I.

Title

Short-term Decision-making - Differential Analysis for Clorox Philippines’ Prestone Asian

Vehicles Antifreeze + Coolant Ready-to-Use: Make or to Buy Decision

II. Introduction

Founded in 1913 and survivor of two world wars, The Clorox Company is an American

manufacturing company of consumer and professional products, most notably cleaning products

as the namesake company named after the well-known liquid bleach, Clorox itself. Interestingly,

in times of national adversity, Clorox recorded high growth rate owing especially its initial success

to its major customer, the United States government. It achieved general commodity status as a

common chemical cleaner. Until the 1970s, Clorox stayed as a successful single-product company

that outlasted wars, revolutions, diseases, disasters and even The Great Depression. The Clorox

Company’s portfolio has expanded since then, and manufacturing remains at the core of what is

done - with Clorox bleach, Glad trash bags, Prestone brake fluid and Burt's Bees lip balms to name

a few. All of these household staples and many more are made at our plants in around the world

and also here in the Philippines.

Clorox is a health and wellness company at heart, and our purpose reflects our belief to

make a meaningful and positive impact on the world around us. The company’s goal, mission and

vision centers on the purpose to “champion people to be well and thrive every single day”. Our

vision is to be exceptional innovators who earn people’s enduring loyalty. Our mission is to offer

high-quality products that consumers trust. Our strong corporate values guide us in achieving
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widespread success and are the foundation for everything we do namely - Do the Right Thing, Put

People at the Center and Play to Win.

With people at the center of the company, it is with no surprise that Clorox has historically

attracted smart, values-driven people who strive to make a positive impact. As evidenced by

Clorox being a great place to work, the average job tenure in Clorox overall is 8 years, and even

higher in Clorox Philippines which is 12 years. Clorox has been in existence for 109 years, with

8,000 employees worldwide. To give you an overview of our working conditions, I’ll provide the

geographical aspects of Clorox Philippines, and related Clorox branches who we heavily work

with. We have one main corporate office in the country located in Mandaluyong and employees

scattered in Luzon, Visayas and Mindanao who serve their local customers. We also have one

manufacturing plant and warehouse located in Paranaque. For imported products, Clorox Malaysia

and Clorox California USA provide the shipments. For imported raw material, these are from the

USA, South Korea and Indonesia.

The Philippine manufacturing plant does not actually produce the main Clorox products,

as all those cleaning items are imported. Locally, we only manufacture the Prestone auto care

products. Prestone has been in existence since 1927, protecting both drivers and their vehicles with

cutting-edge auto products. With its primary auto care products of brake fluid and coolant,

Prestone has saved counted lives through its groundbreaking product formulas that are laps ahead

of the competition. Prestone’s highly recognizable yellow bottle of two-in-one antifreeze and

coolant is consistent with its innovative stop leak line. Together with Clorox, Prestone also served

with the World War II Allied forces. The US Military deems Prestone antifreeze/coolant as

essential to keeping its vehicles running at their best in the most extreme conditions, and ultimately

winning and ending the war.

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The impact of the COVID‐19 pandemic is truly unparalleled and this is more evident in

manufacturing companies like Clorox than most other sectors, coupled with Clorox Philippines’

manufacturing only auto care products. Since over 70% of Clorox Philippines’ total revenues come

from Prestone products, we are severely reliant on other country’s COVID guidelines and

restrictions, who we import raw materials and finished goods from. The pandemic took a toll on

our auto care sales when there was minimal transportation available in 2020. This year, the country

is only just recovering from the pandemic and our auto care sales along with it. The current demand

for Prestone brake fluid and coolant is increasing, and the forecast is expected to be even more

than pre-pandemic level.

Clorox faces the make-or-buy decision for one of our best-selling import products, the

Prestone Asian Vehicles Antifreeze + Coolant Ready-to-Use. Since July, we have intermittent

stocks of this product that comes in three variants, the red ones for blue ones for Toyota, Lexus

and Scion vehicles, the blue ones for Honda, Nissan and Subaru vehicles, and the green ones for

all other vehicle brands. Clorox Philippines needs to make a decision whether manufacturing the

product is a better decision than waiting for limited and unreliable shipments.

This paper seeks to assist Clorox in its make or buy decision based on quantitative data

gathered from accounting, marketing and production managers and other non-quantitative factors

shared to the student. For this paper, I talked and emailed a lot of departments to get a thorough

understanding of production, pricing and costing of the product. Aside from management, several

departments are working together to gather the relevant data and make the most informed decision.

This includes but is not limited to our Quality Assurance Inspector Kim Karl Limpiada, Plant

Operations Manager Jun Advincula, Marketing Lead Monique De Guzman and our Accounting

and Compliance manager, Willene Panugao.

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III. Discussion/Presentation

Now that the personal automobile and public transportation industry is recovering after the

pandemic, the economic distress and oil price hikes, it is high-time Clorox take advantage of this

by opportunity by focusing on auto care products that comprise over 70% of Clorox Philippines’

revenues as shown below in the snapshot from Fiscal Year 2022.

Over 40% of all auto care sales are from Prestone coolant, which comprises of regular

coolant and Asian coolant. Asian coolant is manufactured in Connecticut, USA. The demand of

Asian coolant is also increasing in the USA where the two most common car brands are from

Japan, Toyota and Honda. Shown below is another snapshot from Fiscal Year 2022.
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Another challenge for this product is that is takes roughly 8 weeks from request date to

shipment completion from. If the USA manufacturing plant itself cannot keep with Clorox

Philippines’ orders, we need to look into other options, primarily in producing the product itself.

We already produce the regular coolant so the manufacturing workers do not need additional

training. The manufacturing plant is at 87% capacity, so they can accommodate production.

Asian coolant is the best-selling out of all our auto care import products and it’s imperative

to keep a steady supply on-hand to serve the demands of our distributors. There are three variants

of Asian coolant as shown below.

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Make-or-buy decision requires make-or-buy analysis, and is an integral part of strategic

planning. In this analysis, we are only considering relevant costs and not all costs associated with

production. Relevant costs in this case are the variable cost to produce Asian Coolant which are

the direct materials. The direct materials are publicly available which are Ethylene Glycol (anti-

freezing agent), Oxygen Hydride (solvent), Diethylene Glycol (anti-freezing agent), Denatonium

Benzoate (embittering agent), 2-Ethyl Hexanoic Acid and Sodium Salt. There are a couple of

materials that cannot be mentioned and the exact concentrations are a trade secret. The product

container and packaging and the raw material shipping cost (raw materials are from South Korea

and Indonesia) also falls on direct material costs. The only information that can be shared is the

approximate cost of direct material per piece. Also note that Asian Coolant is manufactured per

case, which is composed of 6 pieces per case. Another advantage of raw materials shipping is that

the shipment turn-around time is only 1-2 weeks,

The equipment for Asian Coolant is the same as regular coolant so all costs related to that

are non-relevant costs. There is also no direct labor cost as our manufacturing workers are paid per

day and not per hour, and as mentioned previously they are only at 87% capacity. They work 8

hours per day, 5 days a week so that means they have 5.2 hours per week available to produce

Asian Coolant. The process for Asian Coolant itself is the same so there is no extensive training

needed but only a couple of special handling reminder for Asian Coolants, as the red, blue and

green colorants are highly toxic (Acute Toxicity Category 4 especially with Repeated Exposure).

Other relevant cost is the approximate additional variable overhead cost for additional

utility cost primarily in electricity for the additional hours the production and packaging machines

will be working and also for the additional storage costs associated with the product. Other non-
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relevant costs are those that will stay the same regardless of the make-or-buy decision like the

administrative and marketing costs and managerial salaries.

The approximate buy cost of Asian Coolant includes the product cost and the shipping cost

(finished good is from USA). As mentioned earlier, the downside of imported goods is that it takes

8 weeks before it is delivered.

The table below summaries the differential analysis of the make-or-buy decision for Asian

Coolant. Asian Coolant is produced and sold per case and the revenue listed below is from the

average monthly demand of 500 cases (or 3,000 pcs), at current list price of ₱5428.20 per case (or

₱904.7 per pc). The monthly demand can be produced and accommodated with the current

workload and shipping space as per our plant production manager. The relevant costs are the

variable costs as explained in the previous paragraphs and the differential contribution margin is

listed. There is a cost savings of ₱199,170 in favor of making the product as shown below.

This make-or-buy analysis is not only good for academic endeavor but could potentially

really help Clorox Philippines in being profitable during the current difficulty with the Prestone

supplier. Currently, there is no alternative being done and when there is no supply, our sales team
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accepts that there is no sale to be made. Instead, they offer the regular coolant to their customers

so they can reach their monthly sales target.

To better appreciate the manufacturing process, I am including the snapshots from our

production plant. For the regular coolant, there are four machines with four steps linked to the raw

material supplied in a tube. The same process is for Asian Coolant. After step 4, the product is

packaged by bottle and then by case.

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IV. Recommendation/s

Given the data I have collected and the quantitative analysis that followed, the best decision

would be to make the product locally. The primary benefit to the organization is that first and

foremost, it is relatively cheaper. Then the second but equally major benefit is that we can control

the supply in direct relation to the customer’s demand, as we do now with locally manufactured
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coolant, unlike now where we rely on sporadic finished goods shipments. The reason provided to

me as to why we only have 87% production capacity is so that we can produce on-demand should

there be an immediate bulk order, as we practice Just-in-time (JIT) manufacturing. This is to

increase efficiency, reduce costs and speed up product delivery, and also so that storage space is

saved for other imported Clorox products that periodically shipped.

However, there are also non-quantitative factors that should be considered in this make-or-

buy decision like concerns about intellectual property and quality. Clorox Philippines needs the

approval from the supplier to manufacture the patented Asian coolant, and whether the quality

would be at par with the current finished good. There are also environmental considerations as

increased production has negative implications to the environment, increased carbon footprint and

increased waste. So even if quantitatively, the decision should be to make the product, it is still not

the straightforward decision.

If possible, after getting the approval to manufacture, Clorox can test-drive the production

of Asian Coolant for a couple of months and see if the quality product is maintained, customers’

great demand continues or even (hopefully) increase and they have good feedback with the

product. If so, we can continue to manufacture or if not, and the product is not as good as the

imported one, we can return to importing.