Q1 How serious is the threat of DJC to American Connector Company?

Ans: DJC viewed highly competitive manufacturing as absolutely critical to its competitive
strategy.
Utilization: This plant worked for 24 hrs/ day, 7 days / week and 350 days in a year. Due to this,
the plant was on path to achieve an asset utilization of 100%. The yield on raw material would
reach 99% and customer complaints were expected not to exceed 1 per million units of output.
These approaches, if successful would make the new DJC plant quite competitive to ACCs
Sunnyvale plant.
Organised Layout: The plant layout at Kawasaki plant was organised into 4 large cells and each
cell contained two to six production lines. Each line consisting of terminal stamping, housing
moulding, assembly and packaging.
The lines were located close to one another and in a straight line in order to minimize material
handling steps and to reduce the distance work in process had to travel. Plating process was
organised separately in order to utilize high fix cost equipment and to protect the rest of factory
from corrosion. The Kawasaki plant delivered shipments to its customers on daily basis and
sometimes even within few hours.
Cost Saving Strategies: Designers preferred to use tin in place of Gold to simplify production
and reduce costs. Man other cost saving strategies were also used such as change in mold design,
less expensive resin, and waste reduction to name a few. The objective was to make the
production cost effective.
Pre Automation: as most of the process was automated, manual intervention reduced to a great
extent. The assembly lines were also automated and this made it possible for one operator to run
two assembly lines. Kawasaki people relied more on continuous improvement rather than taking
chances with new technology.
Lead Time: Kawasakis processing lead times and work in process averaged two days compared
to Sunnyvales 10 days.

Capacity: The capacity of Sunnyvale plant was 600 million units per year whereas the capacity
of Kawasaki plant was 800 million units per year.
Investment in Technology: The Sunnyvale plant had no plans to invest in new technology as
they were saving money due to slowed growth demand.
SKU: The Sunnyvale plant produced approximately 4500 different models whereas the
Kawasaki plant based on continuous improvement plan was trying to reduce its SKUs to 640.
Preference to Manufacturing: The head of Operations Mr. Okada always gave preference to
Manufacturing over sales/marketing divisions.

Calculating the cost figures if DJC sets up its plant in Sunnyvale, USA.
DJC/Kawasaki

ACC/Sunnyvale

DJC/Sunnyvale

Raw

1991
Material, 12.13

1991
9.39

1991
7.278

Product
Raw

Material, 2.76

2.10

1.656

10.3
0.8
5.1
6.1
33.79

3.322
0.825
4.147
1.12
1.8
4.24
20.241

Packaging
Labor, Direct
Labor, Indirect
Total Labor
Electricity
Depreciation
Other
Total

3.02
0.75
3.77
1.4
1.8
4.24
26.10

1. Raw Material (product and packaging): As mentioned in the case, since 1980s, cost of
raw materials has always been relatively higher in Japan than US market. From the data,
Current cost of raw materials in DJC/Kawasaki (12.13) is higher than the cost of raw
materials in ACC/Sunnyvale (9.39).
With DJC, setting up plant in US, costs would come down to 7.728 and would give cost
advantage to DJC.
Same theory is applicable for packaging raw materials.

2. Labor Costs (Direct and Indirect): Kawasaki has limited number of SKUs and hence
using long production runs. All aspects of Kawasakis process and plant layout is
designed to achieve minimum WIP inventory. And hence fewer resources are required to
handle fewer WIPs resulting in lower labor costs as compared to Sunnyvale, US.
3. Electricity Costs: Per unit electricity costs are higher in Japan as compared to US. Hence
shifting operations to US would lower costs for DJC.
To conclude, costs of manufacturing for DJC in US are much lower than their cost of operations
in US. Also they have lower costs than Sunnyvale, US plant.

3.

What accounts for these differences? How much of the differences are inherent in

the way each of the companies compete? How much is due strictly to differences in the
efficiency of the operations?

Reasons for Cost Differences

1

Design changes: Kawasaki Plant did many design changes as compared to Sunnyvale
that resulted in Material cost savings. Mold design change, Use of less expensive Resin,
Reduced mass of Housing, waste reduction, increased usage of Tin plating, increased

Reel size to 2000 piece were few changes incorporated by Kawasaki.

Labor Usage: Kawasaki had nearly 1/4th the employee strength as compared to
Sunnydale. Since the Kawasaki plant was mainly automated, the number of workers as
well as support and overhead staff was less. On the contrary since Sunnydale was focused
more on customization strategy and thus the number of employees hired were more

leading to higher costs.

Raw Materials Cost: In Japan the raw materials was approximately double to that in

USA and thus created a cost difference.

Production Process: Kawasaki plant had a continuous production process and thus
eliminating the cost incurred due to yield or capacity losses. Production runs were

scheduled to be as long as possible and no unplanned orders were considered. On the

5

contrary Sunnydale offered customized products.

WIP and SKUs: Sunnydale produced about 4500 different models and also kept high
WIP in order to respond quickly to unexpected orders. While Kawasaki produced only
460 SKUs and does not allow any alteration to production schedules, product mix or lead

times.
Inventory: Sunnydale kept a finished goods inventory of 38 days while for Kawasaki it
was only 5 days. Kawasaki also had close relationships with its suppliers and the plant

was located close to suppliers and distributors.

Production Schedule: Sunnydale had a production schedule which was frozen thirty

days in advance while Kawasaki plant worked with just in time delivery.
Process Technology: Sunnydale focused more on technology and invested in it to
improve quality or productivity while Kawasaki emphasized more on simplicity and

manufacturability over innovation.

Quality Standard: Defect rates were relatively high at Sunnydale, about 26000per
million units of production while at Kawasaki the allowable defects were only 1 per

million units of output.

10 Plant Layout: At Kawasaki plant the plating was organized separately to minimize costs
while at Sunnydale there was a holding area where terminals were held until they were
ready for plating.
Both the companies have their own unique approach of production and also each have different
parameters to customer satisfaction. Where Kawasaki Plant is more focused on
manufacturability, Sunnydale plant is more inclined towards customization and efficiency. The
companies are competing on the parameters of technology, cost and Quality. Considering the
importance of each factor every plant has its own process.
The Operating efficiency of Sunnydale is poor when compared to Kawasaki. Sunnydale allows
higher defects and longer lead times. The production schedule is very flexible and high Inventory
and WIP is kept. All these lead to reduced efficiencies and thus impact productivity of a plant.

Q4. What should American Connectors management at the Sunnyvale plant do?

Answer
The Sunnyvale Plant needs a series of improvements steps to be taken irrespective of the fact
whether DJC sets up the manufacturing unit in USA or not. Some recommendations for the
Sunnyvale plant are as follows:

Implementing theory of constraints would be a good start.

The higher management seems to be unaware of the bottlenecks and the system

constraints. Due to which high levels of WIP inventory is causing high costs.
The plant operates only for 5 days a week and for 50 weeks a year, once the systems
constraints are identified, they should start operating on weekends as well for maximum

exploitation of the constraints.

Currently there is a system of quality control & inspection (identification of defects) but
there is no system of quality assurance (prevention of defects). Management at Sunnyvale

should focus on minimizing the quality defects, through TQM tools and innovations.
Also, the quality inspection should be done before the bottleneck workstation so as to

prevent the bottleneck from working on defective pieces and thus increase its utilization.
Currently the higher management measures productivity through individual system
utilization, instead they should focus on the utilization levels of the bottleneck. This is

also resulting in creation of high piles of WIP inventory

Focus on innovative methods to reduce the number of SKUs. Standardizing SKUs
through innovation (Just like DJCs Kawasaki Plant) would help reduce the setup times,

inventory levels and thus reduce the overall production costs a lot.
The production schedules should not be tampered with; currently management believes
that flexibility is a good thing. But there should be a statistical and financial analysis of
this perception. Frequent expediting for certain orders increases the number of setups,
thus delaying other orders which lead to increase in overall lead times and decrease in

system output. Sunnyvale plant should strictly follow the production schedules.
Other cost cutting innovations like eliminating product design features which used
materials but were not adding value to the consumers, and reducing other wastages ( just
like DJCs Kawasaki plant) can be applied in Sunnyvale plant.