Executive Summary: In order to make their plant globally competitive, American Connector Company’s Sunnyvale facility needs to improve on production, process, quality control and inventory control. They should optimize the production line to smoothen the process flow, increase the yield and reduce overall costs. They need to analyse and standardize their product mix. Also, schedule optimization will go a long way to minimize start-up and end costs and to avoid wastage. Work in process inventory needs to be controlled. Quality control measures and checkpoints should be introduced to reduce rejections.
Indirect staff for monitoring and production control needs to be minimized to increase the overall productionunits per employee. Also, they should revamp their pricing strategy and implement activity based-costing. Statement of Issues: 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.
Also, given DJC’s goals strong product quality(1 defect in a million), ACC needs to come up with an action plan to avoid losing their market share to DJC. Criteria: A good criteria for the decision will help in eliminating all the inefficiencies form the process of ACC Sunnyvale plant and will also help them to compete with the competitor if they set up the plant in north America . Analysis 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 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 mould press, and was a complete line from raw material in-flow to packaging. 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 mould 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 eroded if equipment suppliers had insight into their processes.
DJC’s “Technology Development Division” coordinated the product planning session, materials section, process engineering, and the mouldingtechnology 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 process improvement. Furthermore, TDD coordinated efforts to ensure product improvement. 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 moldedcomponents, 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. American Connector Company’s Sunnyvale facility was divided into five separate production areas: terminal stamping and fabrication, terminal plating, plastic housing moulding, assembly and testing, and packaging. Typically, terminals were cut or stamped, then transported to a holding area to await plating. Concurrently, the mouldingdivision 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 specialty or custom order.
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 under pressure to lower work-in-process inventory. Sunnyvale’s finished inventory traditionally 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. ACC’s Concerns with DJC’s New Manufacturing Facility
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 Sunnyvalefacility. Kawasakimaintained 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.
Now, if we consider the difference in raw material costs and electricity due to production inefficiencies, then we will find that only 16% of the manufacturing cost difference is due to the production inefficiencies. However, the Total labour costs(both direct and Indirect) are a direct result of the different marketing and customer satisfaction strategies of the two companies. This accounts for almost 45-50% of the differences in the total manufacturing costs! Also, attached is the sheet showing the major differences between the two facilities and their affects on operations and total costs Plan of Action:
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.
The actions Sunnyvale must undertake may be categorized into five different efforts: 1) product analysis, activity based costing, and pricing strategy; 2) production line optimization; 3) process reconfiguration; 4) implementation of inventory control measures; and 5) minimization of indirect 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 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 to reduce costs further.
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 re-examinationof these steps. This continuous improvement process will further improve efficiency and increase profit margins
