2/22/2024

Applichem (A) Abridged

Hasmukh Gajjar

About Applichem
Manufacturer of specialty chemicals
Founded in Chicago just before WW-II
Most of its products were devised by application engineers as
solutions to specific customer needs.
It had a strong functional orientation despite some matrixing had
been introduced during Mid-1970s
Case focuses mainly about discussion on “Release-ease” product

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Release-ease Product
A specialty chemical, developed in 1952 based on customer’s request
Was widely used in molding plastic parts specifically for cleaning
molds quickly
Applichem held the patent for Release-ease
Very little research was done on product or process after 1953
Product specs varied slightly among regions
In 1982, a little increase in world wide demand of product was
expected over next five years
Market requirements also varied by region

Markets and Plants

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European vs U.S. customers

European customers
Consumed the products within one year of purchase
Purchased in 50 kg bags
U.S. customers
Consumed the products over three years after manufacturing
Usually purchased ½ kg and up
More fierce competition in Europe than in the U.S.
Strongest competitor
A large U.S. based firm
Produced a close substitute for Release-ease
Another U.S. firm also provided some competition but not very serious for
long term commitment.

Gary Plant (USA)

Managed by north American area
Was founded in 1905 and purchased in 1951 by Applichem
Was Applichem’s first large manufacturing facility
Designed to run wide range of product formulation and package types
It ran 8 formulations of release-ease, about 80 package sizes
19 other product families in addition to Release-ease
1000 non-union employees
Installed capacity: 26 million pound per year
Production: 14 million pound per year using 60 peoples

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Frankfurt Plant(Germany)
Managed by European area
It ran 2 formulations of release-ease, only 50 kg pack size
12 other product families in addition to Release-ease
600 employees
Installed capacity: 47 million pound per year
Production: 38 million pound per year
Supplied customers located in Europe, Middle east, and Africa and
bulk-shipped to other plants of Applichem

Mexico Plant
A wholly owned subsidiary of Applichem
Installed capacity: 27 million pounds per year
Production: 17.2 million pounds per year
Packed Release-ease only in one size i.e. 50 kg bags
6 product families in addition to Release-ease

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Sunchem Plant
 50% Japanese joint venture
Produced release-ease and one more product
Founded in 1957 and redesigned in 1969
Packed ½ kg and 1 kg pack size
Installed capacity: 5 million pounds per year
Production: 4 million pounds per year
Thought to be technically excellent plant
No union at this plant but required more labors than other plants
Also strict regulations and high energy cost

Cross-Plant Productivity Study

Study was requested in June 1982 and was finished in Sept 1982
Aim: To re-allocate the production in light of poor utilization and
poor productivity of few plants
 Refer Exhibit-2 for comparison of manufacturing cost across plants
Several difficulty in comparing cost, usage, and yield statistics
Allocation of indirect cost, Exchange rate fluctuation, differences in
wages across nations, varying packaging and energy costs

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Exhibit-2

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Exhibit-2

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Exhibit-2

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Average Manufacturing Cost

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Decision Problem
Gary Plant:
It was ineffective operation
It had fiefdom type of management
People have grown complacent and inefficient
Lost their technical curiosity
Frankfurt Plant:
The state-of-the-art technology
To decide about the shifting the production of Release-ease from Gary
plant to Frankfurt Plant
Shall we shift the production to other plants?
How shall we go about it?
What are the impacts of exchange rate, wage rate, quality, packaging etc.?

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Comparison of Plants

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