American connector co.

(A)
Electrical Connectors
Product-market-technology characteristics:
volume: med-high
value: low-med
functionality: critical
variety: med-high (in every electrical/electronic device)
PLC stage: mature
competition: high
technology: low-med capital intensive

American connector co. (A)

Competitive dimensions:
cost
quality (size, weight, reliability, etc)
delivery

American connector co. (A)

ACC
1. Among top 10
2. Serves computer, telecom,
scientific instrument industries
3. Gr.margin dropped to 43% by
4. Strategy: offer broad variety,
including customized products;
emphasize flexibility

DJC
Among top 10
Serves computer, telecom,
consumer elec. Industries
Gr.margin stable at 50%
Strategy: low cost producer;
narrow range of high vol.
connectors

Historically, the two cos. were separated by geographical

mkt focus as well as strategic mkt position

American connector co. (A)

Terminal st.
& fabrication

Terminal
plating

Housing
molding

Assy &
testing

ACCs Sunnyvale plant

Packaging

American connector co. (A)

Terminal
plating
Terminal st.
& fabrication

Housing
molding

Assy &
testing

DJCs Kawasaki plant

Packaging

American connector co. (A)

Cost item
r/m product
r/m packg
labor
electricity
depreciation
other (OH)

Change in 6 years
DJC
ACC
0.85
0.90
0.84
0.93
0.38
1.21
0.57
0.44
0.24
0.92
1.03
1.38

Product Automation; High

design
Multi-fn. trg. capacity
changes
utilzn.

More admin.
& coord.

Cost ($/000units): DJC: 20.2; ACC: 33.8

Share in late 90s

DJC
ACC
36%
28%
8%
6%
20%
30%
6%
2%
9%
15%
21%
18%
More
SKUs

American connector co. (A)

Trade-offs involved:

capital cost v/s running cost

capital cost v/s WIP holding cost
capital cost v/s cost of coordination, control, OH
process engg. cost v/s maintenance cost
process engg. cost v/s r/m cost
product engg. cost v/s manufacturing cost
f/g cost v/s wip cost
f/g cost v/s cost of unreliable delivery
capacity (cushion) cost v/s cost of unreliable delivery

American connector co. (A)

Trade-offs involved (continued):

supplier development cost v/s cost of delay, r/m quality

in-house mfg of key equipment v/s risk of competition
capacity thru improvement v/s capacity thru addition
risk of losing customers due to standardizn. v/s cost of
customization

American connector co. (A)

DJC vs. ACC
DJC has lower costs, and has demonstrated the
ability to reduce costs over time
Potential sources of cost differentials:
Utilization-driven cost differences
Differences inherent in each firms strategy
Differences in operating effectiveness/efficiency

American connector co. (A)

Utilization cost differences
Current output ( Million $):
420 (ACC)

700 (DJC)

Desired (rated) output ( Million $):

600 (ACC)

800 (DJC)

Depreciation rate at current capacity utilization ($/000 units):

5.10 (ACC)

1.80 (DJC)

Depreciation rate at desired capacity utilization ($/000 units):

4.20 (ACC)

1.58 (DJC)

Only a small difference costs are due to utilization

American connector co. (A)

Cost differences due to operations strategy
Area

DJC

ACC

orgn structure
layout
product engg.

mfg centered
product-focused
standardization,
r/m cost, DFM
reduce matl.flow,
incre.improvemnt,
new process pre-auto
low defect rate
long runs, short LT,
JIT+MRP, hi f/g invy
high utilization,
improvement
hi worker pdy,
less indirect labor

mktg & engg centered

process-focused
variety (15% customized)

process engg.

quality
PPC
capacity
workforce

process-wise,
radical innovation,
new process has low yield
conf.to customer, inspection
short runs, long LT, MRP,
non-synchr., small f/g invy
maintains excess capacity,
addition
lo worker pdy,
more indirect labor

American connector co. (A)

Comparison of operations tasks:

DJC
ACC
minimize running cost,
increase scale,
process engg.-driven quality,
improvement led innovation,
minimize lead time,
improve on-time delivery

minimize initial investment cost(?),

inspection & PPC driven quality,
customized quality,
tech.acquisition led innovation,
PPC, FG/WIP driven delivery,
plan for variety

American connector co. (A)

Cost differences due to operations strategy
Item

DJC

Competitive
priorities

Low cost

Hi flexibility

Less innovative

Cust. responsiveness

Less flexible

Higher costs

$ 52.20

$ 59.28

Avg selling price

ACC

ACC
Cost
DJC
Flexibility

American connector co. (A)

Cost differences due to operating effectiveness

ACC
Strategy related gap
Cost
DJC1
Efficiency gap
DJC2
Flexibility

American connector co. (A)

Cost differences due to operating effectiveness
Material cost differences:
Efficiency related: mold design ($0.21) + less expensive resin ($0.48)
+ less mass of housing ($0.18) + less waste ($1.05) = $1.92
Strategy related: tin plating ($3.50) + 2000 piece reel ($0.59) = $4.09

Labor cost differences:

Labor cost difference, adjusting for US operations: $6.15
Labor cost difference, assuming ACC can operate full capacity
without additional labor (42% increase in labor pdy): $3.02

Fixed cost differences:

ACCs underutilization due to inefficiency: unplan.downtime (23.5) +
process fail.(8.9) + prev.maint.(2.4) + quality loss (1.6) = 36.5%
ACCs underutilization due to strategy: plant not operating (28.6) +
process changeovers (4.8) = 33.4%
ACC is forfeiting a lot of efficiency by serving commodity mkt
via an operations strategy developed for customized mkt

Lets fit ACC & DJC in Top-Down Fit Framework

KPI or Ops Task

Priority of KPI

Sub-KPI Element

Capacity

Production
system
Workforce

Marketing / sales
Product Design &
Technology

Cost

Quality

Delivery

Customization

High (OW)

Functional (OQ)

High (OW)

High for specialized

needs;
Low for rest

R/M cost;
Fixed opn. Cost;
Inventory cost

Process quality
(adherence)

Mfg+proc lead
time;
Inventory

Variety;
New designs

ACC
KPI or Ops
Task

Cost

Quality

Delivery

Customization

High (OW)

Functional (OQ)

High (OW)

High for
specialized needs;
Low for rest

Sub-KPI Element

R/M cost;
Fixed opn. Cost;
Inventory cost

Process quality
(adherence)

Mfg+proc lead time;

Inventory

Variety;
New designs

Capacity

(-)

FG inventory (?)

High cushion (+)

Production
system

(-)

Inspection (?)

MRP (-) (inadequate)

Process layout (+)

Small lots (+)

Marketing /
sales

(-)

(?)

(?)

Dictates prodn &

design variety
(+)

Product Design
& Technology

(-)

Features (?)

Priority of KPI

Design for
marketing (+)

DJC
KPI or Ops
Task
Priority of KPI

Sub-KPI
Element

Cost

Quality

Delivery

Customization

High (OW)

Functional
(OQ)

High (OW)

High for
specialized needs;
Low for rest

R/M cost;
Fixed opn. Cost;
Inventory cost

Process quality
(adherence)

Mfg+proc lead time;

Inventory

Variety;
New designs

Low FG inventory (+)

(-)

Capacity

Low cushion (+)

Low FG inventory (+)

Production
system

Product layout (+)

Large lots (+)
Automation (+)
Low WIP inventory (+)

Standard &
automated
process (+)

Product layout (+)

Low WIP inventory (+)
JIT + MRP (+)

(-)

Marketing /
sales

Low SKU range (+)

(+)

Std. distribution
system (+)

(-)

Product Design
& Technology

Design for mfg. &

procurement (+)

Design driven
quality (+)

(+)

(-)

American connector co. (A)

Options for ACC
I.

No major structural changes; Improve efficiency

slightly to reduce costs
* Is the customized service niche going to thrive?
* How easily can DJC enter this niche?

II.

Adopt DJC model

* Are connectors becoming commodities?
* Is price increasingly becoming the order winner?
* How fast can ACC shift to this strategy?

III. Change to Hybrid model

* How fast can ACC shift to a dual-focused strategy?

American connector co. (A)

Some lessons

Benchmarking competition requires comparison of changes

in performance measures, distinguishing between strategyrelated and efficiency-related differences, and controlling
for strategy-related differences

Different product-market characteristics require different

competitive and operational strategies (Focus), though this
comes at a cost

Alignment of operations systems & practices to operations

strategy must be visible in all areas of operations

Sustaining operations improvements and building

capabilities is a different ballgame, though an integral
agenda of operations strategy