American Connector Company Case Essay

1286 Words Sep 20th, 2008 6 Pages
American Connector Company Case
Severity of Threat by DJC
The American Connector Company (ACC) should be extremely concerned with the im-pending entrance of DJC to the US landscape. Any new entrant will most likely be of the mentality to try and take as much market share as quickly as possible. This course of action usually involves a period of time when the new company will plan on operating at a loss, and will thereby be will-ing to price below market average with small margins. Realization of this threat would immedi-ately disrupt ACC’s pricing strategy and could affect long term profitability.
The threat of lower prices is compounded by the intensity of the current competitive mar-ket. ACC should be concerned with any new
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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 more equip-ment for fewer units, which increases costs of depreciation.
The third aspect in terms of cost difference is in operational inefficiency. This can be hard to separate from strategy in that the ACC’s strategy inherently increases the chances for operational inefficiency. However, the obvious effects of operational inefficiency are reductions in utilization and productivity, which increases the costs of labor and depreciation of equipment due to the same arguments presented previously. Exhibit B on page 6 shows that DJC produces far more units per person than ACC, by a factor of ten. This alone indicates a huge challenge for ACC should they be forced to

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