Applichem Case 1

Topics: Material, Cost, Capacity utilization Pages: 6 (1667 words) Published: September 27, 2011

Applichem is a manufacturing company producing Release-ease, a specialty chemical for the molding industry. On mixing with the plastic molding compound, Release-ease prevents any residue when the molded parts are separated from the mold. This helps in keeping the mold clean. They have six plants – one each in Gary, Canada, Frankfurt, Mexico, Venezuela and Sunchem in Japan. Each region has a different specification. This along with capacity constraints leads to export-import amongst the various plants. Release-ease is manufactured by a four step process. The steps for this process are: •Reaction: This consists of compressing the raw materials under heat/pressure to form Release-ease. This results in formation of a slurry. The size of particles depends on the timing of introducing materials, federates etc. •Cleaning and Filtering: The slurry is then moved on a conveyor belt that is made of mesh. This results in the liquid falling through the belt to the trough below, leaving wet Release-ease particles on the belt. •Drying: Release-ease is dried to give a powder

Packing: Release-ease powder is then packaged in bags on an automated filler line. The off-spec material is reworked in some plants, while in other plants it is reclassified as QC-3 and sold at a lower price.

Yield is one indicator of plant performance. It is defined as the number of actual pounds of active ingredient in raw material divided by the number of pounds of the active ingredient which would be in Release-ease if all key raw materials were converted to active ingredient.

The yield varies across different plants. A well run low volume process has an average yield of 91–92 percent. Whereas a well run medium volume process has an average yield of 94–95 percent, and a well run high volume process has an average yield of 98–99 percent.

The manufacturing process was run 24 hours a day, 7 days a week.

A comparison between various plants of Applichem is given below Plant LocationGaryCanadaFrankfurtMexicoVenezuelaJapan
Setup Year190519551961196819641957
Release-ease Capacity (Mn. Lbs/yr)18.53.747.
Capacity Utilization (1982)76%70%81%78%91%80%
Packet Sizes80 packet sizes50 Kgs50 Kgs50 Kgs50 Kgs1/2 - 1 Kgs

In order to identify the weak areas of Applichem, we need to evaluate the performance of all its manufacturing plants. This is also necessary to comprehend its operations. Each factory fulfils the needs of a different market. We also see that the plant at Sunchem has an extremely high figure of operating costs. The operating costs of Sunchem are more than twice that of the Gary plant and more than three times the costs of the Mexico plant. One important reason for such high costs for Sunchem is its waste treatment cost which is very high as compared to other plants. This can be attributed to the fact that it is the only plant with scrubbers for processing gaseous wastes.

Sunchem also has high direct labour, salary and fringes cost compared to other facilities. This is due to the severe labour laws and regulations in place in Japan, such as greater employee and license requirements. The utilities costs are also much higher.

The Mexico plant has the lowest operating costs.

In terms of the raw material costs Frankfurt plant has the lowest requirement for the total raw material used for producing a unit, whereas the Gary plant has the highest. This is because the Frankfurt plant has efficient processes in place to minimize wastage and optimize the use of raw materials. Analysis of the yields of the individual plants also suggests that the Frankfurt plant has the highest yield. One of the reasons for this can be the high capacity of the Frankfurt plant. Additionally the minimum raw material/unit product cost is also for the Frankfurt plant. This is because of the highly efficient processes. Frankfurt also obtains its raw material at the lowest costs which is one of the...
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