Operations Strategy

Class Assignment: Applichems Capacity Strategy

We can clearly conclude from the data given in exhibit 1 that manufacturing costs were way too
high in the Sunchem plant in Japan, as high as almost 100% than that of Frankfurt plant where
the manufactured Release-Ease (R-E) had better specifications than R-E manufactured in any
other plant.

Also, we can notice that packaging costs were very high for Gary plant. As majority of the demand
comes from US it is important to that the plant efficiency needs to be improved and to have one
plant in US itself to minimize the transportation costs. Plant efficiency can be increased by doing
process improvements and updating the technology. Along with implementing all this, Gary plant
should be run at full capacity to have economies of scale and simultaneously production should
be reduced at Mexico plant as-
(i) Higher volumes at Gary plant would also bring down the overhead allocation costs
(ii) If packaging costs, maintenance and utility costs can be improved at Gary plant, it
would be much cheaper to manufacture R-E at Gary plant than the Mexico plant
(iii) Raw material cost at Mexico plant is much higher than that of Gary plant

The plant is designed to run batches of one product at a time and this requires change over time
and increased overhead costs for setup each time a different product is made. So, creating a
dedicated line for R-E would also help increase efficiency in Gary.

There appears to be huge issue with the Applichem plant as even though, Applichem is the only
company whose product is approved by Japanese regulators and the Japanese plant is the most
technically advanced plant but production of R-E should be stopped in Sunchem plant due to very
high manufacturing costs and low plant productivity (as calculated in the table below) or the
capacity needs to be increased across all products. The Japan plant should focus only on
producing the other product and doing R&D as they have a product test laboratory and a plastics
engineering lab. It would be economical in Japan to import R-E from other countries.

Also there is not full utilization of capacity as can be seen for all the four plants not being utilized
to the maximum level. Running the plants at full capacity by changing the production volumes
can bring down the operating costs, overhead costs and transportation costs as well.

Even though plants located in different countries operate under different regulations, availability
of resources and logistics costs but I believe it is fair to compare these plants on manufacturing
costs, productivity and output levels to optimize the costs and increase profits on a global scale.
Only a comparative analysis of all the plants will help the Vice-President of manufacturing decide
where to ramp-up or cut the production or whether it is viable to open a new manufacturing
facility altogether.

Productivity Analysis
 Plants
Labor (# of
workers) Mexico Frankfurt Gary Sunchem
Direct 20 46 24 14
Indirect 25 40 34 17
Total 45 86 58 31
Production Volume
(In millions) 17.2 38 14 4

Volume Per
Employee 0.382 0.442 0.241 0.129

Lakhbir Singh
0199/53