Transcript
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
• competition: high
• technology: low-med capital intensive
American connector co. (A)
Competitive dimensions:
• cost
• quality (size, weight, reliability, etc)
• delivery
American connector co. (A)
ACC
1. Among top 10
2. Serves computer, telecom,
scientific instrument industries
3. Gr.margin dropped to 43% by
4. Strategy: offer broad variety,
including customized products;
emphasize flexibility
DJC
Among top 10
Serves computer, telecom,
consumer elec. Industries
Gr.margin stable at 50%
Strategy: low cost producer;
narrow range of high vol.
connectors
Historically, the two cos. were separated by geographical
mkt focus as well as strategic mkt position
American connector co. (A)
Terminal st.
& fabrication
Terminal
plating
Housing
molding
Assy &
testing
ACC’s Sunnyvale plant
Packaging
American connector co. (A)
Terminal
plating
Terminal st.
& fabrication
Housing
molding
Assy &
testing
DJC’s Kawasaki plant
Packaging
American connector co. (A)
Cost item
r/m product
r/m packg
labor
electricity
depreciation
other (OH)
Change in 6 years
DJC
ACC
0.85
0.90
0.84
0.93
0.38
1.21
0.57
0.44
0.24
0.92
1.03
1.38
Product Automation; High
design
Multi-fn. trg. capacity
changes
utilzn.
More admin.
& coord.
Cost ($/’000units): DJC: 20.2; ACC: 33.8
Share in late 90s
DJC
ACC
36%
28%
8%
6%
20%
30%
6%
2%
9%
15%
21%
18%
More
SKUs
American connector co. (A)
Trade-offs involved:
•
•
•
•
•
•
•
•
•
capital cost v/s running cost
capital cost v/s WIP holding cost
capital cost v/s cost of coordination, control, OH
process engg. cost v/s maintenance cost
process engg. cost v/s r/m cost
product engg. cost v/s manufacturing cost
f/g cost v/s wip cost
f/g cost v/s cost of unreliable delivery
capacity (cushion) cost v/s cost of unreliable delivery
American connector co. (A)
Trade-offs involved (continued…):
•
•
•
•
supplier development cost v/s cost of delay, r/m quality
in-house mfg of key equipment v/s risk of competition
capacity thru improvement v/s capacity thru addition
risk of losing customers due to standardizn. v/s cost of
customization
American connector co. (A)
DJC vs. ACC
• DJC has lower costs, and has demonstrated the
ability to reduce costs over time
• Potential sources of cost differentials:
– Utilization-driven cost differences
– Differences inherent in each firm’s strategy
– Differences in operating effectiveness/efficiency
American connector co. (A)
Utilization cost differences
Current output ( Million $):
420 (ACC)
700 (DJC)
Desired (rated) output ( Million $):
600 (ACC)
800 (DJC)
Depreciation rate at current capacity utilization ($/’000 units):
5.10 (ACC)
1.80 (DJC)
Depreciation rate at desired capacity utilization ($/’000 units):
4.20 (ACC)
1.58 (DJC)
Only a small difference costs are due to utilization
American connector co. (A)
Cost differences due to operations strategy
Area
DJC
ACC
orgn structure
layout
product engg.
mfg centered
product-focused
standardization,
r/m cost, DFM
reduce matl.flow,
incre.improvemnt,
new process pre-auto
low defect rate
long runs, short LT,
JIT+MRP, hi f/g invy
high utilization,
improvement
hi worker pdy,
less indirect labor
mktg & engg centered
process-focused
variety (15% customized)
process engg.
quality
PPC
capacity
workforce
process-wise,
radical innovation,
new process has low yield
conf.to customer, inspection
short runs, long LT, MRP,
non-synchr., small f/g invy
maintains excess capacity,
addition
lo worker pdy,
more indirect labor
American connector co. (A)
Comparison of operations tasks:
DJC
ACC
minimize running cost,
increase scale,
process engg.-driven quality,
improvement led innovation,
minimize lead time,
improve on-time delivery
minimize initial investment cost(?),
inspection & PPC driven quality,
customized quality,
tech.acquisition led innovation,
PPC, FG/WIP driven delivery,
plan for variety
American connector co. (A)
Cost differences due to operations strategy
Item
DJC
Competitive
priorities
Low cost
Hi flexibility
Less innovative
Cust. responsiveness
Less flexible
Higher costs
$ 52.20
$ 59.28
Avg selling price
ACC
ACC
Cost
DJC
Flexibility
American connector co. (A)
Cost differences due to operating effectiveness
ACC
Strategy related gap
Cost
DJC1
Efficiency gap
DJC2
Flexibility
American connector co. (A)
Cost differences due to operating effectiveness
Material cost differences:
Efficiency related: mold design ($0.21) + less expensive resin ($0.48)
+ less mass of housing ($0.18) + less waste ($1.05) = $1.92
Strategy related: tin plating ($3.50) + 2000 piece reel ($0.59) = $4.09
Labor cost differences:
Labor cost difference, adjusting for US operations: $6.15
Labor cost difference, assuming ACC can operate full capacity
without additional labor (42% increase in labor pdy): $3.02
Fixed cost differences:
ACC’s underutilization due to inefficiency: unplan.downtime (23.5) +
process fail.(8.9) + prev.maint.(2.4) + quality loss (1.6) = 36.5%
ACC’s underutilization due to strategy: plant not operating (28.6) +
process changeovers (4.8) = 33.4%
ACC is forfeiting a lot of efficiency by serving commodity mkt
via an operations strategy developed for customized mkt
Let’s fit ACC & DJC in Top-Down Fit Framework
KPI or Ops Task
Priority of KPI
Sub-KPI Element
Capacity
Production
system
Workforce
Marketing / sales
Product Design &
Technology
Cost
Quality
Delivery
Customization
High (OW)
Functional (OQ)
High (OW)
High for specialized
needs;
Low for rest
R/M cost;
Fixed opn. Cost;
Inventory cost
Process quality
(adherence)
Mfg+proc lead
time;
Inventory
Variety;
New designs
ACC
KPI or Ops
Task
Cost
Quality
Delivery
Customization
High (OW)
Functional (OQ)
High (OW)
High for
specialized needs;
Low for rest
Sub-KPI Element
R/M cost;
Fixed opn. Cost;
Inventory cost
Process quality
(adherence)
Mfg+proc lead time;
Inventory
Variety;
New designs
Capacity
(-)
FG inventory (?)
High cushion (+)
Production
system
(-)
Inspection (?)
MRP (-) (inadequate)
Process layout (+)
Small lots (+)
Marketing /
sales
(-)
(?)
(?)
Dictates prodn &
design variety
(+)
Product Design
& Technology
(-)
Features (?)
Priority of KPI
Design for
marketing (+)
DJC
KPI or Ops
Task
Priority of KPI
Sub-KPI
Element
Cost
Quality
Delivery
Customization
High (OW)
Functional
(OQ)
High (OW)
High for
specialized needs;
Low for rest
R/M cost;
Fixed opn. Cost;
Inventory cost
Process quality
(adherence)
Mfg+proc lead time;
Inventory
Variety;
New designs
Low FG inventory (+)
(-)
Capacity
Low cushion (+)
Low FG inventory (+)
Production
system
Product layout (+)
Large lots (+)
Automation (+)
Low WIP inventory (+)
Standard &
automated
process (+)
Product layout (+)
Low WIP inventory (+)
JIT + MRP (+)
(-)
Marketing /
sales
Low SKU range (+)
(+)
Std. distribution
system (+)
(-)
Product Design
& Technology
Design for mfg. &
procurement (+)
Design driven
quality (+)
(+)
(-)
American connector co. (A)
Options for ACC
I.
No major structural changes; Improve efficiency
slightly to reduce costs
* Is the ‘customized service’ niche going to thrive?
* How easily can DJC enter this niche?
II.
Adopt DJC model
* Are connectors becoming commodities?
* Is price increasingly becoming the order winner?
* How fast can ACC shift to this strategy?
III. Change to Hybrid model
* How fast can ACC shift to a ‘dual-focused’ strategy?
American connector co. (A)
Some lessons
•
Benchmarking competition requires comparison of changes
in performance measures, distinguishing between strategyrelated and efficiency-related differences, and controlling
for strategy-related differences
•
Different product-market characteristics require different
competitive and operational strategies (Focus), though this
comes at a cost
•
Alignment of operations systems & practices to operations
strategy must be visible in all areas of operations
•
Sustaining operations improvements and building
capabilities is a different ballgame, though an integral
agenda of operations strategy