJC’S PERFORMANCE IN KAWASAKI AND IT’S POTENTIAL IN THE UNITED STATES. 

 

Raw Material: - Current raw material cost for product and packaging in Kawasaki plant is relatively high in comparison to ACC Sunnyvale’s plant. In the event of DJC setting up a plant in USA, there would be a considerate cost reduction, as the cost indices US v/s Japan is lower (0.6:1).

Packaging Cost Labour Cost Electricity Cost

Cost head Kawasaki ($/1000 units)

Plant in USA

Raw material,product+ packaging

12.13+2.76=14.89

14.89*0.6=8.93

ACC’s Sunnyvale plant’s total manufacturing cost is higher than DJC’s Kawasaki plant by $13.549/1000 units for 1991 which produces a cost difference of 40.10%.

The cost difference is mainly due to difference in the labour cost. For ACC the labour costs show an increase from $ 8.53 to $ 10.30 from 1986 to 1991. On the other hand for DJC the labour costs have decreased considerably from $ 9.93 to $ 3.77.

Q3: WHAT ACCOUNTS FOR THESE DIFFERENCES? HOW MUCH OF THE DIFFERENCE IS INHERENT IN THE WAY EACH OF THE TWO COMPANIES COMPETES? HOW MUCH IS DUE STRICTLY TO DIFFERENCES IN THE EFFICIENCY OF THE OPERATIONS?

REASONS FOR DIFFERENCES Fixed Asset utilisation Raw material cost Production Process Quality issues

OTHER BASIC DIFFERENCES Technological Advantage  Low inventory cost  Nearness to raw material suppliers

and end users