INDUSTRY OVERVIEW Connectors are used to attach wires to wires and other electrical components. In 1991, it was a fragmented $16 billion industry. DJC and American Connector Corporation were second-tier companies in the market, with sales between $500 million and $800 million. IMPACT OF DJC'S ENTRY INTO THE AMERICAN MARKET The year 1991 witnessed a sharp decline in sales (3.9%). The abundance of suppliers imposed competition based on quality, cost and speed of delivery. Therefore, already struggling American companies, such as ACC, were wary of DJC's entry into the American market.DJC'S THREAT TO THE AMERICAN CONNECTOR COMPANYM. Larsen, vice president of ACC, believes the Sunnyvale plant is struggling with operational problems, including deteriorating quality and increasing costs. With better manufacturing methods and higher quality, DJC would be able to capture some of ACC's market share. Some of the important factors that could tip the balance in DJC's favor are: • Manufacturing excellence has been DJC's strength, driven by continuous process improvement and close attention to customer needs. Their cellular manufacturing approach by dividing the factory into small, homogeneous and cohesive production units facilitates production and quality control. Continuous operation of the plant and good plant layout ensured maximum asset utilization, low work-in-progress inventories and relatively higher finished goods inventories. • Pre-automation meant that the production process could be automated once it had been understood, designed and organized, ensuring rapid identification. problems and corrections, ensuring quality manufacturing. Internal technology development and cross-functional coordination of all its technology development activities creating customer value, process efficiencies and differential advantage for the business. • Emphasize high quality from suppliers by enforcing strict quality standards. The focus on just-in-time delivery of raw materials has ensured low inventory levels and, therefore, lower warehousing and inventory holding costs. COMPETITIVE COST ASSESSMENT AND DJC’S POTENTIAL IN THE US MARKET Exhibit (2) shows the cost assessment for ACC and DJC with their current cost structure. . ACC has a significant advantage in its material cost due to its geographic location while DJC has an advantage in its labor cost. DJC has an efficient production system and employs less labor, which helps it reduce its labor cost. DJC's wise investment in technology development has helped it reduce depreciation costs. For DJC, depreciation cost contributes 6.89% to the total product cost while for ACC, it is 15.09%. The overall production cost of DJC is $7.69 lower than that of ACC. The potential of DJC on the American market is analyzed in the exhibition. (3).