Question 1

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

If DJC can replicate its operations model of Kawasaki Plant and make an entry to US market,
there is potentially high threat for American Connector Company because of the following
reasons
1. Raw materials cost
DJCs product technology undertook value engineering and adopted cost saving
methodology for manufacturing. From exhibit 7 and 8, we can make the comparison
between DJCs Kawasaki plant and ACCs Sunnyvale plant for 1991 as tabulated below

DJCs Kawasaki Cost Index DJCs US ACCs Sunnyvale

plant equivalent plant
Raw material, product 12.13 0.6 7.278 9.39
Raw material, packaging 2.76 0.6 1.656 2.10
Total raw material cost 8.934 11.49

Effectively DJCs US equivalent raw material cost would be 77.78 % of ACCs Sunnyvale
plant cost.

2. Quality Control

Since US electrical connector market is fragmented, there are plenty of suppliers which
made customers price and quality sensitive. In 1990, Sunnyvale plants defect rates are
at 26000 per million units of production which is relatively higher than DJCs Kawasaki
plant. Sunnyvale followed old method of manual inspection towards the end of the
process where as DJC adopted efficient method of process centric quality control which
dropped the defect rates significantly. Hence quality control is a serious concern for
ACC.

3. Process lead time

In DJC, the manufacturing process is continuous, and the layout is planned in such a
way that reduces material handling steps and the distance WIP had to travel. This
efficient design has led to achieve processing lead time of average 2 days. Whereas ACC
has processing lead time of 10 days for standard products and 2 to 3 weeks for
customized products.

4. Asset Utilization-
The DJCs plant at Kawasaki has smooth and continuous process and working hours are
24 hours a day. This enabled the Kawasaki plant to utilize its assets at maximum. The
labour productivity is also high at Kawasaki plant (75.4%) against ACCs Sunnyvale
(30.2%).
5. Inventory Management-
Owing to continuous process system at Kawasaki resulted in lower inventory costs as
comparison to ACC.
The overall inventory management system can be classified as follows-
1- Raw material inventory: - The holding period for the DJC is 5 days (on average) as
compared to 10.8 days at ACC.
2- Work in Progress (WIP) inventory: - ACC provides high customized products to its
customers whereas DJC is focused towards standard products. Owing to high
customization WIP for ACC is high against DJC.
3- Finished goods inventory: - At this overhead, ACC has cost advantage over DJC due
to low finished good inventory. The period is 38 days at ACC to that of 56 days at DCC.

Continuous process flow system at DJCs Kawasaki resulted in higher output per square
foot area of 15.1 as compared to 10.9 for ACCs Sunnyvale.