Q1. How serious-is the threat of DJC to American-Connector Company?

DJC, if enters the US market, can give some serious competition to American Connector
Company due to the following factors:

1) DJC relies on in-house technology development which is developed by engineers with

strong competencies. This gives them a competitive edge over ACC who relies on
outsourcing their manufacturing process development. The same technology can be
accessible to the competitors of ACC generating similar outputs in terms of quality.
2) Entering US, the Raw Material costs for product as well as packaging will reduce by 40%
making it to $8.9 per 1000 units as opposed to $14.89 before. Electricity costs will also
decline by 10%. Even though the labour costs for both direct as well as indirect will
increase by 10% the overall change in costs will be negative reducing overall costs.
3) DJC offered lower lead times averaging 2 days as compared to ACC for which it
averaged 10 days.
4) Output per employee for DJC’s Kawasaki plant is 702.8% of ACC’s Sunnyvale plant which
is a primary reason behind DJC’s high production. Also, utilization of fixed asset for DJC
is-74.5% in comparison with 30.2% for ACC’s Sunnyvale plant.
5) Kawasaki plant due to standardization of its products has lower quality losses as
compared to ACC which offers custom products as per customer’s requirements.

The above-mentioned advantages will help DJC make similar product offerings at lower prices.
Consequently, DJC can capture the market share of ACC in the segment of standard connector
products.
The factors that give ACC the advantage is quality assurance and custom offerings which made
up to 15% of ACC’s total sales volume.

Q2. How big are-the cost differences-between DJC’s plant and American Connector’s
Sunnyvale-plant? Consider both DJC’s-performance in Kawasaki and its potential in
US.
The major differences in cost for DJC, if we compare it to Sunnyvale, they are followings
Raw material: If we see, the current situation of current-raw material-cost for the product and
packaging in Kawasaki plant then we see that it is comparatively high then ACC Sunnyvale’s
plant. DJC is planning to set up a plant in USA, therefore there is the possibility of cost
reduction, as the cost ratio of Japan vs US is (1:0.6)

Cost-head USA Plant Kawasaki-($/1000 units)

Packaging+ product, Raw- 0.60*14.89 = 8.936 2.76+12.13=14.89
material

Cost of packaging: As compared to Sunnyvale, the packaging cost of Kawasaki plant is lesser
due to some factor like standardisation in product packaging technology.
Cost of labour: Due to finished goods inventory and WIP being high at-ACC Sunnyvale plant in
comparison with Kawasaki the requirement of man power to handle the excess inventory due
to that the inventory space increased due to that complexity increased of the labour cost and
plant environment.
Cost of electricity: The comparison of Sunnyvale’s plant and Kawasaki plant. The electricity cost
of Kawasaki is Higher as electricity cost ratio Japan vs US is (1:0.8).

Cost head Plant in USA Kawasaki

Electricity 0.80 * 1.4 = 1.12 1.4

Moulding process: Since there is high batch housing during the time of plating operations in
the lower runtime for moulding operation. If we take into consideration the COGS ratio of
Japan vs US and above cost factor and manufacturing operation of DJC in US seems to be low
up to 25% of present production cost of $26.10.

Q3. What accounts-for these differences? How-much of the difference is-inherent in

the way each of-the two company-competes? How much is due strictly to differences
in the efficiency of the operations?
The reasons for these differences are:
a) The raw material, in Japan costs almost double of-that in the US.
b) Because they have a policy of operating the plant 24 hrs. a day, 7 days a week and 330 days
a year, they avoided the start-up and shut- down costs. This helped in reaching very high Fixed
asset utilization for DJC as compared to American Connector company's Sunnyvale plant.
c) DJC followed the principle of continuous production which reduced the number of variations
in their product whereas in ACC, due to batch production, any changes in product required
changes in production line. This led to lower efficiency.
d) The quantity of defective goods that were produced was very low in DJC as compared to
American Connector.
The inherent difference in the way these companies compete are-
a) DJC believed in in-house Research and Development which gave them an advantage over
their competitors. They did not require to procure machines from outside as they produced as
well as customized their own machines according to the changes in customer's needs.
b) DJC maintained a relatively low raw material as inventories as they followed a pull strategy
in their manufacturing process. This led to low inventory cost.
c) Their Kawasaki plant was in such a way that their suppliers as well as prominent electronics
companies were near. This helped them in reducing their logistics costs.
The efficiency parameters in DJC was such that they produced very few defective outputs
whereas the Sunnyvale plant was producing 26000 defective units per million.
If DJC came to the US then, American Connectors would lose to them as DJC operated at very
low cost. Also, the finance department in ACC was not providing funds for getting
technologically better machines which was resulting in low efficiency. Other than that, the
management was more interested in other aspects like marketing and engineering rather than
production.

Q4. What should-American Connector’s-management at the-Sunnyvale plant do?

Following are the recommendations for American connector management to increase
productivity:
For ACC current operations there is a need for taking cost control measures because it has
increased and figures for quality control have gone worse.
At Sunnyvale, there are quality control issues with defect rate of 26,000 per million. It implies
that imperfections are there in the processing of the batch. So, quality control inspection is
required at all levels of the process rather than the current method of inspecting at the end.
Innovations on product design which can restrict the competitors on reverse engineering of
ACC’s product. Also, increase in the connector’s compactness will help in developing
competitive advantage.
For technical innovations within production process an in-house Research & Development is
required. This would result in producing in-house machinery to have a competitive edge in
terms of technology.
In ACC, organizational hierarchy has less focus on production team in comparison to their
inclination towards engineering and marketing team. Whereas in DJC they have set equal
priorities to all departments. This helps in motivating employees to increase the productivity.
There is a need to follow similar model by ACC for operations so that production can be
increased, and a better balance can be formed.
Recycling time for molding is high at ACC. Reducing it will save time and will help in introducing
new designs. Also, ACC should minimize inventory holding cost and line up the layout of the
facility. Pull strategy should be followed for raw materials in the production-line for better
results.
The major issue at ACC is the quality control issue. A lot of these issues have been identified
and needs focus. Better quality of raw materials and R&D can help in the reduction of design
flaws which will further helps in improving the low yields. Good quality material does not
require too much testing and by following strict standards for raw material there will be no
need to check all batches of materials.
Color coded connectors and cables in longer run may be beneficial so ACC can save cost on
them.
Control on lead time for processing from 10 days to a substantial amount is required to
improve order management and reduce the inventory pileup of finished products.
ACC should decrease operational cost and increase the utilization of fixed asset by looking at
shutdown costs and start-up. If the amount of machinery increases to handle molds then it can
be controlled, also those molds that are producing less type of connectors needs frequent
changeover. For large size order specific fixed line should be used and for smaller orders
frequent changing lines should be used.