Written Managerial Communication Assignment

On

Sands Corporation

Letter of Transmittal
Date: August 16, 1961

President
Sands Corporation
Clairmont

Subject: Letter of Transmittal

Dear President,
I am writing you to handover the report regarding the decision to select the location for the
new plant to produce parts for the prestigious government contract.
There are two location options for setting up a new plant: Kimberly Street and Hampton.
Each option is thoroughly analysed and evaluated from all the business angles. Then only a
final choice is recommended along with the action plan and contingency plan to ensure the
best possible future course of action.
I hope this report meets your expectations, and I will be available if you seek any more
clarity on any matter stated herewith.

Sincerely,
Vice president
Manufacturing
Sands Corporation
 Executive Summary

Sands Corporation needs a new plant to meet the demand for a new defence contract and
other products due to limited capacities of existing plants.
 
There are two alternatives for setting up a new plant: Kimberley and Hampton. As part of
the decision-making process, each alternative is examined based on following criteria:
financial prudence, labour availability, and expansion opportunities, and government
policies.

Kimberley location offers cheaper operations than in Hampton, but it risks operations by
vicious cycle of strikes by workers' union. While Hampton has an inadequate labour
workforce, there is negligible risk of union formation. The company can hire required
workers from industries in nearby large cities to mitigate labour problems.

Hence, Hampton is a better option due to long term benefits concerning bargaining power
with workers, product line expansion and timely delivery of the orders.
 Table Of Contents

1. Situation analysis ………….………………………………………………………………………………………....4

2. Problem statement……….……………………………………........................................................4
3. Options Available………....….………………………………………………………………………………...……4
4. Criteria for evaluation.….………………...…………………………………………………………………...….5
5. Evaluation of options……………………………………………………………………………………………....6
6. Recommendation…….…………………………………………………………………………………………......7
7. Action Plan…….……………………………………………………………………………………………………......7
8. Contingency plan….………………………………………………………………………………………………….7
9. Exhibit….……………………………………………………………………………………………………………….….8
1. Situation Analysis

Sands Corporation manufactures parts for the aircraft, automotive and agricultural
equipment industry. The Company has its main plant in Clairmont, a highly industrialized
city and two branch plants in small towns. In the last year (1960), it made sales of USD 26
million with a net profit margin of 4.4%. This year, revenues and net profit margin are
projected to grow by 7% and 22% respectively.
The Company’s main plant’s employees became members of a national union for collective
bargaining representation in 1942. Subsequently, the Company established its two new
branches in 1943 and 1946.
The Company had acquired a contract for military aircraft parts through competitive bidding
and had to start delivering from April 10, 1962; failing to do so will attract a penalty and risk
of losing future government contracts. By August 1961, the executives realized the need for
an additional plant and equipment to fulfil the contract for military aircraft parts, as the
Company could not manufacture the required components on the available machinery
because of their more extensive specifications, which required special equipment. Also, the
current setup will reach its maximum capacity within one year.
The contract is of utmost importance as it is a prestigious opportunity to increase revenues
and get more government contracts.
The new plant will require an area of 75000 square feet and 600 Employees, out of which
300 jobs would be available for skilled personnel and 150 jobs each for semiskilled and
unskilled personnel. The plant will manufacture aircraft parts and other products to serve
varied markets and make up for the decline in demand for defence equipment during
peacetime.
The Company has shortlisted two sites for final consideration, one at Kimberly Street, close
to the main plant and another one at Hampton, a small town 180 miles away from the main
plant.

2. Problem Statement
Considering various factors, deciding where the new plant should be set up to produce parts
for fulfilling the government contract on time. This decision is to be taken within the next
two weeks to ensure that the foundation must be laid before the first frost, as the
construction will require four to six months.

3. Options Available
There are broadly two alternatives to be considered:
1. Setting up the manufacturing plant at Kimberley Street
2. Setting up the manufacturing plant at Hampton
4. Criteria for Evaluation

We have based our evaluation on 3M principle by optimizing three key aspects of

manufacturing: Man, Material and Method. The criteria are as follows:
a) Financial prudence: Cost optimization to reduce overall setup costs and ensure savings
on salaries, overheads, and utilities.
b) Availability of labour: Easy availability of skilled labour will ensure faster recruitment
and timely production. In addition, criteria should also consider chances of union
formation to prevent abnormal losses due to union strikes.
c) Future Expansion: The vicinity of plant should have sufficient space to leverage future
expansion opportunities in addition to labour availability and other facilities such as
transportation, electricity, water etc.
d) Government Support: To leverage the contract by getting government help in setting up
new plant in an area with more unemployment.
5. Evaluation of Options
Option 1: Kimberly Street
Merits
1. Availability of Labor:
Sufficient number of skilled labors are
available; therefore, operations can be
started from day one after the recruitment
process.
2. Financial prudence:
a. Location: The two acres of land is located
close to the main plant in a large,
industrialized area. It also has higher re-sale
value than that in Hampton.
b. Saving: There is net savings of $0.296
Million in comparison to that of in Hampton
(Exhibit: I)
3. Future Expansion:
Upgradation (Technology/Labor Quality) will
be easy because of proximity to the main
plant and availability of skilled labor.
Option 1: Kimberly Street
Demerits
1. New employees’ addition will strengthen the
union, which may lead to abnormal losses in
form of strikes for increasing wages (Vicious
Cycle)
2. Limited land availability restricts the future
capacity expansion.
3. Higher manpower cost (Exhibit I)
4. No major government support can be
expected in Kimberley
Option 2: Hampton
Merits
1. Availability of Labor:
Lower cost of labor (Yearly savings of
$0.18 Million) (Exhibit 1)
700 people within ten-mile radius
responded to survey shows the unskilled
labor availability.
2. Financial prudence:
a. Location: The ten acres plot is
available in small town, like the other
two branch plants.
b. Saving: Opportunity cost is high
because of smaller initial capital cost
3. Future Expansion:
There is good scope for expansion
because of large land availability.
4. Government Support:
Better contract leveraging opportunity,
as government will encourage setting up
plant in small towns due to employment
enhancement.
Option 2: Hampton
Demerits
1. Lack of skilled labor leads to difficult
implementation, as significant time and
costs will be incurred in training the
employees.
2. The investment (land + building) has
lesser resale value than that of in
Kimberly.
6. Recommendation

Setting up a new plant in Hampton is costly as well as great effort is required in starting the
operations as the necessary labour is not readily available. Still, it mitigates the risk
associated with unions by preventing strikes, which might affect the timely delivery of
contract orders; if there’s a delay in the delivery, it will have severe repercussions in terms
of both cost and reputation.
Hampton site also provides expansion opportunities as it doesn’t have space constraints,
unlike Kimberly Street.
Therefore, Sand Corporation should open a new plant in Hampton by mitigating the
associated risks as per the below action plan.

7. Action Plan
Since only 9% of people responded to the survey, we should encourage the remaining 7100
people within a ten-mile radius of the Hampton site to provide feedback to get a more
realistic idea about the required labour availability.
There are two large cities (within a 40-mile radius of the Hampton site) having low
unemployment levels, which indicates the availability of skilled labour. We can hire these
labours by giving additional 5-10% wages than the average industry standards to fill the
skilled workers' gap for the timely supply of parts for the contract.
Also, as construction will take more than four months, we should immediately start training
the local unskilled labour to ensure optimum labour expenses in the long run.

8. Contingency plan
If still labour shortage remains, then we should deploy the employees of branch plants in
the new plant on a project basis with relocation benefits to cover the labour shortfall and
complete the production for the government contract on time. Meanwhile, we could do
overtime in existing plants to compensate for less labour availability.

Note: Number of words you have used in the body of the assignment -1101
 Exhibit: I (Cost Analysis of setting up new plant)
Kimberley Street Hampton
Parameters: Consumption
Rate ($) Cost ($) Rate($) Cost ($)
Property, Plant &
Equipment:          
Land     50000   20000
$ 3.54/$100 of $ 2.4/$100
assessed of assessed
Tax on Land   valuation 1770 valuation 480
Set-up Cost     600000   600000
Operational Expenses
for One Year:          
Electricity 4000000 KWH .101 KWH 404000 .21 KWH 840000
0.46/
Gas 50000000 1000ft 23000 0.71/1000ft 35500
0.11/ 0.25/1000
Water 24000000 1000 gallons 2640 gallons 6000
Skilled -300
Employees 2.25 1404000 2.05 1279200
Wages Semi-skilled -
(8hrs*5days*52 Weeks) 150 Employees 1.85 577200 1.75 546000
Unskilled - 150
Employees 1.5 468000 1.4 436800
$9000/
Administration 7 Employees employee   63000
Total cost     3530610   3826980