Case 1: American Connector Company 1. erious is the threat of DJC to American Connector Company? How s
Regarding the AC Company, we can see that the market place they have been occupying the last years is changing. As their competitive advantage was the quality and customizable flexibility, and regarding that their finance people is no more letting them to buy the latest production equipment, their position in the market is going to suffer changes. In the long term, they will definitely lose their competitive advantage. On the other hand, both companies are different, and take different shares of the market. Since ACC takes the quality and quality share and DJC takes the mass production and low­cost share. Apparently there is no threat, however there is. This threat is real at the moment that the market suffers any change. If the demand for low­cost products increases and wins positions respect quality and performance, the AC Company will be automatically out. It is important to notice that this may happen even if DJC does not run a new plant in the USA. Considering this, the potential existence of a new plant, specifically focused in low­cost and mass­production performance, in the US market could be destroyer. If the new plant gets to be built, the customers may consider the option of adjust themselves to the new plant connectors, despite of the fact that previously they were continuously demanding new designs. The only way this may happened is in case the new Japanese plant gets to reach really low prices. In fact, we know that the American market is starting to hold back, this means that customers will probably tend to buy low­cost connectors more than seeking for high quality. The potential threat of the Japanese company is huge. Not only because of having to share the market with them, but also because the market is changing into their field. This is to say that the strategy advantage that the American company has, is no longer going to be an advantage, and also, that the marketplace of the Japanese company, is going to take that place. The strategic advantage of the Japanese company is going to be reinforced due to the market hold back. Furthermore, looking picking up Exhibit 3 we can see that the costs associated with design changes is U.S.$3.4 1. Within the assumption of the trend of the market into low­cost, the Japanese company is a real threat. If we take a look at Exhibit 8, we can see how the Japanese company will be able to increase considerably their performance in the US, basically due to the incredibly low prices rates. This should be considered in a medium­term frame. 2. USA is different. DJC will not be working at home. Businesses are done differently and the cultural shock is something to have in account. It should be also to be considered that the Japanese network at US is not developed yet, and therefore it will take a long time of hard work, tries, and big efforts to be properly established at the US. 3. One of the main strengths of the Kawasaki plant is that the situation of the plant itself, directly affects its capability of production. Its situation, very close to major Japanese electronic companies, and moreover, close to raw materials suppliers, is a fundamental part of the logistic strategy of the company. It is obvious that the logistic strategy of the

plant affects the variability of production. This allow the Kawasaki plant to not stock products. And also to start the production process with almost no delay, as well as fast reaction in case raw materials suppliers do not satisfy the demands for any reason. We do not know if the new Japanese plant in US will be able to fit its location with the same good advantages from the logistics point of view. 4. If we assume also that the new company will follow the same way of doing than in Kawasaki, they will not have stock. It is true that they will lose customers if they demand in rush orders, because the Japanese company is not used to this. However, having the lower price of the market also provides them with a strong power of negotiation.

2. How big are the cost differences between DJC's plant and American Connector’s Sunnyvale plant? Consider both DJC’s performance in Kawasaki and its potential in the United States. Exhibit 8: ACC DJC Raw Material Product 0.60 1 Labour Electricity Depreciation Other

Packaging Direct Indirect 0.60 1 1.10 1 1.10 1 0.80 1 1.00 1 1.00 1

From this table we can pull out that the US is a friendly place to run a business in comparison with Japan. Cheaper raw materials in a ratio of almost half price. Also cheaper electricity, what is very important considering that Kawasaki plant is producing 24 hours a day 7 days a week. Regarding the depreciation, if take a look at Exhibit 7 we can check that in 1991 the depreciation of molds machines at DJC was much lower than at ACC. This makes no sense since at Kawasaki plant molds were replaced every 3 years, while at Sunnyvale plant were replaced every 10. The reason why DJC could get a better depreciation was due to the fact that they produced their own mold machines. Hence, this was a competitive advantage that turned into higher costs and less quality for ACC. On the other hand, the logistics at the U.S probably will not be as good as in Kawasaki. Supply efficiency and costs may be much higher. While this is something that Sunnyvale plant is dealing with already.

Something else must be taken into account when talking about costs. Sunnyvale company already has a reputation and a position in the market. If DJC wants to get share of the market, they will have to fight for it, and it will not be free.

3. What accounts for these differences? How much of the difference is inherent in the way each of the two companies competes? How much is due strictly to differences in the efficiency of the operations? Cost differences are due to two main reasons: Firstly, each company has its own competitive advantage in the market, therefore they try to maintain it with different strategies. In this case, DJC's competitive advantage is to offer standardized, low cost products while American Connector Company's competitive advantage is focused on offering products which are customizable and, at the same time, achieving high quality standards. Secondly, there is a difference in how efficiently each company operates their own plants. The exhibits 5, 6 and 7 reflect that Kawasaki plant is works more efficiently than Sunnyvale plant does. We will analyze each exhibit 1. Exhibit 7 . Manufacturing cost: A. Raw material, product: Raw material costs are greater in Kawasaki plant. There are two reasons that explain this fact. The first reason is that Kawasaki manufactures a higher production volume. In fact, DJC's production in 1991 was 700 million units, compared to 420 million units manufactured by ACC. The second reason is that the prices of raw material in Japan are almost the double than in the United States. Assuming that raw material prices did not change between 1986 and 1991, in that period DJC could reduce its raw material cost by a 15%. In that period ACC achieved a reduction of raw material cost by a 9%. This change during the time reveal that the improvement of raw material waste of production during the process was greater in DJC than ACC, which points that DJC is way more efficient in terms of utilization of raw material in their process. B. Raw material, packaging: Packaging costs in Kawasaki plan are mainly due to the higher production volume, however, the packaging cost difference is not as large as the difference on production volume. In 1991 the production of Kawasaki plant was a 67% higher than Sunnyvale plant, packaging costs were only a 31% larger in the the same year. If we take in account that the packaging cost index US/Japan is 0.6, we may say that there is an efficiency problem in Sunnyvale plant at the packaging process. C. Electricity :

In 1991 ACC's electricity costs were a 42% smaller than DJC's electricity costs. This difference can be explained by the way each company focuses its efforts in the market competition. Since DJC is focused in low cost components, the plant was planned to work 24 hours a day, 7 days a week, therefore the electricity consumption is greater than ACC's electricity consumption. We can add to this fact that electricity prices in Japan are higher than in United Sta 1. sT te hus, the DJC's electricity costs are higher not only because the electricity price is greater in Japan, but because number of hours the Kawasaki plant is running is larger. D. Depreciation: The DJC's depreciation costs in 1991 are lower than ACC's costs is due to several reasons. One reason is that DJC substitutes molds earlier than ACC does. In comparison, DJC substitutes molds after 3 years approximately while ACC molds are substituted after 8 years approximately. This substitution policy of DJC is oriented to increase reliability of the plant in the way that it keeps running without any unexpected interruption due to a loss of quality on the molded product. This could led to a lower depreciation costs. ACC, because of its competitive strategy, its molds are more expensive and they would not be able to apply this policy at the Sunnyvale plant. However, the main reason that could explain such low depreciation costs is that DJC can produce their own molds and therefore, the molds that they use are way cheaper for the reason that DJC company was not forced to buy molds to another company. The policy of producing their own molds started in 1986 when the company did not have enough money to buy molds. Thus, DJC was forced to produce its own molds. That is the reason why the depreciation costs in that year were that high. In 1991 seemed like DJC learned how to produce molds efficiently and therefore depreciation costs decreased drastically and ended up smaller than ACC company's depreciation costs. 2. Exhibit 5 . Labor use. The data obtained from exhibit 5 is related to the labor use in each company. Because of the high reliability of Kawasaki plant the 68% of the labor use is destined to direct labor, which is a larger rate compared to Sunnyvale plant which uses only a 54% of its manpower on direct labor. Having a larger number of employees working on direct labor increases the production for the same number of employees in the plant. In
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index US/Japan is 0.8 The

addition, thanks to Kawasaki plant's high reliability the manufacturing process suffer less number of unexpected detentions generated by quality problems or machine exhaustion. All this give lower quality control costs and maintenance control. This strategy can be followed by low cost companies but not by companies like ACC which are more focused on customizable products. For instance, ACC is forced to be changing molds and manufacturing processes because the manufactured products are not standardized. In conclusion, differences on the results given in exhibit 5 are due to a different competitive strategy in each company. 3. Exhibit 6 The data obtained from exhibit 5 is related to the productivity of each company. A. Connector output per square foot is related to the level of utilization of the available space in the plant. If this number is larger, the efficiency of the utilization of the available space is higher. Therefore, this index can be used as an indicator of efficiency on the plant's operation. B. Connector output per employee is related to the factory automation. Data given suggests that Sunnyvale plant has a lower level of automation compared to Kawasaki plant. However this difference is due to the way this two plants work and not to the efficiency of the operations itself. Sunnyvale manufactures mainly non­standardized products, then the processes can be hardly automated. In contrast, Kawasaki plant, which produces standardized products, has the possibility to automate the majority of its processes. C. Fixed asset utilization is related to the assets utilization owned by each company. Data reflects that Kawasaki plant presents a higher level of utilization of its assets, a 75.4%, compared to Sunnyvale plant's level of utilization, 30.2%. This is a expected fact since Kawasaki plant produces standardized products and the production flow can be more homogeneous. However, the fact that the difference between both companies suggest that there is a lack of efficiency in Sunnyvale plant.

4. What should American Connector's management at the Sunnyvale plant do? The market's demands have changed throughout the years. Independently of the rumors ACC has to adapt to the new demands of the market.

Therefore, we recommend to offer a new line of products. This new line of products should be standardized and low cost, maintaining the high quality. The new line of products will be manufactured in a new plant, located near the main suppliers in the US and as close as possible to the main customers, thanks to this strategic location we expect that logistics cost would decrease. The new plant will follow the model of Kawasaki plant and DJC's philosophy. The Sunnyvale plant will focus exclusively on high quality and customization products, with low production volumes. In this plant the production philosophy "Just in Time" will be implemented in order to decrease the WIP and increase flexibility of the plant. The space of the plant will be reduced to the maximum and the excess of space will be used to hold a R&D area which will be in charge to improve processes, materials and molds for both plants, i.e. Sunnyvale plant and the new plant. After this changes on the manufacturing strategy, the customers will be able to choose between two different types of products. First, one product with high level of sophistication and customization, reaching maximum quality standards in low volume of production. Second, another product with low price, high standardized, high quality standards and high volume of production. With these measures, ACC company will maintain its reputation of high quality manufacturer and it will open to the market's new demands.