Rushikesh K.

Malaviya (2010H149234P) MBA @ BITS-PILANI

Manufacturing Strategy
Case Study : American Connector Company.
US based electrical interconnector supplier company, American Connector Co. Worried because of probability of DJC co, japan based interconnector supplier, going to start its production facility in US. This situation lead ACC officials to think on manufacturing strategy of the ACCs Sunnyvale plant in comparison with DJCs last established plant at Kawasaki, Japan. Because Sunnyvale plant already facing problem of rising costs of the product and deteriorating product quality, ACC officials worry about this. So first, ACC should analysis Sunnyvale plant and market scenario. Steps for analysis A. Objective for ACC B. Industry analysis. C. SWOT analysis. D. Strategic decision based on Industry & SWOT analysis. E. Proposed manufacturing changes.

A. Objective:
Should ACC choose improving strategy for plants performance or completely new manufacturing strategy?

B. Industry analysis and presence of ACC and DJC in Industry in early 1990s.
The U.S. connector industry was grown very rapidly from 1970s to 1990s. Around 1200 interconnect product suppliers were available worldwide. There was very high new entrant barrier, required high level of Economic of scale and economic of Scope , tight competition among revelry firms , Low switching cost, more bargaining power to buyer and supplier. The connector industry included 3 type of interconnect products : Connector, Cable assemblies and back panels. In 1991, The worldwide sales of this interconnect product totalled around $16 bn. Dominant company in the industry was AMP inc, with 16% market share with sales of $2.6 bn approx. While DJC Corporation and ACC were second Tier Company in the connector industry and their sales were around $ 500 mn -$800 mn.. DJC and ACC produces all kind of interconnector products, but in Sunnyvale (ACC) and Kawasaki(DJC), plants, they manufacture only connector. These connectors were basically 4 types : Component , Board to board connector, Wire to connectors and wire to wire connector.

Rushikesh K. Malaviya (2010H149234P) MBA @ BITS-PILANI

C. SWOT analysis
Strength ACC ACC is working with High varity of product (Around 4500 types of connector) & High volume. Means ACC following Mass customization process strategy. In market, products of ACC were recognized for superior design, performance and quality of products. DJC DJC is working with high volume, low variety (around 640 skus).Means DJC following product focus process strategy. In market DJC is known for standardized product with high quality connector with US design and timely delivery. Process technology work with some basic principles. For most of the product at Sunnyvale plant produced by automated plant, only 10% of 1. Kawasaki plants production highly relay the products require manual work. on Automation. Companys goal is to achieve 100% assets utilization. So Company concentrate more on preAs a characteristic of Mass customization Automation to achieve maximum process, ACC do rapid changeover on utilization of automated plant system. schedule according the customers need. 2. Plant use old and reliable process and continuous improvement existing process Operators and employees are skilled worker. 3. Highly emphasis on reliability of moulding process. Which lead plant for faultless moulding and reduction in scrap material Finished goods inventory is for38 days compare to DJCs 56 Days. of failure product. (Avg. Annual cost for maintenances per mould machine was $29000 & avg life of mould m/c is 3 yrs.) 4. Highly depend on in-house technology development for assembly units and process m/c which give them better efficiency and process utilization of plant. 5. Very competitive technology Devlopment Div. This divisions goals are efficient resource utilization, design quality & Mfg. ,Smooth manufacturing introduction, shorter development cycle and continuous process improvement. Continuous 24-hr x 7 day production reduces variable costs and eliminates startup and shutdown expenses. Avg raw material inventory control is 5 days. Highly efficient QC dpt. Actually Mass customization concept Raw talented Employees, because of focuses on to reduce variable cost, but in Payroll structure. Sunnyvale plant, Variable cost in increased Standardisation and limited product because of rapid changover in process. variety restrict to meet customised need. Customization and high variety products Highly finished goods inventory storage for raise tremendous pressure on companys 56 days. forecasting and production schedules. Production schedule is inflexible.

Weakness

Rushikesh K. Malaviya (2010H149234P) MBA @ BITS-PILANI WIP inventory can be driven down by DJC need to follow Push strategy for applying JIT, Kanban or Lean production. But market penetration. Production control department failed to implement these concepts. Avg raw material inventory is 10.8 days. So high work in capital blockage. Very inefficient way for quality control. QC checks happen at the finished goods stage only, instead of continuous with process. (Within a plant, product defect rate is around 26000per mn units production in 1990) Very inefficient way of workforce management. 1. 396 employee for production of 420 mn units pa compare to only 94 employee for 700 mn units production. 2. Only 10% employee attached with manual process plant and 46% employee involved in indirect labour activities like inventory control, movement of inventories, changeover process etc. The companys connector output per employee (only 1.06 mn units) compare to DJCs (7.45 mn units). Effective utilization of plant is only 30.2 % compare to 75.4 % of Kawasaki plant. Plant runs only for 5days a week for 50weeks compare to 24 x 7 run of Kawasaki plant for full utilization of assets. Opportunity Plant invested $50000 for new computer system and software for production scheduling. As well product control staff also increased from 42 to 65. So by proper strategy can improve utilization of inventory control and scheduling of plant. And ACC can reduce indirect labour. Valuable experience to run both type of manufacturing strategy 1. Product focus strategy 2. Mass customization. So company can utilise anyone of them to improve current scenario of company. As well as company aware about competitors manufacturing strategy and proposed expansion plan. So accordingly ACC has option to move. Depending on which strategy it adopts, invest in new plant and equipment to meet the highly customized needs of the specialty market; or, rely on continuous improvement of existing plant and equipment to produce DJC can implement its state of art in product focus technology in US with low cost in connector production. Company already aware about US standard connectors so it will be very easy move for them.

Rushikesh K. Malaviya (2010H149234P) MBA @ BITS-PILANI reliable, low-cost standardized connectors. Achieve high level of Quality by implementing TQM model. ACC will face substantial threat from DJCs entry in US market. If DJC enter to capture standardised product market then company will lose market share from 85% production or if DJC enter in customised product them ACC will lose share from 15% production. So more or less ACC have no option then to improve efficiency of plant and process and utilization of assets with proper scheduling with continuous improvement.

Threat

DJC will face threat in terms of First mover advantage, relationship with supplier, economics of scope & scale.

D. Strategic decision based on Industry & SWOT analysis.

On the bases of Industry and SWOT analysis, I propose that company should implement new manufacturing strategy whether DJC will enter in US market or not. Because existing manufacturing strategy has many limitations and weaknesses. If company improve on those issues then ACC can generate more profit with higher efficiency of plant and proper utilisation of the assets. So it will give upper hand to ACC over DJC if it will enter in future in US market.

E. Proposed manufacturing changes.

1. Separate process line for standardised and customised product. Run plant for 24 x7 for 50 weeks, it will reduce start up & shut down cost, Increase capacity utilisation and increase production per employee. Assembly line 1 : > Line 1 will work only for standardized products, which has order share around 85% in total orders. > This line will run exclusively for standardised product so we can increase batch time for production and reduce waste because of rapidly change in batch process. Assembly line 2 : > Line 2 wil work for customised products, which has order share around 15 % in total orders. >This line will run exclusively for customised product where we can use our skilled labour for rapidly changover for different batches. In existing manufacturing strategy, company using same line and rapidly changeover for products, which need to hold work in process inventory often. Now Because of separate line this situation can be removed.

Rushikesh K. Malaviya (2010H149234P) MBA @ BITS-PILANI 2. Line balancing of the process. ACC process diagram

Terminal stamping & Fabrication Moulding process

WIP inventory /Holding area

Terminal stamping & Fabrication

Assembly area (Housing / Terminal)

WIP inventory /Holding area

Here Holding time lead WIP inventory high. DJC process diagram

Terminal stamping & Fabrication Moulding process

Terminal stamping & Fabrication

Assembly area (Housing / Terminal)

Here ACC run its all m/cs with full speed while DJC run its m/cs such that it can achieve line balancing by proper synchronization between speed of machine.So here ACC faceing problem in Work in process inventory in holding area. So 1st ACC should balance its line process for both the production line. 3. More competent Production Control Department Now because of separate process line, complication to maintain schedule will be reduce for Production Control Department. So now PCD should expand its working area i.e. coordinating and managing activities of the product planning section, the material section, process engineering and improvement in product. 4. Quality control division: In new strategy QC department should do quality control at post production time instead of at the finished goods time. So even defect will be identified, it will incur lesser cost for WIP goods. 5. Responsibility of marketing division. Marketing division should convince customer for standardised products. Marketing policy should be like less price offer for standardised product compare to customised order. 6. Improve Assets utilization. Productivity of ACC with new Manufacturing strategy Existing Strategy 1.06 % Mfg. New Mfg. Strategy (720/396) =1.81 %

A)

Connector O/P per employee (Steps to improve) Increase in working days (24x7x 40% Incresed 50 weeks) (5 days to 7 days= 40% time increase) Fixed production line 5 % increase (Assume)

B)

C) C1

C2 C3 C4 C5

C6

Rushikesh K. Malaviya (2010H149234P) MBA @ BITS-PILANI Reduction in process failure 7.55 % (Approx Reduction) (Impact of separate line) (Ratio of Production 85 % to 15 %) So production failure will be decreased approx. 85%) Reduction in non schedule time 20 % (Approx Reduction) (Impact of separate line) (Ratio of Production 85 % to 15 %) So non schedule time will be decreased approx. 85%) Total 72.55% (Increse in [Increse in production = 420 mn production) x 1.7255= 720 mn] Connector output per square 10.9 18 (Approx) With new capacity of production 720 mn connenctor (720 x 10.9%/ 420) Fixed Assets utilization (%) Plant not operating 28.6 % 5% (Because increase in working days) (Existing = 1-(5*50*24)/(7*50*24)= 28.6 % ) (New process ideally zero plant not operating but we assume it around 5 % as workers absenteeism. Non- schedule 23.5% 3.5% Process failure 8.9 % 1.5 % Preventive maintenance 2.4% 2.4 % Process changeover 4.8% 2.4 % (Reduced by 85% but we take only 50%) Quality loses 1.6 % 1 % (Approx) (Improve quality standard) Utilization of assets Total 69.8 % 15.8% Effective utilization 30.2% 84.2% So ACC can improve Assets utilization upto 84.2% by applying new manufacturing strategy.