Applichem

Objective/Scope

The purpose of this article is to determine whether or not Applichem should keep their production of Release-Ease within their current plants or move production to another location. This new location would be one, or more, of Applichems’ production locations including: Gary (Indiana/USA), Mexico, Frankfurt (Germany/Europe), Sunchem (Japan). To determine this, a cost analysis must be conducted to verify the benefits of keeping production of Release-Ease in their current locations, or moving production to another location. When determining the cost benefits, transportation and production cost differences must be considered.

Recommendations

Through careful analysis, it is recommended that Production of Release-ease be maintained in Gary, Indiana. Instead of abandoning the Gary production facility due to its lack of production efficiencies, measures to improve the facility should be implemented.

Ceasing production of Release-ease in Japan is also recommended. Although the plant in Japan is more technologically advanced, its high production costs and low productivity levels are valid reasons for eliminating the Release-ease production lines. It is recommended, however, that the plant continues its current production of the other product it manufactures. The plant will also be useful in conducting R&D for other Applichem products.

Changes in the production volumes among the various plants are also recommended. These changes will increase production to full capacity for some plants while reducing transportation costs.

Analysis

Cost Analysis

The first observation that can be made about Applichem’s current production is the amount of excess capacity that could be used in its Frankfort, Gary and Mexico plants. (Exhibit 2) Import duty costs, as well as, important transportation costs have to be minimized in order to optimize efficiency of the manufacturing. Three different analyses were performed to evaluate the costs of...