If DJC is able to set up a plant, on the lines of its Kawasaki plant, in the United States, it will obtain significant cost advantages in raw material costs. According to exhibit 7 and exhibit 8, these costs will reduce, from their current figure of $14.89 per 1,000 units, to $8.93 per 1,000 units. Considering the fact that raw material costs form almost half of the total costs this will pose a real threat to ACC. These cost advantage will also extend to packaging costs since DJC uses cheaper reel packaging and packs 2,000 units per reel, whereas ACC has a wide variety of packaging, from 10 unit packs to 1,500 unit reels .
Questions to Consider (Prepare for in class discussion)
1. How serious is the threat of DJC to American Connector Company? 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.
2. Create a table such as the following table on the next page:
Product RawMat Packaging Labor(total) Electricity Depreciation Other.
3. What doyoulearnfrom theabovetable?Diagnosethebasis of ACCcostdisadvantage.What factorsisitdueto(forexample,productmix)?Howworrisomeisthecostdisadvantage? What shouldACC do?