Executive Summary: To enhance the global competitiveness of American Connector Company’s Sunnyvale facility, improvements are necessary in production, process, quality control, and inventory control. The production line should be optimized to improve process flow, increase yield, and reduce costs. Analyzing and standardizing the product mix is essential. Additionally, scheduling optimization is important in minimizing start-up and end costs and avoiding wastage. Effective control of work in process inventory is necessary. Introduction of quality control measures and checkpoints can help reduce rejections.
It is important to minimize indirect staff for monitoring and production control in order to increase the overall production units per employee. Additionally, implementing activity-based costing and revamping the pricing strategy is necessary. The main issue is that Sunnyvale faces competition from Kawasaki’s high volume/low cost products and could potentially lose price sensitive customers. Compared to ACC’s Sunnyvale facility, DJC’s Kawasaki production facility has a significant manufacturing advantage.
Additionally, ACC Sunnyvale plant should develop an action plan to prevent market share loss to DJC Corporation considering their goal of high product quality (1 defect in a million). The decision criteria should aim at eliminating inefficiencies from ACC’s process and enable them to compete with DJC if they establish a plant in North America. Moreover, DJC Corporation, known for their expertise in process positioning and robust systems engineering, mandated high automation at the Kawasaki facility.
The focus was on “pre-automation,” believing that full automation could only occur once the production process was fully comprehended and correctly designed. There was a concern that automating too early could lead to investing in an inefficient process. The pre-automation process analyzed process flows, worker movements, and raw material consumption. Consequently, the centrally located warehouse facility was intentionally designed to be the right size, eliminating any space for surplus materials or products.
Furthermore, each production line featured its own injection mould press and encompassed the entire process from raw material intake to packaging. DJC also demonstrated a preference for well-established methods rather than untested ones, opting to enhance existing processes continuously. The company also placed great importance on equipment reliability and made substantial investments in repair and maintenance to ensure the proper upkeep of crucial stages within the manufacturing process.
DJC is a company that is well-equipped with experts in polymer physics as well as former employees of mold manufacturers. They have implemented a rigorous procedure for replacing and upgrading molds, which has proven to be effective in preventing unexpected downtime and revenue losses caused by unexpected failures. Additionally, DJC has established workshops within their factory premises to safeguard their proprietary processes. They believe that sharing these processes with equipment suppliers would compromise their competitive advantage.
The “Technology Development Division” at DJC was in charge of coordinating various sections including product planning, materials, process engineering, and the moulding technology group. Their main responsibility was to ensure that these sections worked together efficiently, with a focus on resource utilization, design quality, manufacturability, smooth manufacturing introduction, shortened development cycle, and continuous process improvement. Additionally, TDD coordinated efforts to enhance product improvement. The rest of the Kawasaki facility managed sourcing, quality control, and production and inventory control.
Sourcing developed strong relationships with material suppliers and required them to meet rigorous standards and deliver frequently. Quality control was assigned the responsibility to enhance product quality control standards, improve the inspection system, increase precision in molded components, enhance product design quality, and reduce waste at the plant. The main task of production and inventory control was to minimize losses in yield and capacity. DJC’s objective regarding their workforce was to gradually decrease the number of direct production workers, as well as support and overhead staff.
As automation advanced, the need for direct production workers decreased at American Connector Company’s Sunnyvale facility. The facility was divided into five production areas: terminal stamping and fabrication, terminal plating, plastic housing moulding, assembly and testing, and packaging. Normally, terminals were cut or stamped and then taken to a holding area for plating. At the same time, the moulding division would create plastic housings, which were then sent to the work-in-process holding area until the terminals were plated.
After plating, the housings and plated terminals were sent to assembly. The majority of units were assembled using automated methods, although 10% of production required manual assembly. Once assembled, the connectors were tested and packaged. Packaging options ranged from 10-piece bags to reels holding up to 1500 pieces. Additionally, Sunnyvale’s manufacturing process was often disrupted when production runs were adjusted to accommodate specialty or custom orders.
Despite favorable market conditions enabling ACC to cover carrying costs of finished goods inventory and effectively respond to customer requirements, the escalating competition and downturn in the market created challenges for ACC’s Production Control section to reduce work-in-process inventory. Sunnyvale typically held finished inventory for approximately 38 days. To address this, several production scheduling techniques were introduced, including shorter production runs. However, opting for shorter production runs led to reduced utilization and subsequently affected costs.
ACC made a $500,000 investment in a new computer system and software for production scheduling. Over time, the company had experienced a decline in quality, with defect rates reaching as high as 26,000 per million units produced. However, these defects were caught through in-house inspection processes and never made it to the customers. Despite implementing statistical process control measures, high defect rates persisted. When launching new products, the initial yield rates were as low as 55%, but improved to 98% after a year of production. ACC is now worried about DJC’s new manufacturing facility.
Sunnyvale is in direct competition with Kawasaki’s low-cost, high-volume products and could potentially lose customers who prioritize price over other factors. DJC’s Kawasaki production facility serves as a model for Sunnyvale, offering significant manufacturing advantages. Kawasakipossesses an incredibly efficient and integrated production facility, with well-maintained equipment and a low workforce requirement. The facility also follows continuous improvement plans. The Japanese manufacturing philosophy of minimizing defects to one per million ensures that customers are satisfied.
When comparing the raw material costs and electricity expenses caused by production inefficiencies, it becomes evident that only 16% of the manufacturing cost difference can be attributed to these inefficiencies. On the other hand, the total labor costs, including both direct and indirect costs, directly stem from the distinct marketing approaches and customer satisfaction strategies employed by the two companies. These labor costs account for approximately 45-50% of the disparities in the overall manufacturing expenses. Additionally, a sheet highlighting the main discrepancies between the two facilities and their impact on operations and total costs has been provided. A plan of action should be devised based on this information.
To compete with the locally established DJC facility similar to Kawasaki, the ACC Sunnyvale facility of American Connector Company should first review its current corporate objective. The objective currently involves competing globally, increasing growth, and maintaining profitability. Although sales have grown from $252 million in 1984 to $800 million in 1991, the gross margins have declined from 52% to 43% during this period. Therefore, we suggest that ACC Sunnyvale revises its objective from solely maintaining profitability to prioritizing profitability enhancement. This can be achieved by increasing the gross margins back to 52% within a two-year timeframe.
The actions that Sunnyvale needs to take can be divided into five separate efforts: 1) analyzing the product, using activity based costing, and developing a pricing strategy; 2) optimizing the production line; 3) reconfiguring the processes; 4) implementing inventory control measures; and 5) reducing the number of indirect staff. ACC Sunnyvale should promptly introduce an activity based costing system and a bold pricing scheme. This initial step will involve thoroughly analyzing and measuring the current processes and their costs to determine the most efficient batch sizes.
This data will allow surcharge pricing to be implemented for special or custom orders and will establish minimum order fees. Through a combination of competitive pricing analysis and internal cost accounting, ACC will be able to determine the profitability of different product lines at current volumes and identify the price that customers are willing to pay. It is important to evaluate ACC’s connectors as part of the cost analysis to identify any potential optimization opportunities. This analysis may reveal intricate design elements that can be eliminated or altered in order to further reduce costs.
Through cost and product analysis, data will be collected to enable product line optimization, potentially resulting in the elimination of low-profit products and reducing the burden on production resources. After optimizing the product line, the processes can be reconfigured to take advantage of efficient production. Sunnyvale should consider reconfiguring its facility by implementing a continuous process batch production line for non-custom orders and specialization cells for custom orders.
The majority of Sunnyvale’s orders, accounting for 85%, are continuous batch orders. Improving production efficiency will lead to better product margins. To accommodate the 15% custom order business, individual specialization cells will be established, enabling the company to command higher premiums. ACC can still focus on customers requiring specialized services, now in a more profitable manner. Implementing inventory control measures will help manage costs related to raw material and finished goods inventory. Additionally, optimizing the plant layout is essential for ensuring smooth material flow.
This measure will enhance profitability on the historically low-profit batch process. By optimizing the product lines, production processes, and inventory control, improvements will be achieved. These improvements will create opportunities to reduce indirect staff. ACC Sunnyvale should follow DJC Kawasaki’s example and continue to refine this process through scheduled re-evaluation. This ongoing improvement process will further enhance efficiency and boost profit margins.
