Acc Case Writeup

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$1.40*0.8= $1.12.

- Labour Cost:

The material handling costs at ACC is 10.4%, but for DJC it is 3.2%. Because the finished goods and WIP inventory for ACC is high when compared to DJC. So labor costs are incurred by ACC to maintain manpower to handle this.

This analysis shows that DJC’s costs are 40.1 % lower than ACC

The main reasons behind this differences are:

- DJC continuously runs the machines in the factory. So DJC has higher fixed asset utilization when compared to ACC

- Raw material cost in Japan is high when compared to US market.

- Due to the difference in production process, i.e., DJC produces less number of product varieties while ACC manufactures a variety of product mix.

- The defective products at DJC are less compared to ACC.

- DJC utilized in-house R&D technology effectively and customized machines according to their need reducing the external technology innovation

- Moreover, DJC chose perfect plant location close to raw material suppliers and end customers, i.e., electronic companies. By eliminating transportation and shipping costs. So they have an advantage to maintain low raw material inventory.

- Defect rate for ACC is high compared to DJC. This leads to decrease in profitability of ACC.

So if DJC sets up a plant in the US and manages it as the way they did Kawasaki plant, ACC will lose business. ACC is not upgrading their technology; this affects the operational efficiency of ACC plant.

4. What should American Connector’s management at the Sunnyvale plant do?

Cost Control measures should be taken by ACC like:

- To reduce the defect rate, i.e., 26000 per million connectors. ACC should employ quality control inspection team at each process level instead of at the end product.

- Increase the connector compactness to have some competitive advantage.

- ACC should raise funds for in-house R&D team to improve the production process by innovation.

- ACC stresses more on marketing and engineering teams rather than production team. Because production teams are responsible for the reduction of manufacturing costs.

- ACC should reduce the mould recycling time to save time and develop new designs.

- It should follow pull strategy for raw materials which is followed by DJC by establishing its plant near to the raw material suppliers. Establishing the plant near to suppliers and customers will lead to reduction in inventory holding cost and shipping costs.

- ACC can develop five different cells to cater four categories of connectors and one for customized connectors. This will improve the efficiency of the production process. Rush orders will not intervene in the operating capacity of the plant. So machines can be efficiently utilized.

- ACC should try to reduce the packaging cost by decreasing the no. of package sizes.

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