Capacity Utilization and Richard B Chase

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Applichem- The Transportation Problem

Webster University

Abstract
Applichem is a Chicago based manufacturer of the specialty chemicals formulated as solutions to specific customer’s problems. It developed a chemical called Release-ease in 1952 to help in formulating a plastic molding compound which released easily from metal molds. Release-ease was a patented product and has brought Applichem steady revenues. They have multiple plants around the world to support their business. Applichem has done little research on production processes. Any process changes that have been implemented have been done so by plant managers. Recently Applichem has been faced with the difficult problem of allocating to its customers the capacity of its manufacturing plants (Jacobs & Richard B Chase). “Differences in technology used in the plants and local raw material and labor costs create significant differences in the costs to produce Release-ease in the various regions. Additional constraints include management’s hesitance to increase capacity at the plants, along with varied costs of shipping products around the globe.” (Jacobs & Richard B Chase). As a result, profit decreases due to poor management of Applichem’s overall operations.

Applichem-The Transportation Problem
Applichem was founded in Chicago before World War II as a specialty chemical manufacturing company (Hammond & Pisano, 1993). Before its research department developed a broader product, Applichem produced products specific to customer needs. In 1952, Applichem developed Release-ease, a specialty product. A customer requested the company to develop a plastic molding compound that would release easily from metal molds.

“Applichem had held the patent for Release-ease through 1982. Applichem had done little focused research on the Release-ease product or process after about 1953. What product or process changes had been made were insighted and implemented by manufacturing people in the plants.” (Hammond & Pisano, 1993) The specifications of Release-ease also varied among the different plants. “The company owns plants capable of making Release-ease in the following cities: Gary, Indiana; Windsor, Ontario, Canada; Frankfurt, Germany; Mexico City, Mexico; Caracas, Venezuela; and Osaka, Japan” (Jacobs & Richard B Chase). Applichem plants meet demand in its surrounding areas, as well as exporting and importing the product. Appendix 1 shows how demand has been met during the past year. “Applichem management is faced with the difficult problem of allocating to its customers the capacity of manufacturing plants that are located around the world. Management has long recognized that the manufacturing plants differ greatly in efficiency but has had little success in improving the operations of the inefficient plants” (Jacobs & Richard B Chase, p. 414). Because there is differences in technology, labor costs, shipping costs and plant capacity, management must evaluate and determine the best use of capacity of its plants. Appendix 2 gives a breakdown on the costs to produce and the capacity of each plant. Appendix 3 gives a breakdown on demand and shipping costs of each plant.

Analysis
Applichem is an international organization that manufactures and sells a product that is protected by a patent and copyright restrictions. It faces little competition from other chemical companies and has a significant market share (Gavirneni, 2006). “Another large U.S. based company produced a close substitute for ‘Release-ease’ in Luxembourg. Its sales in Europe were strong. The competitor also made some export sales to the U.S. and to Latin America. But Applichem had a leading advantage, with the largest market share and the recognition of having patented the earliest available form of the product” (Novaes). Applichem needs to improve its communications. Managers at one plant rarely met managers from a sister plant; and they...
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