Is DJC’s entry into American Market a threat to American Connector Company? Give reasons. Substantiate your answer as much as possible with data available in the case. Solution:
Yes DJC’s entry into the American Market is a threat into the American Company because of the following reasons: A. Raw material costs:
For DJC plant in Kawasaki, raw material costs were twice as much of that in the US. From exhibit 7 and 8, if a DJC plant was to be set up in the US: New cost of raw material = 0.6 x (12.13 + 2.76) = 8.93
Total cost of finished goods inventory in Kawasaki = 26.10
Therefore: Cost of raw material/ Total cost of finished goods = 57% Since, the cost of raw materials constitute more that half of the total cost of finished goods, this reduction in cost of raw materials will act as a major advantage if Kawasaki shifts its plant to US.
B. Quality Losses:
In DJC quality control was mainly process centric, and a collaborative effort with the suppliers, where the suppliers had to meet rigorous quality standards and were required to certify their product in every delivery. But in ACC, the quality inspection process was old as it was ACC who inspected it leading to defect rates as high as 26000 per million units of production in 1990. Quality losses in Kawasaki was 0.7% as compared to 1.6 % in ACC. (Exhibit 6)
C. WIP inventory:
DJC maintained small warehouse deliberately to reduce WIP inventory in comparision to ACC which had higher WIP leading to higher per square foot output by DJC (15.1) as compared to ACC which was 10.9. (Exhibit 6)
D. Asset Utilization:
As the DJC plant works at 24 hours per day, its fixed asset utilization is 75.4% as compared to 30.2 % of ACC. Continuous running of the plant also avoided start up and shut down costs.
E. Product Variety:
ACC catered to a large product variation, which was 4500 in 1991, thus leading to a complex production schedule and addition in the workforce. In...