Harvard Business School9-693-035Rev. December 7, 1992American Connector Company (A)âLooks bleak.â Those were the words Denise Larsen, the Vice President of Operations atAmerican Connector Corporation said calmly as she read the report on a competitorâs plans to build anew electrical connector plant in the United States. The competitor, DJC Corporation of Japan, hadbecome a dominant supplier of electrical connectors in its home market in recent years, after buildingwhat was rumored to be one of the most efficient connector plants in the world. However, despite itssuccess in Japan, DJC was barely a contender in the U.S. market. The company had no plants in theU.S. and only a small sales force there. Larsen knew that this could all change quickly. As sheexplained to her assistant, Jack Mitchell, a recently graduated M.B.A.:There have been rumors the last few years that DJC would build a new plant here tolaunch an attack on the U.S. market. But with the market so crowded withcompetitors and burdened with excess capacity, no one took them seriously here.Either way, we figured that we still had a cost advantage. But if your report is right,and if DJC can operate a plant here like the one they have in Japan, I think DJC couldquickly grab some market share here.Larsen was worried because she felt Americanâs position was particularly vulnerable at themoment. She was chiefly concerned with the companyâs connector plant in Sunnyvale, Californiasince it had been struggling with a series of operating problems during the past year. Costs atSunnyvale were increasing while quality seemed to be deteriorating. In the past month, she andAndrew Li, the new plant manager there, had discussed ways to improve the plantâs performance.Now she wondered whether the DJC situation called for a completely new manufacturing strategy.The Electrical Connector Industry in the Early 1990sElectrical connectors were devices made to attach wires to other wires, attach wires to outlets,attach wires, components or chips to PC boards, or attach PC boards to other boards. A connectortypically had two main body partsâa plastic housing and metal socket pins or terminals. Thehousing was usually made of a plastic resin such as a polyester, nylon, or polycarbonate. The metalpins could be made and plated with a number of different metals, ranging from tin to gold. Exhibit 1illustrates several basic product designs.The connectors were used in a variety of product applications, including military andaerospace electronics, industrial electronics, telecommunications equipment, computer and officeequipment, automobiles, and consumer electronics and appliances. Each applicationâoften eachProfessor Gary Pisano prepared this case with assistance from Research Associate Sharon Rossi. The case was prepared asthe basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.Data have been disguised for purposes of confidentiality.Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request permission toreproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. Nopart of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted inany form or by any meansâelectronic, mechanical, photocopying, recording, or otherwiseâwithout thepermission of Harvard Business School.1This document is authorized for use by Michael Fleytman, from 8/7/2012 to 12/31/2012, in the course:BADM 375: Business Process Management – Agrawal (Fall 2012), University of Illinois at Urbana-Champaign.Any unauthorized use or reproduction of this document is strictly prohibited.693-035American Connector Company (A)producerâcalled for different connector specifications. In 1990, there were over 700 standardconnector product lines in North America alone. Standard designs were those which had beenestablished by the International Institute of Connectors and Interconnect Technology (IICIT), theNational Electronics Distributors Association (NEDA), or by end use industries. Other designs werecustom-produced, usually on a one-year contract with a single connector company and were oftenaccepted as industry standards after the contract expired. Since each type of connector had its ownset of specifications, suppliers which produced many types of connectors (sometimes hundreds orthousands of models) for different industries were finding it difficult to meet the increasing numberof specifications. In 1992, attempts were made to standardize product specifications among the manydifferent industry associations.Because connector types were made of different materials and varied from low- to hightechnology, they varied dramatically in price, as well. For example, a simple connector such as aphone jack sold for only a few cents, whereas a custom designed connector such as one used inmilitary electronics sold for several dollars. The cost of connectors used in any product typicallycounted for 2% or less of the cost of the end product.In the 1970s, the U.S. connector industry1 had experienced very rapid growth as firms builtup capacity to meet the growing demand (particularly for computer applications). But when demandslowed in the mid to late â80s, there were too many suppliers and too much capacity. Pricecompetition intensified as more offshore producers entered the U.S. market.In the 1990s, the U.S. connector industry was characterized as a hostile environment. Therewere more than 900 suppliers and sales continued to slacken. In 1991, sales were down 3.9% from theprevious year, while the ten industry leaders were on average down 7.9%. The abundance ofsuppliers gave customers leverage to demand reduced prices, improved quality, and faster delivery.At the same time, many customers were working to reduce the number of suppliers they did businesswith. OEMs that previously dealt with 10 or 12 connector vendors had reduced their suppliers to asfew as four. Pressures spurred a trend of mergers and acquisitions in the industry and analystspredicted that the number of connector suppliers in the U.S. might drop to 400 or fewer by the end ofthe 1990s.Electrical connectors were very engineering intensive products and were critical to productperformance. As electronic circuitry became more miniaturized and operated at higher speeds, newconnectors had to meet more demanding requirements for space, weight, cost, quality, reliability andperformance.In 1991, worldwide sales of interconnect products totaled roughly $16 billion. The top tenworldwide leaders accounted for $6.67 billion, but the total industry (1,200 competitors) was veryfragmented. The dominant company in the industry was AMP, Inc. It held 16% market share withsales of $2.6 billion in 1991. The second tier of companies consisted of six other companies, each ofwhich had sales in the $500 million to $800 million range. DJC and American Connector were amongthe second tier companies worldwide. Companies in the third tier had sales in the $250 to $500million range. In total, there were 28 firms with sales greater than $100 million.1The "connector industry" included three types of interconnect products:connectors, cable assemblies andbackpanels. While American Connector and DJC Corporation produced all types of interconnect products, theSunnyvale and Kawasaki plants manufactured only connectors.2This document is authorized for use by Michael Fleytman, from 8/7/2012 to 12/31/2012, in the course:BADM 375: Business Process Management – Agrawal (Fall 2012), University of Illinois at Urbana-Champaign.Any unauthorized use or reproduction of this document is strictly prohibited.American Connector Company (A)693-035Profile of DJC CorporationThe DJC Corporation produced a variety of electrical connectors used in computers,telecommunications, and consumer electronics. For these applications, DJC produced four basictypes of connectors: wire-to-wire, wire-to-outlet, item-to-board, and board-to-board.There were several aspects characterizing DJCâs competitive strategy in most of its productlines. First, the company cultivated and maintained close links with the major computer,telecommunications, and electronics companies and distributors in Japan. These relationshipsrepresented an important entry barrier in the Japanese connector market. Secondly, the companyâsdesign strategy emphasized simplicity and manufacturability over innovation. Early DJC productdesigns were based on reverse engineering of other companiesâ designs, including those of AmericanConnector. As one former manager of DJC explained:In 1965, we copied other companiesâ products. Americans made good products andthe U.S. market was the most advanced in the world. Our R&D was geared entirelytoward analyzing U.S.-made products, copying improvements as they were made.By 1975, our quality was as good as theirs. After that, the production process becamethe basis for competition.However, DJCâs design strategy went beyond simply copying U.S.-made connectors. Thecompany paid very careful attention to customer and user needs in adapting American designs to theparticulars of the Japanese market. For example, DJC connectors were designed for maximumcompactness since this feature was very important to Japanese OEMs, particularly those producingconsumer electronics. DJC also adapted the designs to economize on raw materials (which werenearly twice as expensive in Japan as they were in the United States) and to simplify manufacturing.Features which did not add perceived value to customers (such as color-coded housings) wereeliminated.Finally, and perhaps most importantly, DJC viewed highly efficient manufacturing asabsolutely critical to its competitive strategy. The company historically relied upon manufacturing asthe major means to achieve their overall profit goals. As one former Managing Director of DJCdescribed it:In electrical products, high quality is a prerequisite for success. With large establishedcompetitors fighting for a maturing market, a low cost position becomes necessaryfor long term success. Manufacturing excellence is the source of both and hastherefore been at the heart of DJC.The importance of manufacturing to DJC was reflected in the organization of the company(see Exhibit 2). For example, Mr. Okada, the head of production, was responsible for the operationsof four domestic factories and reported directly to the company president, Mr. Esaka. In addition, thebalance of power between manufacturing and the sales/marketing division was clearly tipped infavor of manufacturing. For example, sales/marketing had little power to alter production schedules,product mix or lead times. As one former manager at DJC explained: âSales sometimes needs anunscheduled delivery, but manufacturing just does not allow it. There isnât even any debate.âDJCâs President, Mr. Esaka, was considered to be a dominant, hands-on leader. He washand-picked by DJCâs founder to become the companyâs president in 1971. Many within DJC viewedEsaka as the decision maker within the company. As one former executive put it: âOur strategy ispure and strict, driven by Esaka himself. People may bicker back and forth…but everyone knowsthey are personally responsible to achieve the goals set out by the president.â3This document is authorized for use by Michael Fleytman, from 8/7/2012 to 12/31/2012, in the course:BADM 375: Business Process Management – Agrawal (Fall 2012), University of Illinois at Urbana-Champaign.Any unauthorized use or reproduction of this document is strictly prohibited.693-035American Connector Company (A)The Kawasaki PlantDuring the early 1980s, the Japanese connector market experienced increased labor and rawmaterial costs, a rising yen, and increased import penetration. Amidst these conditions, topexecutives at DJC were concerned that the company might not be able to maintain its historical 50%gross margins in the connector business. This concern led Mr. Esaka to formulate his vision of a plantwhich could achieve âthe ultimate rationalization of mass production.â His vision called for a highlyautomated, continuously operating plant which could meet the following three goals: First, the plantmust achieve asset utilization of 100%. Secondly, yield on raw material must reach 99%. Finally,customer complaints could not exceed 1 per million units of output. While cost was not stated as anexplicit goal, everyone understood that if the above three goals were met, the plant would be one ofthe lowest cost producers in Japan.DJC chose to build its âultimateâ new plant in Kawasaki, Japan; the plant was completed andbegan operating in 1986. Management chose the Kawasaki site for several reasons. From a logisticalpoint of view, Kawasaki offered the advantage of being located close to the major Japanese electronicscompanies. In addition, perhaps more importantly, Kawasaki was near the major raw materialsuppliers. This was particularly important because it was anticipated that most raw materials wouldbe delivered from vendors on a daily or weekly basis. The Kawasaki area also had an ample supplyof relatively young, highly skilled workers.The Kawasaki plant was designed to produce a maximum of 800 million connectors per year,assuming 100% utilization. Initially, the plant produced only 80% to 90% of this volume. About 75%of this output was sold in Japan and 25% was sold in developing Asian markets outside of Japan. Theplant operated 24 hours a day, seven days per week, 330 days per year. The main advantage ofrunning the plant on a nearly continuous basis was that it avoided start-up and shut-down costs.To successfully operate the plant on a continuous basis, as well as meet Esakaâs yield andquality goals, Kawasaki management carefully integrated decisions and policies related to theproduct and process technology, workforce, production control, quality, and organization.Plant Layout The Kawasaki plant was organized into four large cells, each of which wasresponsible for producing one of the four general types of connectors (wire-to-wire, wire-to-outlet,item-to-board, and board-to-board). With the exception of plating, all of the processes needed tomanufacture a complete connector were located in each cell. Plating was organized separately inorder to fully utilize the high fixed cost equipment and to protect the rest of the factory from exposureto corrosive chemicals and noxious fumes.Each cell contained anywhere from two to six production lines, with each line consisting ofterminal stamping, housing molding, assembly, and packaging. Each production line wasresponsible for producing a specific family of the cellâs products. Successive processing stages in eachline were located close to one another and in a straight line in order to minimize materials handlingsteps and to reduce as much as possible the distance work-in-process had to travel. For example,each plastic molding press in a cell was located only a few feet from the lineâs assembly operations.Operations were synchronized so that completed housing parts flowed almost continuously (viasmall bins) between each molding and assembly line. Because molding and terminal stampingequipment had shorter cycle times than assembly equipment, these processes were run below theirtop speeds in order to synchronize parts fabrication and final assembly. Assembly operations werealmost completely automated. After assembly, connectors were inspected and transported a fewyards to the cellâs packaging area. In packaging, connectors were sealed individually in plastic onstrips containing 2,000 units.2 Each strip or âtapeâ was loaded onto a large reel. The central shipping2Reels of 1,500 units were considered standard in the industry.4This document is authorized for use by Michael Fleytman, from 8/7/2012 to 12/31/2012, in the course:BADM 375: Business Process Management – Agrawal (Fall 2012), University of Illinois at Urbana-Champaign.Any unauthorized use or reproduction of this document is strictly prohibited.American Connector Company (A)693-035department was responsible for packing each customerâs order for shipment. The Kawasaki plantdelivered to many customers on a daily basis and some of the largest customers received shipmentsevery few hours.Product Technology Product design reflected the goals of continuous and reliableoperations and the need to economize on raw materials. Before commencing production at Kawasaki,product designs were thoroughly analyzed to determine ways in which the product might be madeeasier to manufacture and use less material. For example, product design of most connectors wasstandardized to reduce the number of product variations. In 1991, the plant produced only 640different stock-keeping-units (SKUâs), a relatively small number for a plant its size. The limitednumber of product variations, it was believed, reduced the costs and complexity associated withshorter production runs. To economize on the use of raw material, designers adapted some types ofconnectors to use pins plated with tin rather than gold. Though gold was the most reliable anddurable material, tin was far cheaper and worked well in low power applications. To further simplifyproduction and reduce costs, DJC packaged its connectors only on tape and reels. This packagingwas particularly suited to customers with automated production environments, and it did notinconvenience customers with manual operations. DJCâs engineers undertook extensive valueengineering to identify and implement cost saving design changes which did not compromiseproduct quality or performance. These design changes are discussed in Exhibit 3.Process Technology Process design activities reflected several basic principles. First,while the plant was to be highly automated, significant resources were devoted to what DJC calledâpre-automation.â Pre-automation referred to the activities required to make the production processsuitable for highly reliable automation. It reflected the philosophy that a production process couldonly be automated after it was completely understood, properly designed, and properly laid out. Toautomate before might mean automating a process which was inherently inefficient or unreliable.During pre-automation, process flows were carefully analyzed to determine ways in which theprocess could be streamlined and inventories eliminated. Worker movements and motions were alsostudied to identify ways in which the process could be made more efficient. Pre-automation activitiesalso included specifying raw material quality and process tolerance levels.There were several examples of how pre-automation problem-solving affected the process.The warehouse was centrally located to simplify material flows and to economize on space. Theamount of warehouse and floor space was intentionally limited so that there would be no room forexcessive raw material or in-process inventories. To simplify material flows, each injection mold forplastic parts had a dedicated press and each press was dedicated to a single assembly line. Eachassembly line was laid out in a continuous straight line from stamping to packaging. This made itpossible for one operator to run two assembly lines. Only after the process had been âpreautomatedâ would steps be taken to implement automation.The second principle guiding process design was the notion that it was better to use an old,reliable process than a new, less reliable one. Rather than taking chances with new technology, theplant relied on continuous improvement of existing proven processes. Reliable process technologywas considered absolutely essential to keeping the process running smoothly, without inventory, on acontinuous basis. To further ensure smooth runs, processes were generally operated belowmaximum speed.3 Emphasis was also placed on maintaining equipment with the goal of eliminatingunscheduled downtime.A third principle guiding process design at Kawasaki was the emphasis on absolutereliability in upstream molding processes. According to one former DJC executive, âDJC viewsmolding as the most critical part of the manufacturing process and has focused its efforts there.â Its3For example, an assembly line in the Kawasaki plant ran at 200 units/minute. By comparison, a similar line inAmerican Connector’s Sunnyvale facility ran at 500 units/minute.5This document is authorized for use by Michael Fleytman, from 8/7/2012 to 12/31/2012, in the course:BADM 375: Business Process Management – Agrawal (Fall 2012), University of Illinois at Urbana-Champaign.Any unauthorized use or reproduction of this document is strictly prohibited.693-035American Connector Company (A)molding group included experts in polymer physics and many former employees of moldmanufacturers. Several policies and decisions reflected DJCâs desire to make molding virtuallyfaultless. Molds were subjected to rigorous repair and maintenance schedules. For example, everymold received full maintenance every six months in addition to daily basic maintenance. Molds werealso replaced relatively frequently to reduce the chance of failure and to allow mold technology to beupgraded. The average life of a mold at Kawasaki was three years. Taking into account purchasecosts, maintenance costs, and costs of repair, Kawasakiâs average annual cost per mold was $29,000.4The plant achieved mold yields in excess of 99.99%.A fourth element of Kawasakiâs approach to process technology was its reliance on in-housetechnology development. DJCâs strong in-house process engineering competence was a result of bothhistorical conditions and of strategic choice. One former employee described the historical conditionsshaping the companyâs in-house process engineering expertise: âBecause we were a small companyand couldnât afford to buy equipment, we built a lot of it ourselves. There were extensive workshopsin every factory.âDuring its early years, the company developed ideas about manufacturing by looking at theoperations of emerging Japanese role models like Toyota. The decision to develop technology inhouse was also strategically motivated. In Japan, contractual agreements with equipment vendorspreventing resale to competitors were not common. Thus, DJC worried that its ability to achieve acompetitive edge in process technology would be severely limited if it relied too much on equipmentvendors. Indeed, part of this strategy was shaped by observing American Connectorâs experiencewith equipment vendors. As one DJC engineer recalled: âAmerican Connector didnât develop their(connector) assembly machine themselves, they asked an equipment manufacturer to help themdesign the machine. That same equipment company then offered to sell us the identical machine.âThus, while the Kawasaki plant might buy standard equipment from vendors, it would make allproprietary design modifications in-house. In addition, Kawasaki designed all of its molds in-houseand manufactured about half of them in-house as well (the most complex molds were all producedin-house). Kawasakiâs goal was to eventually build 100% of its molds in-house.A final element of Kawasakiâs technology strategy was the inter-functional coordination of allits technology development activities. The plantâs âTechnology Development Divisionâ wasresponsible for coordinating and managing the activities of the product planning section, thematerials section, process engineering, and the molding technology group. Each section was assigneda specific set of goals. For example, it was the job of process engineering to design and modify newequipment and to identify opportunities for automation. However, it was the job of the TechnologyDevelopment Division to ensure that all of these sections were working in concert to achieve aconsistent set of explicit goals. These goals included: efficient resource utilization, design quality andmanufacturability, smooth manufacturing introduction, shorter development cycle, and continuousprocess improvement.One example of how this worked in practice was the development of a new resin to improveconnector durability. The materials planning group solicited input from the product planning groupon customer needs and requirements. Through this contact, the materials group learned that a moredurable connector would help differentiate DJCâs product in the customerâs eyes. This led to adiscussion with members of the R&D group about possible material breakthroughs which mightcreate a more heat-tolerant and damage-resistant connector. At the same time, the materials groupalso held discussions with the process engineering group to le…
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