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American Connector

Question 1

DJC establishing a manufacturing facility in the United States of America will represent a

significant threat to the American Connector Company. DJC's raw material expenses will reduce

as a result of Japan's twice-as-expensive raw materials. DJC currently manufactures items at a

cheap cost in Japan; the low cost of raw materials will further reduce costs. Additionally,

Sunnyvale's high failure rate benefits DJC, which has instituted process quality control. ACC's

work-in-process inventory expenses are higher than DJC's. This demonstrates that ACC's prices

are prohibitively high, preventing them from offering more affordable goods (Sullivan, 2020).

Customization is both a benefit and a drawback of ACC. It enables businesses to access a

broader selection of items, but efficiency suffers as a consequence of this personalization. DJC

has a high capacity utilization rate and a high output to input labor ratio. Additionally, DJC's

delivery time is reduced due to automated manufacturing procedures. In contrast to ACC, which

requires a minimum of two days for delivery due to the increased time required to produce

batches of various connection types. Additionally, ACC's raw material inventory costs are

greater because to the poor turnover. DJC has a five-day turnover, but ACC has a 10.8-day

turnover, more than double that of DJC. These distinctions demonstrate that DJC poses a

significant threat to ACC. Except for the customization and variety advantage, DJC has a

competitive edge in all other areas of difference. It demonstrates the magnitude of the danger

Question 2.

There are numerous cost differences between ACC and DJC. DJC has embraced

sophisticated technology, enabling it to minimize the cost of its goods and provide them at a

cheaper price than the competition. DJC's raw material expenses are high at Japan's Kawasaki
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facility due to the high cost of raw materials. When comparing Kawasaki to ACC, the cost

disparities are significant, with Kawasaki using costlier raw materials. DJC, establishing a

facility in the United States of America would result in significant cost savings for DJC.

i. Costs of raw materials, finished goods, and packing

Kawasaki: $12.13 + $2.76 = $14.89 

US Plant (DJC):  $14.89 x 0.6 = $8.93

Percentage Cost reduction of raw materials is by 59.97 %

The Kawasaki facility is equipped with standardized packaging technologies. As a result,

its packing costs are cheaper than those in Sunnyvale.

Sunnyvale's labor expenses are high because to the increased inventory of work in progress and

completed items. Due to the complexity of the plan environment and the management of the

extra space, a higher number of laborers are required. As a result, labor expenses are higher. Due

to Japan's higher power expenses, the USA facility would have lower electricity costs.

ii. Electricity Costs

$1.40 Kawasaki, USA Plant: $1.40 x 0.8 = $1.12

For 1991, ACC's Sunnyvale factory's total production cost is $13.549/1000 units greater

than DJC's Kawasaki plant, a difference of 40.10 percent. The difference in cost is mostly

attributable to the difference in labor costs. For ACC, labor expenses increased from $8.53 to

$10.30 between 1986 and 1991. On the other hand, labor expenses for DJC have reduced

significantly, from $ 9.93 to $ 3.77.

Question 3

The primary cause for cost variations is the fixed asset's utilization. DJC operates on a

continuous basis, ensuring that all equipment is used to the fullest extent possible. As a result,
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output is increased, inventory turnover is increased, and the return on assets is increased. Second,

raw resources in Japan are more expensive than in the United States. Thirdly, the diversity of

batches generated in ACC necessitates additional setup time. Additionally, it implies a lack of

skill in producing a particular product, implying inadequate quality for each version created.

 DJC saves much on packaging because they package their goods in set reels of 2000,

while AC uses a variety of packing sizes ranging from a 10-piece box to a 1500-piece reel. This

is because DJC specializes in basic items, while AC specializes in bespoke products with a lower

order quantity. Thus, this is a feature of the way businesses compete. The greatest cost disparity

between the firms is in labor expenses (Fitzsimmons, 2020). This is due to the extent to which

DJC automates its procedures. Additionally, due of its philosophy of increasing process

reliability, inventory management, and high quality (1 flaw per million compared. 26,000 faults

per million), it did not need personnel to monitor these. Thus, even though DJC pays its workers

more than the industry average, the company maintains minimal labor expenditures. This is

owing to its increased efficiency as a result of automation.

There is a depreciation advantage which is much greater in the case of air conditioning.

This may be due to increased wear and tear caused by equipment starting up and shutting down

more often as a result of the shorter operation duration (average of 1 and half days at American

Connector whereas there were 7 days at DJC). This is logical, given AC is required to accept

lower-volume orders because to its focus on clients seeking bespoke items. Thus, this is

fundamental in the way businesses compete.

Question 4

ACC may also utilize the Kawasaki plant structure by having four distinct cells dedicated

to each of the four major connection groups. This will aid in the process's efficiency
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improvement. Additionally, if special orders are necessary, a dedicated cell/manufacturing line

may be established to ensure that any changes in the production schedule caused by rush orders

do not influence the other goods.  By lowering the failure rate, you may eliminate the need for

rigorous quality inspections (Rossi, 2018). One strategy for minimizing flaws was to concentrate

on molding technique. Molds should be changed more often, and modern technology should be

employed to minimize faults.

ACC might attempt to concentrate its efforts on creating in-house technologies in order to

lessen its reliance on vendors. This would contribute to lowering the defect rate, which now

stands at 26,000 per million.  ACC has the option of reducing the number of package sizes it

provides. At the moment, it provides a wide variety of sizes (10 to 1500), which results in high

packing costs. This has the potential to result in cost savings associated with packing.  Another

option for ACC would be to integrate the product design improvements made by DJC in order to

lower their material prices.