American Connector Company

Competitive advantage from operations

Q1
DJC poses a very serious risk to a substantial part of ACC production.
Eighty-five percent of Sunnyvales production depends on the four major types of connectors used
in computers that DJC produces in Kawasaki plant.
This is the space in which DJC excels and leads through a cost-leadership strategy. Further, DJCs
relentless focus on streamlining its operation along Lean principles has led to a sustained
competitive advantage based on proprietary improvements to the process. Examples of these
include:
Continuous production & long runs
Elimination of non-value added part in
product.
JIT inbound and outbound logistics
Continuous improvement in product
technology and process technology.
Pre-automation.

Relatively high labour stability with
cross-training.
Empowerment of the labor force.
Use of reliable and old process to keep
the process running smoothly.
Low variety.
Further, by focusing on maintaining old equipment and tweaking the process in house, it also gains a
substantial reduction in its cost of fixed capital.
On the other hand, ACC has serious issues in terms of process and material costs. Even though
ACC manufactures high quality, its process suffers from severe flaws; high WIP, high lead time,
small production runs, low utilization, high overhead costs, and high variety (4500 SKUs) due to
custom manufacturing. ACCs products also features high material costs because the design of its
products uses expensive materials.
If DJC enters the US market, ACC will suffer from margin squeezing because of higher costs and
collapsing sales.
Q2
See Q3
* Hypothetical cost simply adjusted for cost factor differences between countries, and assuming that
depreciation would remain flat.
This total cost tells that DJC in the US would have a cost advantage of ~40%.
Q3
There is also a substantial difference in effective utilization which we suspect is due at least to some extent
inherent in the differences between the generic strategies of each firm. The Sunnydale facility is trying to be
all things to all people and this leads to a substantially less competitive cost across the board.


JN1991 ACC1991 HYPO % OF TOTAL COST SAVE
MATERIALS 14.89 11.49 8.934 -19%
TOTAL LABOR 3.77 10.3 4.147 -45%
ELECTRICITY 1.4 0.8 1.12 2%
DEPRECIATION 1.8 5.1 1.8 -24%
OTHER 4.24 6.1 4.24 -14%
TOTAL 26.1 33.79 20.241 -100%

Accounting for 19 % variance in materials

Accounting for 45 % variance in labour
Labour K. Sun. K. US rates S. $ % of labour
Control 12% 17% 0.25 1.42 1.18 23%
Technology Development 13% 7% 0.27 0.58 0.31 6%
Materials Handling 3% 10% 0.07 0.89 0.82 16%
Mechanics 4% 12% 0.09 1.02 0.93 18%
Direct Labor (Production) 68% 54% 2.75 4.61 1.86 36%
Q4
Product Re-engineering
58% Tin Plating
3% Housing Mass
8% Less expensive Resein
Packagining Improvements 10% Reels 2000
Process Improvement
3% Mold Design
17% Waste Reduction
The core problem is that there are external cost products on a single facility which is pursuing two distinct
and antagonizing strategies at the same time. Our recommendation would be to re-focus the entire facility on
rush order and custom orders. Also, it makes sense to invest in bleeding edge technology and design &
engineering capabilities. It would be very difficult to refocus the entire facility on a cost leadership strategy
when it is 5 years behind. From a VCAP perspective, the value proposition would be (custom engineering +
short run production), the capabilities are already in place, the physical assets under an innovation leadership
strategy are quickly turned over, and the human capital is already in place. Finally, the processes of the firm
will need to be rebuilt around a new value proposition.
Variability
Flow
Job Shop
FIT