AMERICAN CONNECTOR

COMPANY- CASE STUDY

Submitted to Prof. Anshuman Tripathy

Group 11 Section F
Manchuri G Ravi Theja 1611379
Anandsingh Chouhan 1611381
Meghna Shah 1611405
Safal Pachpute 1611422
Sonali Gupta 1611433
Twinkle Rastogi - 1611440
 Question 1: How serious is the threat of DJC to American Connector company?

Answer: DJC poses an eminent threat to ACC because of the following reasons:

1. Cost of raw materials:

Although the overall cost of DJC is higher than that of ACC, it is primarily because of the almost double
cost of raw materials in Japan. As per Exhibit 7 & 8, if DJC were to set up in US its cost of raw materials
would reduce by 40%. Thus, current cost would come down from $14.89 to $8.93 which is less than
$11 for ACC. Thus, they can heavily discount by leveraging this cost advantage.

Cost Category DJC (Kawasaki) DJC (Plant in ACC Plant

US)

Raw Material 12.13 7.28 9.39

Product Packaging 2.76 1.65 2.11
Total 14.89 8.93 11.50

2. Defect Rates:
The defect rate of DJC is very less as compared to 26,000 PPM of ACC. This arises from the process
control in DJC in which defects are monitored at each step where in case of ACC the inspection is done
at end. Thus, loss due to quality issues is just 0.7% in DJC as compared to 1.6% in ACC as percentage
of total revenue.

3. WIP Inventory:
WIP inventory costs are high for ACC because processes are not streamlined. This reduces the
connector output per square foot as this WIP inventory occupies more space which is 15.1 for ACC as
compared to 10.9 for Sunnyvale.

4. Continuous process in DJC

The DJCs Kawasaki plant works 24 hours a day for 330 days a year. Millions of units are thus produced
in this process and the fixed cost per unit reduces, depreciation is therefore better justified in this
case. Imagine in a 24-hour cycle ACC having approximately 2 shifts while DJC having 3 shifts. DJC could
produce more than twice as much as ACC due to its smaller SKUs. Also, output per employee is very
high. (75.4% of Kawasaki VS. 30.2% of Sunnyvale).

5. Lower SKUs:
Due to high number of product variations in customer orders of Sunnyvale which is employing batch
production system, there is frequent changes in product manufacturing lines thus resulting in lower
efficiency which could be obtained in case of standardised products. (Product lines were as small as
1.5 to 2 days)

6. Labor cost:
Size of the Workforce is relatively large for ACC compared to DJC because of the no. of products
produced. This stems from the fact that ACC produces more product lines than DJC. Moreover,
operation in DJV is automated which reduces the labor cost for overall operation of plant even though
it operates 24 hours/day.

7. Lead time:
The speed of customer order delivery of DJC is one day (because of highly automated production
process at Kawasaki plant) whereas the speed of customer order delivery of ACC is more than one day
(because of batch production process producing about 4,500 varieties of connectors).
Q2) How big are the cost differences between DJCs plant & ACCs Sunnyvale plant? Consider both
DJCs performance in Kawasaki and its potential in the United States.

The following table summarizes the various costs incurred at the production facilities of DJC and ACC
and the percentage differences between the two.

Parameters
Cost Indices DJC Kawasaki DJC Normalized ACC Sunnyvale
(US/Jap) Cost Cost Cost Difference %

Raw Material,
Product 0.60 12.13 7.28 9.39 (29.02)

Raw Material,
Packaging 0.60 2.76 1.66 2.10 (26.81)

Direct Labor 1.10 3.02 3.32 - -

Indirect Labor 1.10 0.75 0.83 - -

Total Labor 1.10 3.77 4.15 10.30 (148.37)

Electricity 0.80 1.40 1.12 0.80 28.57

Depreciation 1.00 1.80 1.80 5.10 (183.33)

Other 1.00 4.24 4.24 6.10 (43.87)

Total ($/1000
units) 26.10 24.39 33.79 (38.55)

Parameters
DJC Kawasaki ACC Sunnyvale

Employee Count 94 396

Connector Output/employee 7.45 1.06

Total Output (Mn Units) 700.3 419.76

 Some inferences that can be drawn from the above data are listed as follows-

1) The most significant difference between ACC and DJC out of the several parameters is labour. There is
almost a 150% difference in labour between the two. ATCs labour is very underutilised. Their output
per labour is very low when compared to the connector output per labour/ employee of 7.45 for DJC.
Thus, even though ACC has 396 employees, compared to just 94 at DJC, their output of connectors is
just 420 million units compared to 700 million units at DJC. This is because of the high productivity of
labour at DJC.
2) The suppliers for DJC at Kawasaki were very closely synchronised with the production process at DJC
that they supplied raw material daily. This meant that there was no need to maintain an inventory and
thus a relief from the associated inventory costs. This arrangement was very crucial for maintaining
the low costs at DJC and would be hampered, thus leading to increase in the inventory costs for DJC, if
a similar kind of system is not possible in the US as the one with Kawasaki.
3) When working for Kawasaki, DJC did not inspect the raw material they received as they trusted the
suppliers with whom they had built long term relationships over the years. However, while in the US,
this may lead to an additional cost as the suppliers in the US are new to them and cannot be trusted in
terms of the quality of raw materials delivered.
4) Electricity costs for DJC are higher than ACC. One possible cause for this could be the highly mechanised
production process at DJC. This might consume more energy as compared to the process at ACC.
5) The impact due to depreciation on cost structures will be dependent on the method of depreciation
applied by DJC in the US. It too, will contribute a lot towards the fixed costs at the facility in the US.