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Operation Management

Case Study Report on: Applichem

Submitted to
Prof. Janat Shah

Submitted by

Group A11
Anoop Ambala (166016)
Prateek Samantaray (166111)
Shivang Sabharwal (166161)
Shubha Singh (166163)
Sumit Kumar (166177)

Section A

Submitted on
07.12.2016
Case
Write-Up Applichem

1. Compare the performance of AppliChems 6 Release plants.

For comparing the performance of all the plants first we have to compare all the parameters of
the plants. So first compare the parameters. The parameters are Cost price, average yield as per
standard set, quality and technology.

Parameter Frankfurt Mexico Gary Venezuela Sanchem Canada


Plant 1961 1968 1951 1964 1957 1955
Design
Product 13 products 7 products 20 product 2 products 2 products 5 product
Variety & 2 families & 8 families
formulation formulations
Packaging 50 kg 50 kg 80 packages 50 kg Many 50 kg
package package size package packages package
Capacity 47M 22M 18.5M 4.5M 5M 3.7M
Sales 38M 17.2M 14M 4.1M 4M 2.6M
Utilization 80.9 78.2 75.7 91.1 80 70.3
%
% Average 98.9 94.7 90.4 91.7 98.8 91.1
yield on
RM
Others Computer Low Loyal Low Technically No union,
control worker workers, No worker perfect, Joint Quality
from 1982 education, union education, Venture, Test Conscious
Serves Old labs but
East equipment some govt.
market norms
Total Cost
$ per 100 P 76.69 95.01 102.93 116.34 153.8 97.35

Above we mention all the parameters from which we are comparing the performance of plant
productivity.
All the plants are made with different standards and requirements so we cant measure the
performance on a whole with the others.
So first we measure each parameter and then conclude which was better.
1. Price

If we see the cost of Release-ease per 100 pound, we find that Frankfurt costs us minimum and
Sanchem maximum. But as all the plants are at different place, so we cant compare directly.

Parameter Mexic Canada Venezuela Frankfurt Gary Sanchem


o
Raw Material 75.05 68.7 87.29 53 60.83 91.86
Direct labor,
salary 2.38 7.03 4.68 5.78 8.46 12.82
Maintenance 1.6 2.75 2.17 1.34 3.71 3.77
Quality control 0.64 1.3 1.81 0.57 1.54 2.77
Plant Admin 1.11 3.62 4.58 2.91 1.22 4.07
Total 80.78 83.4 100.53 63.6 75.76 115.29

So we only consider the parameters which are in the table because other than that depreciation
depends on plant Machinery, Utility cost is different for different plants, As in Sanchem
electricity cost is very high. Other than that due to government norms Sanchem was expended
more in waste treatment. Thats why it was also not considered. Development and others are not
given for every plant so we also excluded that. And the cost price we took is without packaging.
But we still find that the Release-ease has lowest price in Frankfurt and maximum in Sanchem.
But now we find that Gary become the second to Frankfurt.

2. Average Yield on Raw Material

If we compare as per the average yield, we find that it is almost same for Frankfurt and Sanchem
but as per the standards average yield should be 91-92% for small, 94-95% for medium and 98-
99% for High production. On that basis all the plants are performing as per standards other than
Gary. But in Gary all the R&D work was being done. So it is again hard to measure on this basis
also. Sanchem plant performance is better than the others. It is because due to the better practice,
better waste treatment and testing labs.

3. Quality

Sanchem and Canada plant had given more emphasis on quality. Due to this only Release-ease
got the license of sell in Japan. Also quality production will help the company to be in top of the
market.

4. Technology

As given in the case Sanchem had the better technology than the other plants. And Company is
thinking of sending managers from Sanchem to other plants for having better practices there
also. So on that front Sanchem is ahead of the other plants

As company is there for profit so Frankfurt was better performer than the others. As company
has standard product there and it is working on economies of scale. Also the company has
different type of facilities in other plants. Gary had the R&D department, managers and
employees get the better knowledge from the Sanchem plant. So you cant compare the
performance of the plants.

2. Why were some plants better performance than others?

As we see in the points that were mentioned above that we get performance of some plants better
than the other, It is because of the below mentioned reasons.

1. If we see cost price, it is maximum for Sanchem and minimum for Frankfurt. But both are
different type of plant. Frankfurt was of high capacity where as Sanchem, Venezuela and Canada
were of low capacity plant. So overhead cost was more in the small plants.

2. Yield of raw material was also different for different plants because of their size. Sanchem has
a better waste treatment, technology and testing labs, so its yield is more on the other hand Gary
has the R&D department, so its yield is less than the others.

3. Company has different packing sizes for different plants, As Gary has more no of packaging
types and due to it cost price is more for Gary relative to Mexico. As both are medium
production plants. So due to packaging types also performance is different for plants.

4. Government norms also played a role in the price of the product in different plants. Because of
government norms Sanchem plant had to recruit more workers and due to that also cost of
Release-ease was more in Sanchem.

So some plants are not performing better than the others is just because the plants are in different
locations and have some restrictions and due to process type. They are looking better than the
other plants.

3. How would you advise Joe Spandro to configure his worldwide manufacturing system?
Actual volume of products made and shipped (all in million pounds)

Mexico Canada Venezuela Frankfurt Gary Sunchem


Mexico 3.0 6.3 7.9
Canada 2.6
Venezuela 4.1
Frankfurt 5.6 20 12.4
Gary 14
Sunchem 4.0
As it is given in the question that the company is shipping the above mentioned quantities to
other countries. So we will first calculate the total cost to company on shipping these quantities.

Transportation Cost

Mexico Canada Venezuela Frankfurt Gary Sunchem

Mexico 0.00 0.00 0.44 0.00 0.00 1.11


Canada 0.00 0.00 0.00 0.00 0.00 0.00
Venezuela 0.00 0.00 0.00 0.00 0.00 0.00
Frankfurt 0.00 0.00 0.70 0.00 1.39 0.00
Gary 0.00 0.00 0.00 0.00 0.00 0.00
Sunchem 0.00 0.00 0.00 0.00 0.00 0.00
In $ millions

Duty Cost

Mexico Canada Venezuela Frankfurt Gary Sunchem

Mexico 0.00 0.00 2.99 0.00 0.00 0.45


Canada 0.00 0.00 0.00 0.00 0.00 0.00
Venezuela 0.00 0.00 0.00 0.00 0.00 0.00
Frankfurt 0.00 0.00 2.15 0.00 0.43 0.00
Gary 0.00 0.00 0.00 0.00 0.00 0.00
Sunchem 0.00 0.00 0.00 0.00 0.00 0.00
In $ millions

Total Cost

Country Production cost/million Production cost Transportation cost Total cost


Mexico 17.2 950100 16341720 4990000 21331720
Canada 2.6 973500 2531100 0 2531100
Venezuela 4.1 1163400 4769940 0 4769940
Frankfurt 38 766900 29142200 4670000 33812200
Gary 14 1029300 14410200 0 14410200
Sunchem 4 1538000 6152000 0 6152000
Total 83007160
So total cost to company is $ 83,007,160
Revenue generated = $ 1.01 x 79.9 million = 80,699,000

Loss = $ 2,308,160
But the company can reduce it loss by changing the production of the plants and changing
shipping strategies. As we made a table from which we can get in which country the cost is
minimum for the plant

Cost per pound in the countries

Mexico Canada Venezuela Germany USA Japan


Mexico 0.95 1.06 1.50 1.15 1.10 1.15
Canada 1.66 0.97 1.55 1.18 1.07 1.16
Venezuela 1.93 1.26 1.16 1.40 1.32 1.37
Frankfurt 1.32 0.88 1.27 0.76 0.91 0.94
Gary 1.74 1.08 1.64 1.22 1.02 1.21
Sunchem 2.59 1.66 2.42 1.82 1.73 1.53

So from the above table it is easy to determine from where it can sell its products to different
areas.

For Mexico it is better to use product of Mexico based plant only. As shipping charges cost more
than it.
It can close down Canadas plant as Frankfurt product cost less there, same with the case with
Sanchem also. But in Japan Companys business is 11.9 million and that can be affected if it
close down Sanchem plant. As it is given in the case a new company is approaching Japanese
govt. so it might affect the business there, So Company will continue with the production of
Sanchem. So the new shipping of products would be like as mention in the table

Mexico Canada Venezuela Frankfurt Gary Sunchem

Mexico 3 2.4
Canada
Venezuela 4.5
Frankfurt 2.6 11.5 20 5 7.9
Gary 18.5
Sunchem 4
In million
Assumption overhead cost will remain same. As it is changing for every company.

Frankfurt, Venezuela and Gary plant will manufacture its full capacity.

Total Cost = $ 79,725,998


Revenue = $ 80,699,000
Profit = $ 973,002
So the company can go with this technique of supply to different countries for better
performance