Case write up: American Connector Company (A)

Submitted to
Prof. Janat Shah
In partial fulfillment of the requirements of the course
Operations Management

By
Group B2
Bhumika Patil (166034)
Devanshu Verma (166044)
Hitesh Tejwani (166054)
Nidhi Parmar (166091)
Raviraj Jain (166131)

On
08-12-2016
Question 1: How serious is the threat of DJC to American Connector Company?
Answer: The cost for making 1000 units of a standard chip to board connectors for ACC
Sunnyvale plant is $33.79, while for the same output DJC will incur only $20.24 if they were
to manufacture in the USA. In 1991 Kawasaki incurs $26.10 at Kawasaki plant but they will
save their costs on raw materials, product and packaging when they operate from the USA.
This benefit of the cost would enable DJC to compete at low cost and hence in a declining
American market; it could possess a serious threat to ACC, especially those customers who
demand standard products would prefer DJC product because of low cost. ACCs strategy of
a wide range of products and customization would enable them to retain those customers who
demand customise connectors. But low lead times, large inventory model and continuous
production flow of DJC would allow them to deliver products at a faster rate which is also a
huge advantage in a very competitive market. Hence taking in account all the factors, DJC
could prove a serious threat to ACC's market.

Question 2: How big are the cost differences between serious DJCs plant and American
Connector's Sunnyvale plant? Consider both DJC's performance in Kawasaki and its
potential in the US?
Answer: In 1991, the total cost for manufacturing 1000 units of a standard chip-to- board
connector in the Sunnyvale plant of American Connector Company is $33.79 for the same
production in Kawasaki plant of DJC, the total cost is $26.10. But if we consider the cost for
DJC if the plant is operating in the United States, the cost reduces to $20.24, because raw
materials packaging and product cost 40% less in the US when compared to Japan and other
expenses are more or less similar. This means that if DJC were to set up a plant in the United
States, to compete in the American market, its cost of production would be relatively much
less than ACC's Sunnyvale facility.

Question 3: What accounts for these differences? How much of the differences are
inherent in the way each of the companies competes? How much is due strictly to
differences in the efficiency of the operations?
Answer: Due to the efficiency of operations- From the data given in Exhibit 3 of the case, it
can be seen that DJC saves $0.21 in mould casting, $0.48 by using less expensive resin, $0.18
on the mass of housing, $1.05 on waste reduction, $3.50 on tin plating. All these costs save
due to mould design, reduced mass of housing and waste reduction is purely on account of
operating efficiencies of the different plants. From Exhibit 6, it can be seen that DJC has
higher connector output per square foot of map space and higher connector output per
employee, both leading to cost reduction. Both of these differences are on account of
operational efficiency of the two plants. Regarding fixed asset utilisation, the Sunnyvale plant
doesn't operate for 28.8% of the operating year (a working year is considered of 350 days,
which each day having 24 hours), while the Kawasaki plant doesn't operate for 5.7% of the
year. This difference of 23.1% is due to Sunnyvale plant operating for five days a week,
while Kawasaki plant works for seven days a week and is shut down for only 20 days per
working year for annual maintenance. Hence this difference can be taken in the account of
operational efficiency. The non-utilization and therefore, the cost differences due to process
failure, preventive maintenance, and quality losses can be taken on the account operational
efficiency.

Due to the difference in strategies- The 0.59 $ saved by using 2000 piece reel is on account
of inherent ways in which companies compete. The cost saved by using less expensive resin
and tin plating is a result of both, the operating efficiency and the ways in which companies
compete, because, these affect the quality of the product to some extent, but also reflect the
innovation in process and design which allowed DJC to use less expensive raw material. The
non-scheduled operation for Kawasaki plant is 13.2%, whereas, for Sunnyvale plant, it is
23.5%, which is majorly due to the ways in which the companies compete. While the non-
utilization due to process changeover is due to the way in which companies compete.

Question 4: What should American Connectors Management at the Sunnyvale plant

do?
Answer: Since there is a difference in the business strategy of both the companies and type
of customer demands they both cater to are also different, ACC should not change their
strategy of providing variety and customization to its customers, so as to maintain its
competitive advantage over other manufacturers. While to compete with the potential threat
of DJC it should work on improving operational efficiencies of their plant. Waste reduction
and innovative measures like decreasing weight of mould casing should be adopted by ACC
to reduce their costs. Cost reduction will enable them to remain competitive in the American
market even if DJC starts their plant in the USA.