Executive Summary of Applichem

Applichem
Executive Summary of Applichem

Applichem is a manufacturer of specialty chemicals that has four plants worldwide.
The major product Release-ease, which was developed in 1951, is a chemical to be
added into plastic molding procedure and to help in cleaning molds easily. The
company has one plant in Gary Indiana and another one plant in Frankfurt German
to support substantial demands in U.S. and Europe market, and also two other
plants in Mexico and Japan to sell products in Latin America and Pacific Area. The
purpose of this summary is to evaluate the performance of Applichem four Releaseease plants, to investigate the reason that cause different costs and productivity
across plants, and to configure the worldwide manufacturing system.
Performance Comparison
We use three metrics to evaluation the plants performance. The first one is the
manufacturing costs for each plants before packaging. The packaging cost is
studied separately and not comparable because Gary and Sumchem plants spend a
lot packaging Release-ease in small packages whereas Mexico and Gary plants only
produce Release-ease in 50-kilo package. The costs is 88.75, 68.91, 95.64 and
142.42 U.S. dollar per hundred pounds for Mexico, Frankfurt, Gary and Sunchem
plant, respectively (See Exhibit 1). Frankfurt plant has the best performance in cost
aspect.
The second measure is average yield of Release-ease from raw material A, which is
a key indicator of the overall performance of the manufacturing processes at
different plant. The yield is defined by dividing the actual number of pounds of
active ingredient in the final product by the number which would be if all the key
raw material A were converted. The four plants have average yield level of 94.7%,
Applichem
98.9%, 90.4% and 98.8% respectively (See Exhibit 1). Frankfurt and Sunchem plants
have high average yield compared with other two plants.
The third measure for the final product performance is the percentage of active
ingredient in the power, since high active ingredient come from good application
properties and quality control. The percentage of active ingredient in final product is
85.6%, 84.4%, 84.6% and 85.4% for each plant.
The Reasons
How do plants in different parts of the world come to have quite different costs of
producing the same product? The demand placed upon each plant, the economic
and regulation environment in each county and the access and use of raw materials
might attribute to the difference.
The actual production volume in the four plant may explain the difference for
average yield. Plants designed for larger volumes of output generally have higher
yields for two reasons. There might be physical losses during the process. And the
available raw material A might not be converted during the process. Thus, a wellrun, low-volume process would have an average yield of 90 or 92 percent, and a
well-run, high-volume plant would have an average yield of 98 to 99 percent. The
high yield in Sunchem plant may contribute to the automation and waste recovery
systems introduced in late 1960s and the more development work than in other
plants.
The different demand in Europe and U.S. markets make Frankfurt and Gary plants
produce different package sizes.
The production in Gary is designed for research
purpose and specialty products that are prototype samples and first been
manufactured for customers, which requires the plant to run about 80 package sizes
Applichem
from 1/2-kilo on up. The frequent changes in the size of bag in the packaging line
cause the manufacturing process shuts down and require additional cost and time.
In contrast, Frankfurt plant make commodities to European customers that generally
only purchase Release-ease in 50-kilo bags.
Exhibit 2 presents comparison of several manufacturing costs components for
Release-ease at Applichems four plants in 1982. The relatively lower level of
Frankfurt plants material costs may attribute to its easier access to raw material in
competitive international market. In addition, we could find Sunchem plant has
relatively high direct labor cost and utility costs compared to others. That results
from the special economic and regulation condition in Japan. The strict work rules
and regulations in Japan explain the larger number of employees needed and higher
labor costs. The high local electricity cost at Sunchem reflects Japans high energy
costs.
Recommendation
I recommend Applichem should combine the financial and technical aspects when
developing the worldwide manufacturing system. Sunchem plant is the smallest
plant with highest cost and have the similar product with Gary plant. I think
Applichem should close Sunchem plant and move all the facilities and people to U.S.
to develop a research center at Gary, which would be convenient to communicate
with headquarter and responds quickly to customers requirement in major market
without suffer from the high labor cost and utility cost. Gary plant would keep the
batch operation but make improvement on the infrastructure to increase efficiency.
Frankfurt plant would concentrate on producing Release-ease in 50-kilo package and
take the advantage of the economics of scale. It would be possible to shift part of
the U.S large package size production to Frankfurt plant.
Applichem
Assumptions
The financial results depends on the various assumptions made on the exchange
rate, growth rate and inflation currently. The results would change if these change.
For example, if U.S. dollar goes strong to Pesos in the future, it would be cheaper to
shift part of the production to Mexico to get benefit from the exchange rate. If the
market in Pacific Area grows fast, it would be possible to expand the capacity in
Sunchem plant.
Exhibit 1
Cost Before Packaging (US

dollar per hundred pounds)
% Active Ingredient in
product
Average Yield on Raw
Material A
Mexico
Frankfurt
Gary
88.75
68.91
95.64
Sunchem
(Japan)
142.42
85.6%
84.4%
84.6%
85.4%
94.7%
98.9%
90.4%
98.8%
Mexico
Frankfurt
Gary
75.05
53.0
60.83
Sunchem
(Japan)
91.86
2.38
1.20
5.78
1.11
8.46
1.94
12.82
3.67
Exhibit 2
Row Material (US dollar per

hundred pounds)
Direct Labor
Utilities
SCM701
Wen Zhang
Dec 1 2015

Executive Summary of Applichem

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Executive Summary of Applichem

The production in Gary is designed for research

Cost Before Packaging (US

Row Material (US dollar per

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