ASSIGNMENT ON

APPLICHEM CASE

Submitted by:

2

Applichem (A)

Sr. No. Plant Max. Capacity

Output in 1982

Capacity utilization rate

Total cost

Cost per million pound

Average Gross money Wages

Average Yield on raw material

1 Gary 18.5 14 75.68% 102.93 7.35 8.5 94.72 Canadian 3.7 2.6 70.27% 97.35 37.44 10.25 91.13 Frankfurt 47 38 80.85% 76.69 2.02 14.64 91.74 Mexican 22 17.2 78.18% 95.01 5.52 99.42 98.95 Venezuelan 4.5 4.1 91.11% 116.34 28.38 14.37 90.46 Sunchem 5 4 80.00% 153.8 38.45 1424.86 98.8

Capacity Utilization Rate reveals how close a firm is to its best operating point. It is calculated as follows:

Capacity utilization rate = Capacity used/ Best operating level

As seen from the data above, Gary plant utilizes only 75.68% of its installed capacity. Canadian plant has minimum capacity utilization i.e 70.27%. Venezuelan has been the best among all in capacity utilization at 91.11% even when the plant is a “no frills” design and no improvements were made to the plant. Also, the plant had an old equipment and the dryer was in a poor repair. Whereas, the Frankfurt plant having modifications made and also having computer control for the first process step and extensive solid recovery and waste treatment has only 80.85% utilization of its installed capacity. Sunchem has almost same capacity utilization. But, capacity utilization doesn't straight away tell us labor productivity or the plant productivity. There are other factors contributing to low or high capacity utilization.

The yield from Gary plant is as it should be from a well-run medium volume plant. Whereas, Frankfurt being a high volume plant should be having a yield of 98-99% , is having a yield of only 91.7%. Mexican plant on the other hand has a yield of 98.9% which may be said very good.

Process flow chart of manufacturing Release-ease is as follows:

Step 1

Reaction

Step 2

Clean or isolate

Step 3

Drying

Step 4

Packaging

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As far as cost per million of the product is concerned, Frankfurt has a minimum of 2.02 per million pound whereas, Sunchem has a maximum i.e. 38.45 per million pound. But this cost difference is not only because of the operating efficiencies but it may be attributed to many reasons as follows:

a. Difference in cost of raw material A with Frankfurt being minimum at 24.02 and Sunchem at a maximum of 29.62.

b. Difference of package, load and shipping costs which may be attributed to the number of different packing sizes being done by various plants. Changing the size of bag in the packaging line takes a lot of labor time. Gary ran about 80 package sizes whereas Frankfurt ran only 50 kilo packages. In case of Frankfurt, the cost of packaging is less at 3.35 US dollars per hundred pounds as compared to other plants because this plant bulk shipped the product to other company plants which then packaged it and shipped it to customers.

c. Difference in direct labor cost in various countries. Mexico has minimum labor cost at just 2.38 whereas Sunchem on the other extreme at 12.82.

To see at what levels of production and transportation the total costs will be minimized, we have tried to compute simplex linear programming using solver in excel spreadsheet (attached as annexure). From the solution computed by solver, it comes out that all the units should continue to produce but as far as possible, supply should be in the same country and costs levied on transportation should be saved.

As far as running of Gary is concerned, the though it appears that the plant is not doing well but when we critically analyze the facts and figures, it comes out that though capacity utilization is not that good at the plat but cost per unit (7.35 per million pound) is much lesser than Venezuelan, Canadian and Sunchem plant. Also, the yield is very good at 94.7.