American Connector Company - 1

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  • Topic: Cost, Costs, Economic efficiency
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American Connector Company

ASSIGNMENT #1: Answer the following questions based on the case study for American Connector Company. Write succinct responses and include supporting references, tables, or graphs where appropriate.

1. How serious is the threat of DJC’s entry into the U.S. market to the American Connector Co. (ACC)? Competitors are a treat to American Connector Company but ACC is its own biggest threat. ACC is very inefficient in its operations – Sunnyvale has an effective utilization of 30.2% whereas Kawasaki has an effective utilization percentage of 75.4%. Complacency. Time base roll out strategy. DJC was a market aggressor.

2.Consider DJC’s relative costs in the Kawasaki plant and its potential cost structure in the United States. a. How big are the total cost differences between DJC’s plant and ACC’s Sunnyvale plant? DJC plant is more 148% more efficient then ACC based on number of units per employee. Additionally DJC’s cost to produce a 1000 units is $4.15 vs, $7.21 for ACC. DJC has a $3.06 labor cost advantage over ACC per 1000 uints.

b. Is there a trend in costs that should concern management at either DJC or ACC? Over the last 5 years the COG’s for Kawasaki has decreased 37% (41.74% to 26.10%) and the COG’s sold ACC rose 3% (32.91% to 33.79%)

3. Three potential sources of cost difference can be examined: 1) utilization-driven cost difference, 2) differences inherent in each company’s strategy, and 3) operating effectiveness. Explain what accounts for the following three cost differences between ACC and DJC.

Utilization-driven cost differences: ACC has an advantage in lower material costs but DJC has a per employee productivity cost that is higher then ACC. Core Leadership. Mr. Osaka emphasis is on asset utilization of 100% with a yield of 99% on raw materials. The customer complaint ratio for DJC was 1 per 1 million units.

Differences inherent in each company’s strategy: Inefficiency. DJC has a standardized manufacturing process with limited product line, proprietary in-house technology, operating under a cost leadership positioning toward lower price, and an axis based orientation and positioning. ACC is focused on meeting customer’s needs and will customize their services to meet them. Their technology for manufacturing is licensed and their needs are based on organizational orientation.

Operating effectiveness: DJC - Eliminated costs based on startup and shut down by operating 24 hours a day and did not shut down for customization like ACC did for clients. They revamped how connectors were packaged. Location and layout of the plants are more efficient. Use less materials.

4. Exhibit 3 on page 15 analyzes DJC’s Kawasaki plant cost using ACC’s design changes. Indicate which of the following six (6) processes are due to OPERATING EFFICIENCY (costs not explained by strategy) and which processes are due to STRATEGY (costs affected by strategy).

Mold design, Operation Efficiency - Brought In-house to help reduce costs and the did it for themselves. Less Expensive Resin is Operation Efficiency. It is not customer focused. Waste reduction is a process due to Operating Efficiency. Tin Plating is a process that the costs affect Strategy. The 2,000 Piece Reel cost affect was Strategy.

5. What should ACC’s management at the Sunnyvale plant do in regard to DJC’s entry into the U.S. market for electrical connectors? ACC should reduce its staff in favor of automation. ACC should adopt a model to mimic the efficiency model of DJC. ACC should continue use its materials advantage when pricing. ACC should drop certain SKU’s. Some of their smaller clients are disrupting ACC’s daily. Any client who’s ROI is costing ACC money and resources should be dropped in favor of those clients with a positive contribution to return on investment. ACC should use scientific exploration approach to evaluate to find the systemic inefficiencies.

Sof-Optics, Inc. (B)
ASSIGNMENT #2: Answer...
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