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The intent of this paper is to address an operational management situation regarding American
Connector Company (ACC) as they react to a competitor's announcement to build a major plant near
ACC's main manufacturing facility. In the following pages, we will address the context of the two
respective company backgrounds, strategic and financial elements of their operations, and a justification
for a recommended plan of action for the ACC's response to their competition.
American Connector Company (ACC) and DJC Corporation (DJC) were both second tier
competitors in the fragmented $16 billion electrical connector industry. ACC and DJC each maintained
distinct theories related to the roles of manufacturing within their respective corporations. DJC, a
Japanese corporation, relied heavily upon efficient manufacturing processes as the basis for their
competitive strategy and as the means to achieve their annual profit goals. ACC viewed their success as
dependent upon their ability to offer customized connector solutions and high end products. DJC recently
announced the construction of an US-based manufacturing facility located near ACC’s Sunnyvale, CA
facility. Faced with the threat of a highly efficient competitor launching a nearby production facility, ACC
must develop a plan of action to limit DJC’s intrusion into their established North American market.
DJC is easily perceived as the typical Japanese manufacturer when considering their core
principles. DJC’s corporate objective was profit maximization. High product quality was the prerequisite
for this and low production costs would deliver long term success. Initially, innovation in product
technology was bypassed and American made products, which were the most advanced in the world,
were copied. These American designs were adapted to fit the requirements of the Japanese markets and
to absorb the most value from high raw material costs in Japan. The marketing strategy of DJC hinged
on volume and standardization. To this end, DJC concentrated on refining their manufacturing process in
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Brant Allegretti, Kirk Blackwelder, Rick Calero,
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order to make it as efficient as possible. Even DJC’s leadership reporting structure was concentrated on
manufacturing, with the head of production reporting directly to the president of DJC.
DJC’s key to winning orders in the marketplace centered around price, delivery, speed, and
reliability. To this end DJC developed their Kawasaki facility in the face of increased labor and raw
material costs, a rising yen, and escalating import penetration. This new facility was designed to be “the
manufacturing segment was to be highly automated and continuously operating. Furthermore, three
goals were to be met: 1) 100% asset utilization, 2) 99% yield on raw material, and 3) a customer
satisfaction level of one complaint per million units of output. This high level of customer satisfaction is
the basis of Six Sigma methodology, which has its roots in Japanese manufacturing philosophy.
The Kawasaki facility offered several advantages in terms of its geographic location and workforce. The
facility was located near major Japanese electronics manufacturers and their source of raw material
suppliers. The draw of the nearby electronics manufacturers was the availability of a stable workforce of
and eliminated several non-critical design features. Even though raw material costs were nearly twice as
much as those of ACC, TDD’s measures reduced the cost of manufacturing to $14.89 per thousand units,
compared with ACC’s $11.49 per thousand units. Had Kawasaki mimicked ACC’s production methods,
design, and packaging, their costs would have been $20.90 per thousand units.
each producing four basic types of electrical connectors. ACC developed a reputation as a high quality
supplier and quality became the focal point of company pride. ACC’s products were recognized for their
superior design and performance, but it was their dedication to the customer that differentiated ACC from
their competitors. The company’s commitment to customization and technical solutions solidified their
reputation. ACC’s commitment to their customization strategy was considered an extension of its
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Brant Allegretti, Kirk Blackwelder, Rick Calero,
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emphasis on quality, beyond just meeting manufacturing specifications. ACC’s custom orders accounted
for 15% of their total production volume. These custom products were conceptualized through early
collaboration with their customer’s engineering divisions and through implementation, would eventually
ACC’s corporate objective was profit. They had historically been successful with margins
approaching 52%. Management realized they needed to compete globally to maintain future profitability,
so they subsequently invested several hundred million dollars in plants and equipment worldwide.
Increased competition and decreased demand eliminated the possibility of reaching profit goals. While
sales had grown from $252 million to $800 million between 1984 and 1991, margins had eroded from
52% to 43%.
Sunnyvale relied heavily up on a marketing strategy dedicated to a broad product range and
significant customization capability. Sunnyvale’s leadership understood that quality, technical support,
and design leadership was the key to winning orders in the marketplace. ACC’s Sunnyvale plant was
conceived in 1961 to serve the electronics industry of nearby Silicon Valley. ACC invested in the
expansion of production capacity when demand was forecasted to grow for sustained periods. The
depressed electronics market of the late 1980’s resulted in no capacity expansion or improvement of
production technology. The production equipment that had once made ACC the high technology leader in
the manufacture of electrical connectors was outdated. ACC became more concerned with current
financial returns than planning for future profits and was set to suffer the consequences of such action.
DJC Corporation, dedicated to process positioning and robust systems engineering, required that
the Kawasaki facility be highly automated. Particular emphasis was placed on what they termed “pre-
automation.” DJC’s belief was that a production process could only be fully automated following when the
process was fully understood and properly designed. They were concerned that automating a production
line too early might result in investing in an inefficient process. This pre-automation process helped
analyze process flows, worker movements, and raw material consumption. As a result, the warehouse
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facility was centrally located and intentionally right-sized, leaving no room for excess material or products.
Additionally, each production line was equipped with a dedicated injection mold press, and was a
DJC also believed it better to utilize an older, more established process, rather than implementing
newer unproven processes. Continuous improvement of existing processes was highly relied upon.
DJC also emphasized reliability of equipment and invested significantly in repair and maintenance to
ensure the most critical portions of the manufacturing process were well maintained. DJC staffed experts
in polymer physics and former employees of mold manufactures, and followed a strict process of mold
replacement and upgrades. This dedication to process reliability helped protect DJC from unexpected
down time and profit losses due to unexpected failures. Furthermore DJC developed in-house workshops
in their factories in order to protect proprietary processes, believing their competitive edge would be
DJC’s “Technology Development Division” coordinated the product planning session, materials
section, process engineering, and the molding technology group. It was TDD’s responsibility to make
certain these sections operated together in the achievement of efficient resource utilization, design quality
and manufacturability, smooth manufacturing introduction, shortened development cycle, and continuous
The remaining portions of the Kawasaki facility were sourcing, quality control, and production and
inventory control. Sourcing developed close relationships with material suppliers and insisted they meet
rigorous standards and frequent delivery. Quality control was tasked with improving product quality
control standards, improving the process inspection system, improving the precision of molded
components, improving the quality of product designs, and reducing the plant’s waste. Production and
inventory control’s responsibility was to minimize yield and capacity losses. DJC’s goal with respect to
their workforce was to gradually reduce direct production workers, support, and overhead staff. As the
processes matured and became more and more automated, fewer direct production workers would be
required.
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American Connector Company’s Sunnyvale facility was divided into five separate production
areas: terminal stamping and fabrication, terminal plating, plastic housing molding, assembly and testing,
and packaging. Typically, terminals were cut or stamped, then transported to a holding area to await
plating. Concurrently, the molding division fabricated the plastic housings, which were then shipped to
the work-in-process holding area to await plating of the terminals. Following plating, the batches of
housings and plated terminals were shipped to assembly, where most of the units were assembled
through an automated assembly process (10% of production we subjected to manual assembly). The
completed batches of connectors were then tested and sent to packaging. Packaging incorporated many
different methods, from a 10-piece bag to 1500-piece loaded reels. Furthermore, Sunnyvale’s
manufacturing was handicapped when production runs were slowed or stopped in order to inject a
When the market was good, growing sales allowed ACC to cover carrying costs of the finished
goods inventory. This work-in-process inventory also allowed ACC to react quickly to customer’s needs.
However, due to increased competition and a deflated market, ACC’s Production Control section was
maintained for an average of 38 days. As a result, various production scheduling methods were
implemented. Shorter production runs, while a simple alternative, impacted costs through decreased
utilization. ACC invested $500,000 in a new computer system and software to assist in production
scheduling.
ACC’s quality had declined over time with defect rates reaching as high as 26,000 per million
units produced. These defects did not typically reach the customers as in-house inspection processes
ensured these parts never left the facility. Statistical process control measures offered some progress,
but defect rates remained high. New products usually experienced yield rates as low as 55% as
production began, but typically improved to 98% following one year of production.
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Sunnyvale would be competing directly with Kawasaki’s high volume / low cost products and
faces the possibility of losing lower margin, price sensitive customers. A plant modeled on DJC’s
Kawasaki production facility has a tremendous manufacturing advantage over ACC’s Sunnyvale facility.
Kawasaki maintained a highly efficient, integrated production facility with meticulously maintained
equipment, a low workforce requirement, with fully implemented continuous improvement plans.
Furthermore, the Japanese manufacturing philosophy of one defect per million ensures customer
satisfaction.
ACC’s Sunnyvale facility and DJC’s Kawasaki facility are best summarized in the following table:
Sunnyvale Kawasaki
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Brant Allegretti, Kirk Blackwelder, Rick Calero,
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In order for American Connector Company Sunnyvale facility to compete with a locally
established DJC facility similar to Kawasaki, they should begin with a review of ACC Sunnyvale’s current
corporate objective of competing globally, increasing growth and maintaining profitability. With sales
growing from $252 million in 1984 to $800 million in 1991, but gross margins dropping from 52% to 43%
during the same period, we recommend ACC Sunnyvale revise their objective from simply maintaining
profitability, to focusing on profitability enhancement by increasing gross margins back to 52% within two
years.
situational analysis of product markets including a competitive review of the 1st tier, top ten worldwide
market leaders, accounting for $6.67 billion in sales, and also the other five 2nd tier of companies. In
addition, ACC Sunnyvale will estimate future volumes based on industry trends for the 15% custom order
segment and the 85% that comprises continuous batch orders and determine the order winning criteria for
each including product quality and reliability, delivery speed, and delivery reliability.
The actions Sunnyvale must undertake These actions may be categorized into five different
efforts: 1) product analysis, activity based costing, and pricing strategy; 2) production line optimization; 3)
staff.
ACC Sunnyvale should immediately implement an activity based costing system and an
aggressive pricing scheme. This first action will involve a thorough examination and measurement of the
current processes and their associated costs in order to determine minimum efficient batch sizes. This
data will permit surcharge pricing to be applied to special or custom orders and will outline a plan for
minimum order fees. Competitive pricing analysis combined with internal cost accounting will permit ACC
to determine which product lines are profitable at current volumes and will determine what customers are
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willing to pay. ACC’s connectors should be evaluated for any potential optimization as part of the cost
analysis. This analysis might uncover complex design features that may be removed or modified in order
The data gathered through cost and product analysis will allow for product line optimization. This
may lead to elimination of lower profit products which will further reduce SKU’s and the burden on
strained production resources. Following product line optimization, the processes may be reconfigured in
order to capitalize on efficient production. Sunnyvale should reconfigure their facility with a continuous
process batch production line to support non-custom orders and specialization cells to support custom
orders. The continuous batch orders account for 85% of Sunnyvale’s orders and improved efficiency in
production will improve product margins. Individual specialization cells will cater to Sunnyvale’s 15%
custom order business, for which higher premiums can be demanded. ACC will still be allowed to
concentrate on their customers who require specialized services, but in an even more profitable manner.
Inventory control measures must be implemented in order to control cost associated with raw material
and finished goods inventory, but should be coupled with optimization of the plant layout to ensure a
smooth material flow. This measure will improve margins on the traditionally low margin batch process.
The improvements realized through optimization of the product lines, production processes, and inventory
control will allow for opportunities to minimize indirect staff. ACC Sunnyvale should follow DJC
Kawasaki’s lead and further refine this process through scheduled reexamination of these steps. This
continuous improvement process will further improve efficiency and increase profit margins.