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American Connector Company A Case Solution

Solution Id Length Case Author Case Publisher
498 978 Words (3 Pages) Gary P. Pisano, Sharon Rossi Harvard Business School : 693035
This solution includes: A Word File A Word File and An Excel File An Excel File

In order to run a full threat assessment, all the elements, that will determine the impact of DJC in the United States, need to be analyzed. Looking at the current production capabilities of the Kawasaki plant, owned and run by DJC, two things are absolutely clear. The first is that DJC has an obvious cost advantage in production, and the second is that they also have more efficient production process in terms of quality control.

If DJC is able to set up a plant, on the lines of its Kawasaki plant, in the United States, it will obtain significant cost advantages in raw material costs. According to exhibit 7 and exhibit 8, these costs will reduce, from their current figure of $14.89 per 1,000 units, to $8.93 per 1,000 units. Considering the fact that raw material costs form almost half of the total costs this will pose a real threat to ACC. These cost advantage will also extend to packaging costs since DJC uses cheaper reel packaging and packs 2,000 units per reel, whereas ACC has a wide variety of packaging, from 10 unit packs to 1,500 unit reels.

Following questions are answered in this case study solution

  1. How serious is the threat of DJC to American Connector Company? 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 the United States.

  2. Create a table such as the following table on the next page:

ITEM

DJC

INDEX

DJC @US

ACC

RawMat
Product RawMat Packaging Labor(total) Electricity Depreciation Other

 

0.6
0.6
1.1
0.8
1.0
1.0

 

 

Total

 

 

 

 

  1. What do you learn from the above table? Diagnose the basis of ACC cost disadvantage. What factors is it due to (for example, product mix)? How worrisome is the cost disadvantage? What should ACC do?

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Case Analysis for American Connector Company A

1. How serious is the threat of DJC to American Connector Company? 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 the United States.

In order to run a full threat assessment, all the elements, that will determine the impact of DJC in the United States, need to be analyzed. Looking at the current production capabilities of the Kawasaki plant, owned and run by DJC, two things are absolutely clear. The first is that DJC has an obvious cost advantage in production, and the second is that they also have more efficient production process in terms of quality control.

If DJC is able to set up a plant, on the lines of its Kawasaki plant, in the United States, it will obtain significant cost advantages in raw material costs. According to exhibit 7 and exhibit 8, these costs will reduce, from their current figure of $14.89 per 1,000 units, to $8.93 per 1,000 units. Considering the fact that raw material costs form almost half of the total costs this will pose a real threat to ACC. These cost advantage will also extend to packaging costs since DJC uses cheaper reel packaging and packs 2,000 units per reel, whereas ACC has a wide variety of packaging, from 10 unit packs to 1,500 unit reels.

ACC’s quality control philosophy is curative, whereas DJC relies on preventative methods. DJC applies a process centric, quality control strategy, which allows it to catch defective products early on in the production process. As a result, ACC’s defect rate is 26,000 PPM, which translates into quality losses of 1.6% of their average total production as compared to DJC’s 0.7%.

Another point for concern for ACC is the fact that DJC operates its Kawasaki plant in a highly synchronized manner, which allows DJC to operate with almost no work-in-progress inventory. As a result, DJC is able to cut production costs involved with the handling of these WIP inventories, and operate with less indirect labor. Also, DJC uses the just-in-time procurement strategy, allowing it to maintain lower raw material inventories of 5 days as compared to ACC’s Sunnyvale’s 10.8 days. Both these factors allow DJC to utilize more floor area for the production process; currently DJC is able to produce 15.1 units per square foot floor space in Kawasaki as compared to 10.9 units per square foot for ACC’s Sunnyvale plant.

The differences in asset utilization rates aren’t limited to the use floor space alone. DJC’s asset utilization is far above that of ACC’s. There are two primary reasons for this; the first is that DJC runs its plant continuously, 24 hours a day and 350 days a week, and secondly, DJC makes longer production runs. Both of these factors add up to reduce DJC's per unit cost of production, as well as lower total production costs by reducing start-up, shutdown, and changeover costs. In order to keep production at this level, DJC keeps a relatively high finished goods inventory of 56 days as compared to ACC’s 38 days.

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