American Connector Company Case Study
AMERICAN CONNECTOR COMPANY CASE STUDY
Q1 How serious is the threat of DJC to American Connector Company?
Answer - The threat of DJC to American Connector Company is very high. Following are the reasons:
Ø 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 ($/1000 Units) | PLANT IN USA | Raw material, Product + Packaging | 12.13+2.76=14.89 | 14.89 * 0.6 =8.93 |
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Ø As Sunnyvale’s defect rates are at 26000 PPM of production which is relatively high. The Quality control of DJC is process centric where each process is QC monitored unlike in Sunnyvale its end product inspection. The quality losses of DJC and ACC over total production are 0.7% and 1.6%. So, Quality is one grey zone which needs to be addressed by ACC.
Ø Work in process inventory cost is very high in case of ACC in comparison to DJC. This in turn is reduces connector output per square foot as extra space is required for WIP and finished goods(15.1 of Kawasaki VS. 10.9 of Sunnyvale).
Ø As Kawasaki plant is working for 24hrs/day thus the asset utilisation is maximum and Connector output per employee is very high. (75.4% of Kawasaki VS. 30.2% of Sunnyvale)
Ø Due to high number of product variations in customer orders of Sunnyvale which is employing batch production system there is frequent changes in product manufacturing lines thus resulting in lower efficiency which could be obtained in case of standardised products.(Product lines were as small as 1.5 to 2 days)
Ø The raw material inventories of DJC is averaging only 5 days as compared to 10.8 days of ACC. So, DJC is incurring less Inventory cost which again reduces finished good cost.
Q1 How serious is the threat of DJC to American Connector Company?
Answer - The threat of DJC to American Connector Company is very high. Following are the reasons:
Ø If DJC sets up manufacturing base in USA, as per the exhibit 7 and exhibit 8 the raw material cost for DJC in USA will drastically reduce. Current Raw material product and packaging cost is 14.89 which will reduce to 8.93 in USA.As the raw material cost is almost half of the total finished goods cost, the raw material cost reduction would be substantial. Cost head | KAWASAKI ($/1000 Units) | PLANT IN USA | Raw material, Product + Packaging | 12.13+2.76=14.89 | 14.89 * 0.6 =8.93 |
·
Ø As 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, Quality is one grey zone which needs to be addressed by ACC.
Ø Work in process inventory cost is very high in case of ACC in comparison to DJC. This in turn is reduces connector output per square foot as extra space is required for WIP and finished goods(15.1 of Kawasaki VS. 10.9 of Sunnyvale).
Ø As 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)
Ø 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)
Ø 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.