SANDS CORPORATION 1

In August of 1961, the management of the Sands Corporation was

in the process of deciding where to locate a new plant. The Sands
Corporation manufactured a wide range of parts for the aircraft,
automotive and agricultural equipment industries. Sales in 1961 were
expected to reach $28 million (see Exhibit 1).

PLANT FACILITIES

The company operated three plants, all of which were located in the
Midwestern section of the United States. The main plant and executive
offices were in Clairmont, a large, highly industrialized city, and the two
branch plants were in small town 60 miles apart, approximately 200
miles from the main plant.

The main plant had floor space of 225,000 square feet, and was equipped
primarily for deep drawing, punch pressing, forging and assembly
operations. The plant employed 1,750 people, who were members of a
national union which had been the sole collective bargaining
representative of the main plant employees since 1942. The company
had maintained satisfactory labour relations until March, 1961, when a
strike for higher wages closed the main plant for three weeks. Although
the employees had returned to work under a new one-year contract,
management was not sure that the issue had been resolved, since the
union had indicted that it was not completely satisfied with the
settlement.

Sands Corporation’s two branch plants each had floor space of 60,000
square feet and were equipped primarily for automatic screw machine
operations. While the branches manufactured some finished parts for
shipment direct to customers, a major share of the parts produced were
sent to the main plant for further processing and final assembly. The
branch plants each employed 500 people, who were not members of a
union, although attempts had been made to organize the plants. Both
plants were the major industrial concerns in towns of approximately
3,500 people which were located in the centers of farming areas.

PLANT DECENTRALIZATION

Sands Corporation had established its first branch plant in 1943 and its
second one in 1946. The decision to set up branch plants in small towns
instead of enlarging the main plant had been made for several reasons.
The management believed that the grater dependability of workers in
small towns and the closer relationships between executives and
1
From Raymond, Thomas Cicchino (1964) Problems in Business
Administration: Analysis by the case method. New York: McGraw-Hill.
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employees in small plants would result in less absenteeism, lower
turnover, and greater pride on the part of employees in their work, all of
which would contribute to higher labour productivity. Executives
believed, furthermore, that operation of a branch plant in a small town
would mean savings in land cost, taxes, wages, and other costs of doing
business. They believed that the company could develop executive talent
more readily in a small decentralized plant and that the manager of a
small plant could maintain, with a minimum of red tape, closer and more
effective control of operations. The management considered a plant
employing from 500 to 600 people to be the ideal size for the company’s
operations.

Under Sands Corporation’s decentralization program, the three plant

managers reported to the vice president in charge of manufacturing (see
Exhibit 2). They had full responsibility for the operation of the plants
within the framework of policies and procedures developed at
headquarters. Each plant manager had his own accounting, industrial
relations, production control, and engineering staffs. While staff
personnel were responsible to the plant manager, at the same time they
worked very closely with their staff counterparts at headquarters.

Company executives believed that the decentralization program had thus

far proven successful. Automatic screw machine operations were being
conducted on a more profitable basis in the branch plants than when
located in the main plant. Furthermore, the company’s relations with its
employees and with the communities had proven to be satisfactory.

Sands had not found it necessary to engage in a large-scale employee

training program in either of its branch plants, since workers with the
required skills had been available. In both communities Sands had
replaced other manufacturing concerns which had closed down or moved
away.

The step-up in military and space programs in 1960 and 1961 led to
increased orders for the Sands Corporation, primarily for parts and
fittings in military aircraft, tanks and other military vehicles. By August
1961, it became apparent that the company needed additional plant and
equipment to fulfill a contract for military aircraft parts which it had
won on competitive bidding. Existing facilities did not lend themselves
to the production on such items because government specifications called
for larger sizes than could be produced on company-owned machine
tools, which furthermore, were being used to near capacity to produce
parts for regular commercial customers and for the Defense Department’s
tank and military vehicle program. Company officials predicted that
existing facilities would reach capacity at some time during the next 12
months. An informal investigation indicated that managerial and
supervisory skills at the middle management level were not available for
a second or third shift at any of the existing plants.

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Government orders required delivery starting April 10, 1962, with a
$1,000 a day penalty clause for non-delivery after a grace period of one
week. Moreover, Sands executives were aware that if the company were
unable to meet delivery schedules, it would probably not be able to
obtain additional government contracts.

PLANT EXPANSION REQUIREMENTS

After discussion with government and aircraft industry representatives,

company executives concluded that a new plant with 75,000 square feet
of floor space would be needed for the production of military aircraft
parts. The manufacture of these items would be completely independent
of other three plants. Executives estimated that the new plant would cost
approximately $600,000 which would be provided from company funds.
They had investigated the possibility of leasing space, but had been
unable to find facilities suitable to their needs. Contractors informed
Sands’ management that construction would take four to six months to
complete, but that work would have to be started within the next two
weeks if the foundations were to be laid before the first frost.

Company official took the position that the demand for military aircraft
parts would decline with any reduction in government expenditures for
national defense. After World War II, the company’s production of these
items had fallen 95%. During that time it had used the released floor
space to manufacture automatic parts, for which there was a large
postwar demand, and to produce new items designed for markets served
by the company.

After considering various market studies, the management now believed

that existing plant facilities were adequate to meet normal peacetime
demand for the company’s regular line of products; however, the
company was continuing its extensive product development program,
which executives hoped would result in the introduction of several new
products whenever facilities were available for normal production.

Company estimates indicated that approximately $2 million worth of

special purpose machinery and equipment would be needed for the new
plant. This requirement was to be met through an arrangement with the
Air Force, which would supply government-owned equipment for the new
plant under a special facilities contract. Under the special facilities
contract, the Defense Department utilized funds to finance plant
extensions or the installation of special equipment in private plants. The
equipment or facilities were used on a lease basis with title remaining
with the government. During World War II, when the Sands Corporation
had produced a large volume of military aircraft parts, it had used
government-owned equipment, which it returned to the Industrial
Equipment Reserve after the war.

Executives believed that the new plant would require 600 employees.
Approximately one-half of the available jobs would call for skilled

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personnel, such as machine tool operators, while the other jobs would be
evenly divided between semiskilled and unskilled personnel. Supervisory
and executive personnel would be selected from the present staff. It was
expected that the assistant manager of the main plant would become the
new defense plant manager.

PLANT SITE

After studying various plant locations, company executives chose two

sites for final consideration. The first one was on Kimberly Street a few
blocks from the company’s main plant, and the second one was located in
Hampton, a small town approximately 180 miles from the main plant, and
75 miles from the nearer of the branch plants. The company’s two
branch plant sites had not been considered because the labour supply in
both towns had been completely employed. The main plant site had been
eliminated because space was no longer available for further expansion.
Sands’ executives considered themselves lucky to find a satisfactory site
in Clairmont, since the city had attracted a considerable amount of
industry several years before because of an urban renewal project, and
there was not much land left suitable for plant construction. Thus they
thought the resale value of land and buildings in a good location would
be high.

The Kimberly Street site consisted of two acres of land which could be
purchased for $50,000. The company estimated that real estate and
personal property tax rates would be $3.54 per $100 of assessed
valuation. Electricity, gas, and water were in ample supply at the
following rates: electricity; $0.101 a kilowatt hour; gas $0.46 a thousand
cubic feet, and water, $0.11 a thousand gallons. Management thought
that on an annual basis the new plant would use 4 million kilowatt hours
of electricity, 24 million gallons of water, and 50 millions cubic feet of
gas. Excellent air, rail and highway transportation facilities were
available. The company estimated that transportation costs on incoming
materials and outgoing products would be about the same for both sites.

A recent survey conducted by the U.S. Employment Service showed that

approximately 1,000 skilled, 2,000 semiskilled, and 3,300 unskilled male
workers were available in the main plant area as well as 2,000
semiskilled and 3,300 unskilled female workers. A check on the
availability of labour skilled in machining and assembly work indicated
that enough workers could be recruited within the area. Prevailing
beginning hourly wage rates in the area were as follows: skilled, $2.25;
semiskilled, $1.85; and unskilled, $1.50. Employees of a plant in
Clairmont would become members of the union already representing the
main plant. Company executives believed that fewer administrative
personnel, such as accounting, production control, and engineering staff
members, would be required at this site inasmuch as headquarters people
could handle a share of the work. They estimated seven fewer employees
with salaries averaging $9,000 a year would be needed than would be
required if a plant were built in a more distant location.

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The alternative site, Hampton, was a town of 1,200 people in the center
of a farming area. Within a ten-mile radius were six other towns with a
total population of 7,800. The two nearest large cities were 24 miles to
the southwest and 40 miles to the northeast. Municipal officials in these
cities reported that there was some unemployment, but they did not think
the number of unemployed workers was large.

No manufacturing concerns were located in Hampton. A great majority

of the labour force was either engaged in farming or employed by an
industrial concern in one of the large nearby cities. Sands management
recognized that they might have some difficulty in finding someone
interested in purchasing a plant in the town if they should ever have to
consider selling a plant located there. The sands Corporation
representative who had visited the site reported that the town’s officials
were receptive to the company’s proposal, but expressed concern, over
what might happen to the plant after defense needs were met.

The site consisted of 10 acres of land which would be purchased for

$20,000. Real estate and personal property taxes would be $2.40 per
$100 of assessed valuation. (The assessment rates in the two locations
were approximately equal.) Electricity, gas, and water were in adequate
supply at the following rates: electricity, $0.21 a kilowatt hour; gas,
$0.71 a thousand cubic feet; and water $0.25 a thousand gallons.
Transportation facilities were considered good. The site was located
along the main line of a major railroad and one block from a U.S.
highway.

The company had conducted a mail survey of the labour force within a
ten-mile radius. Questionnaires were sent to all households in the area.
Those receiving the questionnaires were asked if they would be
“available” for work in a new manufacturing plant if one were to open,
and respondents were also requested to indicate what experience they had
had in machining or assembly work. In the replies, 700 people said that
they would be “available.” Of this 700, 5% indicates that they had one
or more years of experience in the operation of machine tools, 10% had
six months to a year’s experience. (At least a year’s experience in
machine tool operation was required before a man was considered
skilled.) An additional 15% said that they had had experience in
assembly work which did not involve mechanical skills. The remainder
had had no experience in machine or assembly work at all. Sands
Corporation officials estimated that the average beginning hourly wage
rates would be as follows: skilled, $2.05; semiskilled, $1.75; and
unskilled, $1.40. Shopping and recreational facilities and housing were
considered adequate.

In letting contracts, the government encouraged (but did not require) a

company selecting a new plant site to erect the plant in an area with a
labour surplus or where the economic life of the community would be
benefited.

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 EXHIBIT 1
SANDS CORPORATION
Net Sales and Income, 1942-1961

Year Net Sales Net Income after Taxes

1942 19,000,000 781,000
1943 24,114,000 605,232
1944 24,091,000 702,401
1945 22,091,000 480,223
1946 20,245,000 472,403
1947 20,110,000 503,527
1948 20,102,000 662,153
1949 19,022,000 292,078
1950 24,052,000 1,200,042
1951 27,187,000 1,417,984
1952 27,804,000 1,458,142
1953 26,553,000 1,304,897
1954 24,357,000 727,890
1955 26,749,000 1,088,471
1956 27,672,000 1,243,115
1957 27,004,000 1,198,007
1958 24,984,000 746,848
1959 26,493,000 1,292,702
1960 26,110,000 1,145,662
1961* 28,000,000 1,400,000

*Estimate

EXHIBIT 2
SANDS CORPORATION
Organization Chart

President

Vice President Vice President Vice President Vice President

Finance Manufacturing Sales Engineering

Production Purchasing Industrial

Control Relations

Plant Plant Plant

Manager Manager Manager