Applichem Case 2

Topics: Variable cost, Costs, Fixed cost Pages: 13 (3606 words) Published: June 18, 2011
Executive Summary
Applichem was a Chicago based manufacturer of the specialty chemicals mainly devised as solutions to specific customer’s problems. Applichem has developed a chemical called Release-ease in 1952 as a solution to the problem faced by plastic molding industry in cleaning the stainless steel molds. This specialty chemical when added in low concentration to the plastic molding compound during the manufacturing process will ease the separation of molded parts from the mold and leave the mold cleaner. Hence Release-ease was widely used in molding plastic parts. Release-ease was a patented product of Applichem and it used to bring steady revenues to the company through 1982. There was not much R&D done on Release-ease later to 1952, but only the process innovations had taken place in the manufacturing plant at Frankfurt. Applichem’s applications engineers worked closely with the customers, identifying the problems in the molding processes and working on the aspects of customer’s processes and aspects of release-ease to relieve the symptoms. This was one reason why Release-ease varied slightly among different regions. The company’s market research group expected little net increase in demand for Release-ease over the next 5 years. While the plant at Frankfurt is generating profits to the company, the plants at Venezuela, Gary, and Sunchem were running at losses. Despite fierce competition in Europe, the major reasons for Frankfurt plant generating profits were 1) constant technical up gradations in the plant to improve the yields and reliability of Release-ease. 2) Manufacturing costs were the least and the production volumes were huge resulting in average yield on raw material A at 98.9%. The Venezuelan plant, started in 1964, had a no-frills design, and no improvements had been made thereafter. The educational qualifications of the Venezuelan operators were below those of other plant operators. There hadn’t been any process or capacity improvements. Despite its waste recovery, automation and development work in Sunchem plant, the plant was not able to generate profits due to severe work rules and regulations. The requirement for more environmental protection and stringent waste treatment were also major reasons for driving the production costs high in Sunchem. At Gary plant a lot of time was spent in packing Release-ease in 80 different package sizes. Gary products stayed for more than 2 years in the distribution channel and hence requiring high A.I products for a better shelf life. Manufacturing Process

Fig 1 Manufacturing Process Flow Diagram
Production Status and Sales
Release-ease sold at an average price of $1.01 a pound. Applichem’s Release-ease sales by region, production by each of the six plants, as well as exports and imports by region (all in millions of pounds) are mentioned in Table 1. From the given designed capacity and idle capacity of each plant, yield was calculated and mentioned in the below table.

North AmericaCanada3.
Western EuropeFrankfurt204738998.9180
Latin AmericaVenezuela164.54.10.490.4011.9
Pacific & RestSunchem11.954198.807.9

Table 1: Applichem’s production status and sales
A large US based Chemical Company located at Luxembourg is the major competitor for Applichem. Its sales in Europe were strong and it made some export sales to the US and Latin America. But Applichem had the largest market share with patent for the earliest available form of the product. There were other competitors in US and Japan making Release-ease kind of products.

Problems and Issues
The main problem in Applichem case is the operational inefficiencies of some of the plants in the manufacturing of Release ease. Some of the key issues of...
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