Acc Case Writeup
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How serious is the threat of DJC to American Connector Company?
ACC and DJC are different in the strategies they employed. But there is a threat from DJC to ACC:
As we know that the US market is saturated. The production cost of DJC will be very low when compared to ACC. Current raw material plus packaging cost of DJC at Kawasaki plant is $14.89 if it sets up a plant in the US then 14.89*0.6= $8.93 which is 40% reduction of current DJC’s cost. So lower cost is an advantage to DJC in the US.
ACC gets 85% of revenue from standard connectors. Due to DJC’s efficiency in manufacturing, they might price their products cheaper than ACC and gain the market.
The inventory period of raw material for DJC is five days, while for ACC it is 10.8 days. Raw material handling results in higher cost for ACC.
One reason may be due to low lead time. The processing lead time for DJC is less when compared to ACC. So DJC can ship their products faster.
The productivity rate of employees at Kawasaki Plant of DJC is 7.45 is high due to automated process when compared to the ACC’s employee productivity rate of 1.06. So with less number of employees DJC can benefit by reducing the costs.
The defect rate per million at ACC is 26000 while DJC is 1. So ACC incurs higher costs for final testing which results in increasing lead time for ACC.
As ACC is using batch production system for providing a variety of product mix, the manufacturing lines are frequently changed. This results in lower efficiency when compared to the DJC (standard) where achiness run continuously leading to cost reduction due to less no. of starts for machine. This also an advantage to DJC.
As ACC provides customized and rush order products, the utilization of plant is 30.2% lower when compared to the DJC which is 75.4%. So cost advantage.
So, if DJC enters the US market and targets for the standardized products, it can capture high market share because of its low production costs and efficient production process.
How big are the cost differences between DJC’s plant and American Connector’s Sunnyvale plant? Consider both DCJ’s performance in Kawasaki and its potential in the United States.
What accounts for these differences? How much of the differences is inherent in the way each of the companies compete? How much is due strictly to differences in the efficiency of the operations?
The major cost differences between DJC’s plant and American Connector’s Sunnyvale plant are in terms of:
Raw Material Cost:
The production cost of DJC will be very low when compared to ACC. Current raw material plus packaging cost of DJC at Kawasaki plant is $14.89 if it sets up a plant in the US then 14.89*0.6= $8.93 which is 40% reduction of current DJC’s cost.
Packaging Cost:
As DJC is standardized in product packaging technology, the packaging cost in Kawasaki is low when compared to the Sunnyvale plant.
Electricity Cost:
The Electricity cost for production is high at Kawasaki plant when compared to Sunnyvale. In Kawasaki, $1.40. If it establishes a plant in the US then it will become