American Connector Company ( ACC ) is a electrical connection company in the United States. It operated 4 workss in the United States and 2 workss in Europe. Known for their high quality & A ; customized solutions, ACC was had been really profitable sustaining borders around 52 % . From 1984 to 1991, due to increased competition in the industry and demanding demands from clients for infinite, weight, cost and public presentation.
Their rival DJC Corporation had become a dominant provider of electrical connections in Japan and was rumored to hold the most efficient works in the universe. DJC cultivated close links with major computing machine, telecommunications and electronics companies & A ; distributers in Japan. DJC were pitiless rivals and changed the regulations of the game to efficient production than invention.
In 1991, Denise Larsen, Vice President of Operations at ACC wondered about their attack to fabricating & A ; the impact on ACC ‘s profitableness and market portion if DJC set up a works in US.
1. How serious is the menace of DJC to American Connector Company?
The competences of DJC chiefly lie in fabrication procedures and high mechanization, really low defect rates, really low stock list costs, efficient production layout, low labor cost. The current theoretical account of the Kawasaki works established by DJC, possesses a major menace in instance it decides to put up a works in the US. This illation can be made from the undermentioned analysis that illustrates American Connector Company dawdling behind in footings of its production capablenesss, procedure methodological analysis and cost construction. Please expression at Appendix Table 1
Competences of DJC/Kawasaki picturing menace to ACC are
Lower Cost per Unit of Production: The tabular array 2 shows a comparative analysis of the costs of production in instance Kawasaki sets up a works in US. It clearly shows the Nipponese endeavor holding an border over the American opposite number due to cut down disbursals on work force, electricity, natural stuffs in add-on to the procedure capablenesss of the works.
Manufacturing Efficiency and Capabilities: DJC has extremely efficient and result-oriented fabrication capablenesss. It maintains a 100 % capacity use in comparing to ACC that has 85 % use. This can ensue in churning out higher figure of units per twelvemonth by DJC as compared to ACC.
Standardization of Merchandise: DJC has the production installation for 640 SKUs as compared to 4500 for ACC. The standardisation of merchandise assortment by Kawasaki works of DJC consequences in longer production tallies, thereby increasing overall machine efficiency and capacity use. This makes DJC to seek to capture 85 % of the market, that caters to the standardised assortment.
Existing theoretical account of keeping low work-in-progress stock list and natural stuffs inventory- DJC works closely on reduced WIP stock list and natural stuffs stock list due to uninterrupted production tallies.
Higher production of Connector Units per Employee by DJC: The figure of connections produced per employee by DJC is about 7 times than that of ACC. Even if the customized service duty of ACC is considered, merely 15 % of production caters to the customized units, whereas 85 % is for standardised assortment.
In- house Merchandise and Equipment Development: DJC develops the merchandise and equipment capablenesss in-house. This can take to better engineering fluctuations and customization to the bing environment in US. Besides, the possibility of procedure imitation by other companies is minimal.
Highly Low Defect Rates of DJC compared to ACC: The DJC operates on the theoretical account of 1 consumer ailment per million units which culminates to 1 defect per million units. This is in blunt contrast to the 26000 defects per million units.
There is still a Ag liner for ACC when we consider the practical facets of DJC/Kawasaki puting up a works in US:
High investing in puting up the works.DJC would necessitate a immense capital investing for puting up similar works capacity in US. This would reflect in a high initial fixed cost. The breakeven clip would increase in instance DJC tries to maintain its cost competitory.
Apparent Lower Product Quality of DJC as compared to ACC: In order to cut down natural stuff costs, DJC has compromised on its natural stuffs, ( e.g. replacing gold plating with Sn plating ) , utilizing dilutant lodging and less expensive rosin. There is a chance that merchandise might non be accepted by the US consumers in footings of the quality.
Challenging the repute of Existing merchandise Line and customization capablenesss of ACC: ACC is a established participant in the US market. DJC will hold to put in disputing the repute of ACC. Besides, ACC is flexible when it comes to the customization capablenesss. This is non the instance for DJC.
Analyzing the above facts, DJC is a major menace to ACC when it comes to the standardised merchandise market, and the factors working against DJC can finally be overcome owing to 85 % of the market
2. How large are the cost differences between DJC ‘s works and American Connector ‘s Sunnyvale works? See both DJC ‘s public presentation in Kawasaki and its potency in the United States.
In 1986, ACC/Sunnyvale had an advantage over DJC/Kawasaki in footings of fabrication costs. However, by 1991 Kawasaki ended up cut downing its production costs by 37.4 % while the same increased by 2.6 % for ACC. As is clear from Table 1 below, Kawasaki has a clear cost advantage of 29.4 % over ACC. The relevant cost caputs where % alteration is relevant have been listed below:
DJC/Kawasaki ( $ /1000 units )
ACC/Sunnyvale ( $ /1000 units )
Natural Materials, Product + Packaging
14.89 ( 15 % lessening )
11.49 ( 9.1 % Decrease )
DJC has been able to accomplish important cost nest eggs in natural stuff procurance and use every bit compared to ACC Sunnyvale. This has been possible due to concentrate on uninterrupted and long production tallies, standardized procedures and little alterations to cut down cost
Labor ( Direct + Indirect )
3.77 ( 62.04 % lessening )
10.30 ( 20.75 % Increase )
Entire labor costs, direct and indirect, have significantly reduced for DJC in the past 5 old ages due to considerable mechanization in procedures, low WIP stock list and stuff handling.
37.4 % lessening
2.6 % addition
Kawasaki Plant in United States:
If Kawasaki decides to open a new works in United States, major cost nest eggs would be in footings of Raw stuffs and electricity which would take to a net 22.45 % decrease in fabrication costs. While the natural stuff costs have decreased by 60 % , Labour disbursals have increase by a fringy 10 % . Comparing this with the fabrication costs of ACC works under the same cost caputs and disregarding the initial investing for get downing a undertaking in US, DJC is able to accomplish a 66.9 % cost advantage over ACC. Significant cost advantage is in footings of labor and depreciation costs. One of the grounds for lower depreciation costs could be because of longer and uninterrupted production tallies which depreciate cost over a longer tally. On the other manus, ACC has short batch tallies which would take to higher depreciation costs.
DJC/Kawasaki Plant ( $ /1000 units )
DJC/Kawasaki US Plant ( $ /1000 units )
Natural Materials, Product + Packaging
= 14.89 * 0.6 = 8.934
Since cost index for Raw stuff index ( merchandise and packaging ) is 1: 0.6 ( US/Japan ) , the natural stuff costs have gone down drastically
Labor ( Direct + Indirect )
4.147 ( 10 % Increase )
1.12 ( 20 % lessening )
22.45 % Decrease
3. What accounts for these differences? How much of the differences is built-in in the manner each of the two companies vie? How much is due purely to differences in the efficiency of the operations?
The cost differences between ACC & A ; DJC are due to:
Customized/ Standardized: DJC produces standardized merchandises and focal points on manufacturability. They have besides reduced the figure of SKUs merchandise and DJC enjoys economic systems of graduated table.
Inhouse R & A ; D and Product Development: DJC relies on its inhouse expertness for upgrading machines & A ; in merchandise design while ACC procures new engineering from sellers. The extra costs of purchasing new machines increases ACC ‘s entire cost.
Continuous Production: DJC produces 24X7 for 330 yearss a twelvemonth which reduces the set up cost for the machines and increases use.
Labour Productivity & A ; Cost: ACC has a larger proportion ( 46 % ) of indirect labor ( Control, Material Handling and Mechanics ) . These overheads conveying down the end product per employee. The end product per direct employee are mentioned below:
Air combat command
Production ( manganese )
Production per direct labour ( manganese )
Design Changes: DJC has improvised the merchandise design by utilizing Tin Plating, Waste Reduction, Waste Reduction, Reduced Mass of Housing, Less Expensive Resin and Mold Design ensuing in 28.75 % nest eggs.
Procedure Layout: DJC ‘s production layout is merchandise based, each merchandise has single cell with 2-6 production lines. The lone common operation was plating. Each procedure was aligned one after other and therefore the stuff handling and work force costs were lesser. ACC used a procedure based production layout divided into 5 production countries: terminus stamping and fiction, terminal plating, fictile lodging faculty, assembly and testing, and packaging.
Automation: DJC ‘s mechanization reduced the figure of mistakes ( 1 unit per 1 manganese ) which had benefits like waste decrease, size of the review squad.
Inventory & A ; WIP Costs: ACC has greater WIP and stock list, it may be due to non uninterrupted production line and shorter production agenda. This consequences in greater keeping cost and other operating expenses. While for DJC, a uninterrupted production line and longer production agenda consequences in lesser monitoring cost.
4. What should American Connector ‘s direction at the Sunnyvale works make?
Cost nest eggs:
ACC can better upon the stuff cost nest eggs by integrating thoughts from Kawasaki works like:
Introducing use of Sn plating in standardised connections.
Implementing waste decrease procedures by looking into defect direction and better procedure methodological analysis. The standardised and customized could be handled individually and the production depending upon the precedence of the orders.
The engineering should concentrate on bettering in house techniques to better the mold designs and concentrate on decreased mass of lodging.
Keep the nucleus competency:
ACC has been able to tag its presence in customized connections and quality ( 4500 connections per annum ) . ACC has an advantage by over DJC as they will be new participant in the market without any anterior experience in customized connections even if DJC intends to open a works in US. DJC has no expertness in fabricating customized connections and besides has no gross revenues and publicity installations in the US market. Hence customized connection market will go the niche market for ACC.
Improved standard connection production:
The staying 85 % of the demand comes from standard connections. DJC is pioneer in fabricating standard connections. If DJC enters the US market and establishes its bridgehead with low cost and low faulty rate so it poses possible menace to ACC in footings of cost, efficiency in resource use and quality in footings of less faulty connections. Hence ACC should concentrate on
Reducing natural stuff wastage
Reducing indirect labor in stuff handling
Reducing faulty PPM
Bettering output rate to fit with DJC ( surplus of 99.99 % )
Improved program lay out
In house engineering development and R & A ; D
Reducing treating lead clip and work in procedure stock list ( 2 yearss for DJC and 10 yearss for ACC )
Better Quality and Inspection cheques:
DJC is runing with long production tallies ( mean one hebdomad production tally ) ensuing in decreased output and capacity losingss associated with conversions whereas ACC is runing with frequent alterations in the merchandise design to fulfill the 15 % clients, which is ensuing in low output rate every bit low as 55 % and besides increased defect rate.
Hence ACC should standardize the 85 % merchandise design with dedicated production lines and run with long production tallies which will better output rate ( up to 99.99 % ) and cut down rate of faulty ppm ( decreased natural stuff wastage, review adult male power salvaging ) .
Connector end product per employee at Sunnyvale ( ACC ) is merely 1.06 mn units per twelvemonth v/s 7.45 mn units per twelvemonth at Kawasaki ( DJC ) . On a closer expression at the labour usage, we observe that Sunnyvale employs a big figure of entire employees 396 but still produces lesser entire units. They should streamline the indirect labour cut downing the figure of Indirect Labor in Control, Material Handling and Mechanics ( Appendix 3 )