American Connector Company Case

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American Connector Company Case
Severity of Threat by DJC
The American Connector Company (ACC) should be extremely concerned with the im-pending entrance of DJC to the US landscape. Any new entrant will most likely be of the mentality to try and take as much market share as quickly as possible. This course of action usually involves a period of time when the new company will plan on operating at a loss, and will thereby be will-ing to price below market average with small margins. Realization of this threat would immedi-ately disrupt ACC’s pricing strategy and could affect long term profitability. The threat of lower prices is compounded by the intensity of the current competitive mar-ket. ACC should be concerned with any new competitor, but specifically the operational excellence that (discussed later in this case) DJC has demonstrated could greatly affect ACC’s competitive-ness in the market. When and if DJC or any other competitor enters the marketplace, ACC will have a limited amount of time to evaluate its next course of action; disregarding the arrival of a formidable competitor like DJC will prove to be a foolish decision. Cost Differences between DJC/Kawasaki and ACC/Sunnyvale

While they are currently operating in different markets, DJC has a significantly lower cost per thousand units than American Connector Company, by about 23%. Breaking this down further, $0.99, or 8% of ACC’s cost differential comes from volume differences. DJC produces 700 million units per year, as compared to ACC’s 420 million units. Operational inefficiency contributes to $3.93, or 33% of the cost differential. The remaining portion of cost is $7.09, or 59%, contributed by the strategic position of product customization offered by ACC. In terms of actual effects, the sluggish demand in the U.S. causes a drop in volume and would affect depreciation of capital. As fewer units are produced per machine in the U.S. environ-ment, the cost of the machines and depreciation is spread over a smaller amount of units, which increases the cost of depreciation. The strategic positioning of the two companies affects a multitude of items including all three major cost elements of material, labor, and depreciation. The ACC employed a strategy that emphasized an increased variety of products and flexibility in production, while DJC emphasized a strategy of cost reduction and utilized a number of tactics to decrease their costs overall. Among the major tactics was a cultivation and maintenance of close ties with suppliers and distributors in Japan, simplicity of design and manufacturability over innovation, and an emphasis on being highly efficient in manufacturing. This strategy difference appears to be the sole driver in the cost difference of the materials as the close ties with suppliers, lower costs associated with a simpler cheaper design, and the attention to details such as the use of a 2,000 piece packaging reel instead of a standard 1,500 piece reel minimize the cost of materials. Furthermore, the ACC strategy of offering increased variety requires shorter production runs which inherently increases the cost associated with each product and packaging, as idle time due to process changeover would increase between each product production (4.8% of time com-pared with 2% for DJC). The strategy of increased variety and production runs by the ACC would also affect labor in a number of ways. Direct labor costs would go up due to a larger amount of idle time associated with process changeover and the chance of increased problems associated with the increased number of changeovers (Process Failure: DJC, 1% compared to ACC, 8.9%; Non-Scheduled Stoppages: DJC, 13.2% compared to ACC, 23.5%). The emphasis on flexibility would also increase indirect labor as a larger number of people would be needed to manage the processes (Control: DJC, 11.7% compared to ACC, 16.7%), materials handling labor to manage the increased variety (Materials Handling: DJC, 3.2%...
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