ACC has four plants in the U.S. and two in Europe, which produce four basic types of connectors and each service a particular segment by customization. The U.S. Sunnyvale plant in particular, utilizes 85% of its total capacity. However in 1991 the plant ran at a capacity of 70%. Keeping an excess of utilization however leads to higher costs. Products ACC really focuses on the quality and on offering a large variety of products. With salesmen who are also engineers, ACC works together with its customers to optimize customization. Within the Sunnyvale plant approximately 15% of the production is customized and the other 85% are standard designs. In order to produce high quality and innovative products the company invests vast amounts in high-end equipment and plants.
Production process Sunnyvale has a very flexible assembly and production process, which can be changed at the last minute. The ACC plant operates 120 hours a week. It has relatively long lead times and short production runs and a reasonable small finished goods inventory of 38 days. These features are typical for companies, which apply flexible and customized production. A disadvantage of the short production runs is that it takes more changeover time and thus leads to higher costs. The WIP inventory is rather high but it buys them the ability to quickly respond to unexpected orders.
Quality As mentioned before ACC wants to provide their customers with what they want. The quality of the connectors is based upon the specific needs of the customers. ACC often uses expensive materials in the production process of their connectors. They also have a very tight delivery system, which enables to company to deliver on time. Quality does come at a relatively high price as an extra quality check is set up in the end of the production lines to prevent faulty products to be sent to customers.
Organization
Like many American and European companies, ACC is an organization that does not primarily focuses on production. The real forces that drive ACC are marketing and engineering. The operations strategy of DJC The operations strategy of DJC is totally based on low-cost. Plants The DJC/ Kawasaki plant, located in Japan, produces approximately 800 million connectors per year. Although the company’s goal is to operate at 100% utilization, it ran at 85% utilization in 1991.
Products All the products of DJC are standardized. Although the connector live up to the needs of their customers, customization is almost impossible. A key issue in the total production process of DJC is simplicity. Simplicity enables a company to produce large volumes of products. This simplicity can be found back in their product-design and form, but also in their production processes. Production process The company relies on old reliable processes that have proven themselves in the past. The production processes are all synchronized and will not produce at maximum speed. An in-house technology development group controls the production process and makes sure that there is a high utilization, high raw material yield, and low product failure and defects.
The DJC plant runs 24-7 for about 330 days per year. Changes to the production schedule, such as for special orders, are not possible. The lead times are relatively short and the production runs are long. Quality The total production process of DJC is based on low defect rates. The company tries to optimize the yield of raw materials and reduce the number of effects almost down to zero.
Raw materials for example are delivered on a JIT- basis without even needing a quality check. This of course is only possible by establishing intensive relationships with the suppliers and setting up tight contracts. Organization DJC is a company with a pure focus on manufacturing. The manufacturing department does not have to justify its actions to other departments. Departments like sales and marketing are completely inferior to the manufacturing department.
Comparing the two operations strategies The American Connector Company has an operations strategy that emphasizes flexibility and customization. By being flexible and totally live up to de needs of their customers ACC sells more like a particular service than a product. ACC is totally customer focused and continues to meet the demands of the service customer by continuously innovating, increasing flexibility and consumer responsiveness. This process is a high cost situation but gives ACC a highly competitive edge. The customised product is clearly their competitive advantage of ACC. Unfortunately this is only 15% of their sales.
DJC has an operations strategy that is fully focused on reducing cost. By doing so DJC meets the demands of the mass production consumer in simple, reliable and efficient way. High utilization, long production runs, low cost raw materials, low product variety all lead to lower costs. Due to the focus on mass production, DJC is not flexible and less innovative.HBS case 9-693-035, America Connector Company (A), the 1986 figures have been compared with those of 1991 the relative difference have been calculated in percentages.
In line with its strategy we can see that DJC has clearly been working on achieving a cost reduction in its production process. It has applied several efficiency enlarging production processes that are shown in the decline of raw material usage and the enormous decline in labor costs (mostly due to automation). ACC still offers a lot of different packages, which can be seen in the rather small decline of Raw material cost.
The rise in labor costs at ACC is mainly due to the fact that few investments have been made in new machineries. Quoting Bob Williams, the director of production Engineering: “I know things have been tight the few last years, but I’m beginning to worry that some of our equipment is no longer leading edge stuff. In the past two years, some nifty new molding machines have hit the market, but our finance people won’t let us buy them. Over the long term, we’re really going to hurt ourselves if we don’t get more aggressive in procuring new equipment”. Wages have gone up but the efficiency of the machines remained the same therefore increasing the labor costs.
We can conclude from this that DJC has reached a far bigger efficiency with the strategy it applied. (C) What did DJC do to reduce cost? The DJC Corporation used various techniques to reduce cost; the major influences will be highlighted: The Strategy The overall goal of the DJC is focused at cost reduction, a former manager stated: “High quality and a low cost position is necessary for long-term success, this can be achieved by manufacturing excellence”
The DJC Corporation focuses on simplicity and manufacturability over innovation. Copying the improvements of the American products reduces research and Development costs (often referred to as straddling). The designs of the products were adapted to economize on raw materials and to simplify manufacturing (exhibit 3 in the case shows the specific reductions). The DJC Corporation also looked closely at the “value capturing” aspect of each individual product.
When features did not add perceived value to a customer they were not implemented. In order to focus on the Resources of the Company as the competitive advantage, the power between manufacturing and marketing/sales shifted to the manufacturing department. This reduced cost because now a tight production schedule, that yielded the maximum output with taking the constraints such as labor costs into account, was realized.
