Mohan N - 151202067

SCHOOL OF MANAGEMENT
MANIPAL UNIVERSITY

Alden Products Inc. - European Manufacturing

Date of Submission 21st August 2016

Technology and Operation Strategy

Submitted to: Prof. Ashish Viswanath Prakash

Alden Products Inc. - European Manufacturing

Abstract
The case speaks about a manufacturing company which undergoes expansion of plant to
manufacture in order to meet the growing demand. The company comes across various phases
where it has to take strategic decisions to centralize or distribute, localize or standardize, and
integrate or separate to attain operational efficiency and build on its competitive strategies.
Introduction
Alden Products Inc. (API) a company headquartered in Illinois, United States majorly ventured in
personal care products and traded worldwide. Having said that, the company sells over 1500
products in more than 50 countries. Skin creams, lotions, soaps and shampoos, toiletries and
deodorants were a few products around which their business was concentrated. Majority of
sales were done in Europe continent. APIs target segment were customers who preferred high
end products which were unique, high quality and innovative. The company is known for its
excellent marketing strategies through innovative advertisements and other promotions. Also,
they priced their products about 15% more than their competitors. Initially there were two
plants, one in Peoria located in United States and the other in Buxbridge in United Kingdom. In
1962, the company decided to build a new plant to consolidate the entire production into two
plants. One was the existing plant in Buxbridge which would responsible for United Kingdom
region and other was a new Uniplant in Holland which would meet the production demands of
entire European region including its subsidiaries.
Why did the company go for a new UNIPLANT?
The decision to build a Uniplant was majorly influenced by the below listed two factors or trends
observed in the European market.
Firstly, the sales in European market grew at a rate of over 40% and was expected to
quadruple in next 3 years. The existing facility in Europe could not meet this demand as
most of them were inefficient and operated at maximum capacity. However the option
of expanding the existing facility was ruled out keeping the cost and investment factor

mind. Another problem with expansion was to identify and train managerial staff to
supervise expansions.
Secondly, Europe approached towards free trade policy among the union countries which
meant that all trade tariffs were to be abolished. The idea of having a centralized
production to mitigate risk made more sense.
Also Allyn and Bower supported this decision with a few additional reasons to have a new
plant.

Consolidating production for several countries would help in smoothing the total load
of production.

API could certainly save on cost in terms of economies of scaled linked with buying
and handling equipments, automated filling lines. Also construction cost of new plant
would be less than congesting the existing site.

It would reduce reliance on outside suppliers for processing and storage facility.

The new plant would help in introducing new products, simplification of processes,
and debugging.

Performance of the Uniplant

Uniplant was built by mid-1964 in 30 hectares of land in Nijmegan, Holland with an
investment of 200 million Dfl. Since its inception, the plant was expanded six times till 1982
due to increasing sales. On observing exhibit 3 which shows the data of production, cost, and
sales figures of every year, we get to know that after the expansion of 1982, the production
increased at 5%, increment of sales by 11%. Although the production is enhanced only 5%
the overhead cost is found to be increased by 33%. A careful observation of this reveals that
the cost has increased due to expansion which has brought drastic changes in work schedule
affecting the work flow. However, with the increase in sales in the years post 1981 the
overhead cost was reduced.
Another factor that could affect the performance of Uniplant was Italian Lira and Dutch
guilder currency deterioration which increased the transportation costs. API dint want to

reduce its mark- up price from 10% to 5% nor did it want to standardize the transportation
cost to all its subsidiaries which would result in North European subsidies paying more and
Italy less. With an intention of not losing the Italian market, the management allowed Italy to
go for local contract filling.
Also Recession hit Europe in 1970 to 1988. This resulted in cost of living in Holland went up
to 70%. However the Uniplant was not much affected by this which is clarified by average
cost per unit increased by 50% only. What saved API during this phase was their strategy to
procure its materials majorly from outside countries and only 35% within Holland. This
argument can be justified by exhibit 2 which states materials was budget for 62.6%.Uniplants
high inventory turnover helped them in minimizing the overhead cost comparing the data in
exhibit 3 from years 1987 to 1988 .
CRUX of the Case
Sales projections made by the company in 1990s revealed that a huge demand was expected
in the next 10 years and there was a requirement for 8 to 10 high speed filling lines. The major
problem of API here is take a strategic decision in locating the additional filling lines. Three
alternatives were identified here:
a) Expanding Uniplant to meet the requirements - Integration
b) New plant in southern Europe - Separation
c) Approach Contract Fillers - Offshoring
Evaluation of Alternatives
Expanding Uniplant to meet the requirements by Integration:

Van Zweitan felt that integrating the additional facilities in Uniplant was best and
economical choice for the below reasons:

It would minimize the investment required avoiding the cost on purchasing additional
land. If required Purchasing land adjacent to Uniplant was cheaper.

He estimated that to get equipped a high speed filling line for a capacity of 40 million
units would cost around 30 million Dfl and it requires an additional investment of 10
million Dfl if it was to be done in Uniplant.

Also an expanded plant would support them with blow-molding facility to produce its
own plastic bottles which was an added cost advantage.

Sourcing human resource would be a challenge in a new plant as there was no

assurance of access to college students, also would lead to monotonous jobs due to
lack of automation unlike Uniplant.

However there was also a risk congestion and transportation problem encountered
earlier.

New Plant in Southern Europe Separation

The very next option considered was to separate the function or set up a new plant in the
southern parts of Europe may be in Italy or southern France. This shift from the consolidated
production system has its own pros and cons:

This decision can be considered as feasible due to the proximity to the European
market which is its major target market.

The problem of late deliveries can be rectified by moving closer to the markets

Currency deterioration which was a barrier to price the products competitively in Italy
which was a majorly due to transportation costs can be overcome.

However, the risk is here the level of investment that was to be made.

It also indicated the change in operational strategies, management, training and

development, knowledge transfer across countries etc.

Approach Contract Fillers Offshoring

Another alternative which was considered was to Offshoring the filling to contract fillers locally.
By 1989, around 15% of Europes sale came from Offshoring while 30% of United Kingdoms sale
came from Offshoring. This approach was economical as cost varied from country to country.

Some fillers in France charged 5% to 10% less than Uniplant while Italian fillers charged 20% to
30% lesser. The risks associated with this could be:

The quality of products and customer service might reduce.

Cost of inspecting the quality for fillers across would certainly increase

Allowing a fillers to take over 100% production of any product would make API difficult to
rebuild capabilities in future

High chance of losing competitive advantage by revealing the hidden secrecy of

formulations to fillers.

Other risks might be in the form of logistics cost and lead times, currency risks, political
risks.

Recommendations
I would personally suggest the first alternative which is to Integrate within UNIPLANT for
better operational strategy. Observing the competitive guidelines given in exhibit 4 it is
implied that having without having control over its own processes it would lose its
competitiveness. It can certainly cater to niche segments with creative marketing, new
products development, meet market demand in a timely manner, maintain the superiority of
its quality, provide exceptional customer service, build state of art capabilities, and also to
exercise high degree of flexibility in responding to the market situations by implementing the
integration strategy.
References
1. Harvard

Business

School.

(n.d.).

Retrieved

August

21,

2016,

from

http://www.hbs.edu/faculty/Pages/item.aspx?num=22780
2. Van Mieghem, J. A. (2008). Operations strategy: Principles and Practice. (1st Ed.).
Belmont, MA: Dynamic Ideas.