American Connector Company Case Study

1286 Words 6 Pages
Register to read the introduction… The strategy of increased variety and production runs by the ACC would also affect labor in a number of ways. Direct labor costs would go up due to a larger amount of idle time associated with process changeover and the chance of increased problems associated with the increased number of changeovers (Process Failure: DJC, 1% compared to ACC, 8.9%; Non-Scheduled Stoppages: DJC, 13.2% compared to ACC, 23.5%). The emphasis on flexibility would also increase indirect labor as a larger number of people would be needed to manage the processes (Control: DJC, 11.7% compared to ACC, 16.7%), materials handling labor to manage the increased variety (Materials Handling: DJC, 3.2% compared to ACC, 10.4%), and an increased number of mechanics needed to handle process changeover (Mechanics: DJC, 4.3% compared to ACC, 11.9%). Furthermore, DJC employs a strategy in which they attract highly qualified entry workers with high starting salaries and do not continue to increase salaries, which ensures that they con-tinue to have higher percentages in direct labor as opposed to management positions. Finally, the strategy difference affects depreciation as the greater variety and flexibility requires …show more content…
As DJC enters the U.S. market, they will be able to quickly produce lower cost items and ACC can compete in one of two ways. The company can either choose to compete using their current strategy of increased variety and flexibility or completely change their strategy to focus on cost. ACC needs to determine what the needs of the customer are, and determine if the increased product variety is truly valued or if reduced variety and cost are val-ued.
Exhibit A on page 5 shows that nearly 60% of ACC’s increased costs over DJC come from their strategy of offering a broad product range. If the increased product variety is proven to be valued, efforts need to be focused on improving operational efficiency as many costs stem from inefficiencies within the plant. Furthermore, they would then need to emphasize service and quality as their strengths instead of cost. Even if they eliminate all operational inefficiencies, American Connector will still offer a product that is 30% more expensive than DJC. It should be further noted that an entrant of another major player in the marketplace would likely increase volume costs for ACC as demand would drop by some amount. Is the marketplace willing to pay a 30%+ premium for custom connectors? This is a question that must be seriously considered by ACC, as it is likely that many customers

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