19- 10- 2015

Introduction

American Connector Company

Electrical connector manufacturer

4 basic types
Chip to board connectors
Board to board connectors
Wire to board connectors
Wire to wire connectors
Competitive strategy:- high quality and customization
Companys products were recognize for superior design and performance and
provided excellent technical solution.
Very profitable, sustaining margins as high as 52%
Custom order made up 15% of the total production volume.

Connector industry in early 1990

Problem statement
American connector company was one of the leading connector supplier in US

In 1970 connector industry experienced rapid growth

market

Many firms increased their capacity to meet growing demand

DJC Corporation was one of the leading supplier of the connector in japan

In 1980 there were too many suppliers and too much capacity
But in 1990 , firm experienced downfall in sales, OEM had reduced their suppliers from
10 or 12 to 3 or 4.
Different industries were finding it difficult to meet increasing number of specification
In 1992, attempts were made to standardize product specification

$2.6 billion

Second tier

$0.5 to $0.8 billion

Third tier

$0.25 to $0.5 billion

Above

Above $0.1 billion

18

others

Remaining

1172

DJC were planning to attack US market, and were planning to build new plant in
the US.
This was main concern for the ACC , that if DJC come in to the American market
DJC will quickly grab some market share

Market condition
AMC

DJC were having one of the most efficient connector plants in the world

Profile of DJC corporation

Market share
AMP, Inc
16%

others
42%

Above
$100
million
11%

second
tier(AMC
& DJC)
25%
Third tier
6%

Order winner:- cost

Close link with major OEMs in japan
Emphasize on simplicity and manufacturability over innovation, this resulted in to
production process became the basis for competition
Initially DJC s design strategy was to copy US made connectors
In later phase they evolved their designs according to consumer and user needs
that suited Japanese market
Design to economise on raw material
Non value adding processes were removed such as colour coded housings
Sales/marketing had little power to alter production schedule and lead time
which reflects more emphasis on manufacturing
Organisation structure of the company also reflected the importance of the
manufacturing

19- 10- 2015

The Kawasaki plant of DJC

Shrink in gross margin in 1980s due to

Increased labour cost

Raw material cost
Rising yen
Increased import penetration

In order to remain competitive Mr.Esaka devised a vision based on rational of the mass
production

100% asset utilisation

99% raw material yield
Six sigma quality level

To fulfil above goals kawasaki plant was established

Reasons for selection of kawasaki as location

Proximity to the customers

Proximity to major raw material supplier
Availability of young and highly skilled workers

The Kawasaki plant of DJC

Workforce/HR
Emphasize on less number of direct workers and less number of
overhead staff as well
High skills/multiskill and aptitude
Workers were having cross functional responsibilities
Job rotation system to broaden their skill base
More wages to newly joined graduates but increment rate was too
slow in terms of wages. That s why workers used to leave company
after particular period
Rating=3

The Kawasaki plant of DJC

Sourcing

Close relationship with the suppliers

Partial vertical integration
Less number of suppliers
Suppliers were certified and had to meet rigorous quality standards
Quality was considered a joint effort between the kawasaki and suppliers
Kawasaki used to provide technical support to suppliers
Frequent delivery- daily and weekly basis based on the material
5 days raw material inventory- due to low raw material inventory warehouse
were small and less amount of resources were used
JIT deliveries
Rating=4

The Kawasaki plant of DJC

Capacity:- 800 million connectors per year
24 hours Working, 7 days a week, 330 days

facilities

Focus on automation and manufacturability

4 large cell, each dedicated for production of one type of connector
Plating was separated due to its high fixed cost and to protect rest of the factory
from corrosion and pollution
Each cell consisting of 2 to 6 production line consisting of terminal stamping,
housing moulding, assembling and packaging
Machine were arranged to minimize material handling
Machines were synchronized to reduce WIP
Completely Automated assembly operation
Delivery to customer:- daily basis, for some big customer even hourly basis
Rating=4

The Kawasaki plant of DJC

Organisation structure
Esaka(president) used to set the goals, but managers were completely
free to pursue those goals in any way
Decentralised structure
Emphasize on manufacturing division
32% indirect workers and all were in technology development division
Importance to line staff, responsible for all activities and material flow
No expeditors
Rating=4

The Kawasaki plant of DJC

Product technology: Product were designed to easily manufacture with less material
Products were standardize to reduce number of SKUs to 640
Cheaper raw material (tin instead of gold)used without affecting
functionality
Innovative packaging was used which simplified production, reduced
cost and were well suited to customers with automated production
Value engineering was carried out to identify and implement cost
saving design

19- 10- 2015

The Kawasaki plant of DJC

Process technology:- followed 4 basic principals
1.Preautomation

To make the production process suitable of highly reliable automation

Preautomation was carried out to remove inherent inefficiencies before actual automation could be
carried out
Work study and motion study was carried out to make processes more efficient
Warehouse was centrally located to economize on space and capacity of warehouse was
intentionally limited so that there should be less raw material inventory and WIP

2. Better to use an old reliable process than a new less reliable one.

Process technology
5.Interfunctional coordination of all technological development activities
Plants technological development division was responsible for coordinate and
manage with all the activities involved in manufacturing
Aim was:

Reliable process technology to keep the process running slowly without inventory on continuous
basis
Machines were generally operated below maximum speed so as to eliminated unschedu led down
time.

3. Emphasize on upstream moulding process as it was critical part of manufacturing

processes
4.Reliance on in-house technology development

The Kawasaki plant of DJC

Technology would be limited if it relied too much on the equipment vendors

ACC didnt develop their assembly machines for themselves
But kawasaki goal was to eventually build in 100% of its mould in house

to reduce material cost and improve production process

Efficient resource utilisation
Shorter development cycle
Smooth manufacturing introduction
Continuous process equipment

Kawasaki s processing lead time and WIP inventory each averaged 2 days
Less WIP, but relatively high finished good inventory of 56 days
Rating=4

The Kawasaki plant of DJC

Manufacturing capability

Production planning and control

Production runs were scheduled long to minimize yield and capacity
losses
Pull production system
Long runs possible due to limited number SKUs
Plant had complete control over its production schedule and mix and
refuse to make changes for unplanned orders
MRP technique to plan long term material requirement
Rating=4

Sunnyvale plant

Manufacturing capability of the Kawasaki plant

Manufacturing levers

Rating

HR

Organisation Structure

Sourcing

Production Planning
And Control

Process Technology

Facilities

Average

3.8

The sunnyvale plant produced the four major types of connectors used in
computers
Telecommunications equipment and
scientific instruments
4 5 0 0 s ku

Production areas

Terminal
stamping and
fabrication

Terminal
plating

Plastic
housing
molding

Assembly and
t e s t i ng

Packing

Thus from the rating we can say that manufacturing capability of the Kawasaki plant is
near about word class

19- 10- 2015

Journey of Sunnyvale plant

PPC
Production control Departmentaggregate planning and master schedule based on marketing forecast
PCD set annual production schedule which specified monthly production
targets
Frozen period 30 days
But schedule was routinely changed to accommodate rush orders and request
from important customers.
Marketing dominated over manufacturing resulting in frequent disruptions in
the production schedules which resulted into lower machine utilization
As a result the level of WIP increased
Expediting has become important task
Invested $500000 in software to relieve stress on control staff

It started with leased plant in 1961 with capacity of million connectors per year
In 1963 operations moved to new plant
Capacity expanded several times to accommodate the growing demand
Last major expansion in 1986 with 600 million parts per year
Capacity was increased with anticipation of demand growth and 85% utilization
Plant losing technology leadership due to non availability of funds to invest into upgrading
technology

UTILIZATION OF THE
PLANT

S KU

utilization
50

70

5000
0

85

3000 3500 4500

1984 1986 1991
SKU

42

65

1984

1991

control staff

Effect on ACC due to DJC

Quality
26000 defects per million
High % defects were attributed to complex pin configurations and extremely high
tolerances

c o n t ro l s ta f f
100
0

The threat of DJC to American Connector Company is very high following are the
reasons:
If DJC sets up manufacturing base in USA, as per the exhibit 7 and exhibit 8 the raw
material cost for DJC in USA will drastically reduce. Current Raw material product
and packaging cost is 14.89 which will reduce to 8.93 in USA.As the raw material
cost is almost half of the total finished goods cost, the raw material cost reduction
would be substantial.
As Sunnyvales defect rates are at 26000 PPM of production which is relatively
high. The Quality control of DJC is process centric where each process is QC
monitored unlike in Sunnyvale its end product inspection. The quality losses of
DJC and ACC over total production are 0.7% and 1.6%. So, Quality is one grey zone
which needs to be addressed by ACC

Effect on ACC due to DJC

Effect on ACC due to DJC

Work in process inventory cost is very high in case of ACC in comparison to DJC. This in
turn is reduces connector output per square foot as extra space is required for WIP and
finished goods(15.1 of Kawasaki VS. 10.9 of Sunnyvale).
As Kawasaki plant is working for 24hrs/day thus the asset utilisation is maximum and
Connector output per employee is very high. (75.4% of Kawasaki VS. 30.2% of
Sunnyvale)
Due to high number of product variations in customer orders of Sunnyvale which is
employing batch production system there is frequent changes in product
manufacturing lines thus resulting in lower efficiency which could be obtained in case of
standardised products.(Product lines were as small as 1.5 to 2 days)
The raw material inventories of DJC is averaging only 5 days as compared to 10.8 days of
ACC. So, DJC is incurring less Inventory cost which again reduces finished good cost.

19- 10- 2015

Effect on ACC due to DJC

The speed of customer order delivery of DJC is one day (because of highly
automated production process at Kawasaki plant) whereas the speed of customer
order delivery of ACC is more than one day (because of batch production process
producing about 4,500 varieties of connectors).
The Only positive point which ACC has over DJC is:- 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.

Cost differences between DJC s plant and American

Connector s Sunnyvale plant
a) Raw Material: Current raw material cost for product and packaging in Kawasaki
plant is relatively high in comparison to ACC Sunnyvales 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).
b) Packaging Cost: In comparison to Sunnyvale, the packaging cost of Kawasaki plant is
lower due to adaptability of standardised product packaging technology.
c) Labour Cost :As the WIP and finished goods inventory is high in ACC Sunnyvale plant
in comparison to Kawasaki plant the manpower required to handle this excess
inventory space is also increased thereby increasi ng the complexity of the plant
environment and labour cost.(Material handling cost of Kawasaki 3.2% v/s 10.4% of
Sunnyvale).
d) Electricity Cost: In comparison to Sunnyvales plant the electricity cost of production
is higher for Kawasaki as electricity cost indices of US v/s Japan is 0.8: 1.

What steps ACC should take??

American connector management should look into the below points of consideration for
increase in productivity
Cost control measures needs to be taken for the ACC current operations, as the same
has been increasing and the quality control figures are going down.
Quality control issues of high defect rate (26,000 in a million) implies imperfections in
the batch processing at Sunnyvale. It implies that there is quality control inspection
required at each process level unlike the current practice of end product inspection
ACC need to line up the facility layout and minimize inventory holding costs. It needs to
follow pull strategy for of raw materials in production line.
ACC needs to control processing lead time from 10 days to a substantial extent so that it
order management will be easier and less finished product inventory pile up.

What steps ACC should take??

Product design innovations which will not allow reverse engineering of product by
competitors to a greater level.
As ACC was having both standardize and custom products, ACC can set separate
production lines for each as competitive strategy for both is different.
Improving the compactness of the connectors will bring some competitive advantage.
There is requirement of in-house R&D to develop technical innovations for production
process. It would help in developing in-house machinery to have a technological edge
over competitors.
ACC organizational hierarchy was more inclined towards marketing and engineering
teams and lesser stress on production team which was different in case of DJC which
had equal stress on the production team this was a motivational factor for increase in
productivity at DJC.ACC needs to follow similar model for operations set up in the
organisation to promote production oriented structure and greater balance.
ACC needs to decrease mould recycling time. This will save time.