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7/21/2019 American Connector
1/20
American connector co. (A)
Electrical Connectors
Product-market-technology characteristics:
volume: med-high
value: low-med
functionality: critical variety: med-high(in every electrical/electronic device)
PLC stage: mature
cometition: high technology: low-med caital intensive
7/21/2019 American Connector
2/20
American connector co. (A)
Cometitive dimensions:
cost
!uality (si"e# weight# relia$ility# etc) delivery
7/21/2019 American Connector
3/20
American connector co. (A)
%CC &'C %mong to * %mong to *
+ ,erves comuter# telecom# ,erves comuter# telecom#
scientific instrument industries consumer elec ndustries
. rmargin droed to 0.1 $y rmargin sta$le at 2*10 ,trategy: offer $road variety# ,trategy: low cost roducer3
including customi"ed roducts3 narrow range of high vol
emhasi"e fle4i$ility connectors
5istorically# the two cos were searated $y geograhical
mkt focus as well as strategic mkt osition
7/21/2019 American Connector
4/20
American connector co. (A)
ACCs Sunnyvale plant
6erminal st7 fa$rication
6erminallating 5ousing
molding
%ssy 7testing
Packaging
7/21/2019 American Connector
5/20
American connector co. (A)
6erminal st
7 fa$rication
6erminal
lating
5ousing
molding
%ssy 7
testingPackaging
DJCs Kawasaki plant
7/21/2019 American Connector
6/20
American connector co. (A)
Cost item Change in 6 years Share in late 90s
DJC ACC DJC ACCr/m roduct *82 *9* .1 +81
r/m ackg *80 *9. 81 1
la$or *.8 + +*1 .*1
electricity *2; *00 1 +1
dereciation *+0 *9+ 91 21
other (***units): &'C: +*+3 %CC: ..8
Product
design
changes
%utomation3
?ulti-fn trg
5igh
caacity
util"n
?ore
,@As
?ore admin
7 coord
7/21/2019 American Connector
7/20
American connector co. (A)
6rade-offs involved: caital cost v/s running cost
caital cost v/s BP holding cost
caital cost v/s cost of coordination# control#
7/21/2019 American Connector
8/20
American connector co. (A)
6rade-offs involved (continued): sulier develoment cost v/s cost of delay# r/m !uality
in-house mfg of key e!uiment v/s risk of cometition
caacity thru imrovement v/s caacity thru addition risk of losing customers due to standardi"n v/s cost of
customi"ation
7/21/2019 American Connector
9/20
American connector co. (A)
&'C vs %CC
&'C has lower costs# and has demonstrated the
a$ility to reduce costs over time
Potential sources of cost differentials:
DAtili"ation-driven cost differences
D&ifferences inherent in each firm>s strategy
D&ifferences in oerating effectiveness/efficiency
7/21/2019 American Connector
10/20
American connector co. (A)
Atili"ation cost differences
&ereciation rate at current caacity utili"ation (=/>*** units):
2* (%CC) 8* (&'C)
Current outut ( ?illion =):
0+* (%CC) ;** (&'C)
&esired (rated) outut ( ?illion =):
** (%CC) 8** (&'C)
&ereciation rate at desired caacity utili"ation (=/>*** units):
0+* (%CC) 28 (&'C)
Only a small difference costs are due to utilization
7/21/2019 American Connector
11/20
American connector co. (A)Cost differences due to oerations strategy
Area DJC ACC
orgn structure mfg centered mktg 7 engg centered
layout roduct-focused rocess-focused
roduct engg standardi"ation# variety (21 customi"ed)
r/m cost# &?
rocess engg reduce matlflow# rocess-wise#
increimrovemnt# radical innovation#
new rocess re-auto new rocess has low yield
!uality low defect rate confto customer# insection
PPC long runs# short L6# short runs# long L6# ?FP#'6G?FP# hi f/g invy non-synchr# small f/g invy
caacity high utili"ation# maintains e4cess caacity#
imrovement addition
workforce hi worker dy# lo worker dy#
less indirect la$or more indirect la$or
7/21/2019 American Connector
12/20
American connector co. (A)
Comarison of oerations tasks:
&'C %CC
minimi"e running cost# minimi"e initial investment cost(H)#
increase scale#
rocess engg-driven !uality# insection 7 PPC driven !uality#
customi"ed !uality#
imrovement led innovation# techac!uisition led innovation#
minimi"e lead time# PPC# /BP driven delivery#imrove on-time delivery lan for variety
7/21/2019 American Connector
13/20
American connector co. (A)Cost differences due to oerations strategy
Item DJC ACC
Low cost
Less innovative
Less fle4i$le
5i fle4i$ility
Cust resonsiveness
5igher costs
Cometitive
riorities
%vg selling rice = 2++* = 29+8
le4i$ility
Cost
&'C
%CC
7/21/2019 American Connector
14/20
American connector co. (A)
Cost differences due to oerating effectiveness
le4i$ility
Cost
&'C
%CC
&'C+
,trategy related ga
Efficiency ga
7/21/2019 American Connector
15/20
American connector co. (A)Cost differences due to oerating effectiveness
Material cost differences:
Efficiency related: mold design (=*+) G less e4ensive resin (=*08)G less mass of housing (=*8) G less waste (=*2) I =9+
,trategy related: tin lating (=.2*) G +*** iece reel (=*29) I =0*9
a!or cost differences:
La$or cost difference# adJusting for A, oerations: =2
La$or cost difference# assuming %CC can oerate full caacitywithout additional la$or (0+1 increase in la$or dy): =.*+
"i#ed cost differences:
%CC>s underutili"ation due to inefficiency: unlandowntime (+.2) Grocess fail(89) G revmaint(+0) G !uality loss () I .21
%CC>s underutili"ation due to strategy: lant not oerating (+8) Grocess changeovers (08) I ..01
ACC is forfeitin$ a lot of efficiency !y servin$ commodity mktvia an o erations strate develo ed for customized mkt
7/21/2019 American Connector
16/20
Lets fit ACC & DJC in o!"Do#n $it $rame#or%
KPI or Ops Task Cost Quality Delivery Customization
Priority of KPI High (OW) Functional (OQ) High (OW) High for specializedneeds;Low for rest
Sub-KPI Element R/M cost;Fied opn! "ost;#n$entor% cost
&rocess 'ualit%(adherence)
Mfgproc leadtie;#n$entor%
*ariet%;+ew designs
Capacity
Productionsystem
Workforce
Marketing / sales
Product Design &Technology
7/21/2019 American Connector
17/20
ACC
KPI or OpsTask
Cost Quality Delivery Customization
Priority of KPI High (OW) Functional (OQ) High (OW) High forspecialized needs;Low for rest
Sub-KPI Element R/M cost;Fied opn! "ost;
#n$entor% cost
&rocess 'ualit%(adherence)
Mfgproc lead tie;#n$entor%
*ariet%;+ew designs
Capacity (,) F- in$entor% (.) High cushion ()
Productionsystem
(,) #nspection (.) MR& (,) (inade'uate) &rocess la%out ()all lots ()
Marketing /sales
(,) (.) (.) 0ictates prodn 1design$ariet%
()
Product Design& Technology
(,) Features (.) 0esign forar2eting ()
7/21/2019 American Connector
18/20
DJC
KPI or OpsTask
Cost Quality Delivery Customization
Priority of KPI High (OW) Functional(OQ)
High (OW) High forspecialized needs;Low for rest
Sub-KPIElement
R/M cost;Fied opn! "ost;
#n$entor% cost
&rocess 'ualit%(adherence)
Mfgproc lead tie;#n$entor%
*ariet%;+ew designs
Capacity Low cushion ()Low F- in$entor% ()
Low F- in$entor% () (,)
Productionsystem
&roduct la%out ()Large lots ()3utoation ()
Low W#& in$entor% ()
tandard 1autoatedprocess ()
&roduct la%out ()Low W#& in$entor% ()4#5 MR& ()
(,)
Marketing /sales
Low 67 range () () td! distri8utions%ste ()
(,)
Product Design& Technology
0esign for fg! 1procureent ()
0esign dri$en'ualit% ()
() (,)
7/21/2019 American Connector
19/20
American connector co. (A)
strategyH
7/21/2019 American Connector
20/20
American connector co. (A)
,ome lessons
,enc)markin$ competition re-uires comparison of c)an$esin performance measures. distin$uis)in$ !etween strate$y/related and efficiency/related differences. and controllin$for strate$y/related differences
Different product/market c)aracteristics re-uire differentcompetitive and operational strate$ies 0"ocus1. t)ou$) t)iscomes at a cost
Ali$nment of operations systems 2 practices to operations
strate$y must !e visi!le in all areas of operations
Sustainin$ operations improvements and !uildin$capa!ilities is a different !all$ame. t)ou$) an inte$rala$enda of operations strate$y