Q1 How serious is the threat of DJC to American Connector Company?

If DJC enters the US market it can pose a serious threat to American Connector Company for the
following reasons.
1) The dependence of DJC on in-house technology development developed in house by
engineers with strong competencies. There is a competitive edge over ACC as it outsources its
manufacturing process development. The same technology can be utilised by the competitors
like ACC generating similar products in terms of quality.
2) If DJC enters US market the raw material costs for product as well as packaging will reduce by
40% making it to $8.9 per 1000 units when compared to $14.89 in Japan. Electricity costs will
also decline by 10%. Though the labour costs for both direct as well as indirect will increase
by 10% the overall change in costs will be negative reducing overall costs.
3) DJC has lower lead times averaging 2 days as compared to ACC for which it averaged 10 days.
4) The output per employee for DJC’s Kawasaki plant is 702.8% of ACC’s Sunnyvale plant which
is a primary reason behind DJC’s high production. Also, utilization of fixed asset for DJC is-
74.5% in comparison with 30.2% for ACC’s Sunnyvale plant.
5) Kawasaki plant due to standardization of its products has lower quality losses as compared to
ACC which offers custom products as per customer’s requirements.
6) Even if DJC copies the outsourcing manufacturing model of ACC the costs will be substantially
less as the raw material costs is lesser with superior control over the manufacturing process
(fully automated) by DJC will give it a competitive edge over ACC.

7) If DJC sets up manufacturing base in USA, as per the exhibit 7 and exhibit 8 the raw material
cost for DJC in USA will drastically reduce. Current Raw material product and packaging cost
is 14.89 which will reduce to 8.93 in USA.As the raw material cost is almost half of the total
finished goods cost, the raw material cost reduction would be substantial.
Cost head KAWASAKI ($/1000 Units) PLANT IN USA

Raw material, Product + Packaging 12.13+2.76 = 14.89 14.89 * 0.6 =8.93

8) At ACC Sunnyvale’s defect rates are at 26000 PPM of production which is relatively high. The Quality
control of DJC is process centric where each process is QC monitored unlike in Sunnyvale its end
product inspection. The quality losses of DJC and ACC over total production are 0.7% and 1.6%. So,
control over manufacturing process and its costs is a grey zone which needs to be addressed
9) Work in process inventory cost is very high in case of ACC in comparison to DJC. This in turn has reduced
the connector output per square foot as extra space is required for WIP and finished goods (15.1 of
Kawasaki VS. 10.9 of Sunnyvale).
10) The Kawasaki plant is working for 24hrs/day thus the asset utilisation is maximum and Connector
output per employee is very high. (75.4% of Kawasaki VS. 30.2% of Sunnyvale)
11) 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) But customisation according to user needs keeps ACC in an advantageous position. So
better control over its processes is the need of the hour to compete with DJC if it enters the market
and also to improve upon the efficiency of ACC.
12) The raw material inventories of DJC is averaging only 5 days as compared to 10.8 days of ACC. So, DJC
is incurring less Inventory cost which again reduces finished good cost.
13) 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).

The edge ACC has over DJC is the flexibility of production process at DJC is less when compared to that
of ACC. ACC has batch production process which allows it to have high customization of products to
its customers. The factors that give ACC the advantage is quality assurance and customised end user
offerings

But it is imperative for ACC to work upon its manufacturing efficiencies in the areas detailed above
to be remain competitive if DJC forays into US market.