APPLICHEM

CASE SUBMISSION SUPPLY CHAIN MANAGEMENT Submitted By Group 8 - Section A

Himank Khulbe PGP/16/022

Mainak Guha
Megha Jain Rohit Singla Debrup Ganguly Umakant Sahu

PGP/16/028
PGP/16/031 PGP/16/043 PGP/16/255 PGP/16/294

AGENDA

1 3 5 7

Applichem Company Background Manufacturing Plants

Release-Ease Process Flow and Business Factors affecting performance of plants Capacity Management

4
6 8

Comprative Performance Analysis of Plants

Future of Gary

Recommendations

Applichem Company Background

A leading manufacturer of specialty chemicals

Founded in Chicago, just before World War II

Focus on a strong functional orientation Some matrixing introduced into the organization in 1970s

Release-ease: Business Background

Developed in 1952 in response to customer request, Release-ease was a specialty chemical Sold as dry powder, Release-ease would help plastic mould to release from metal molds
When added in small concentration Release-Ease would easily leave the mold cleaner Though a revenue generator, Applichem had done little focused R&D after about 1953

Market Requirements for Release-ease: Europe v/s US

Europe
Suspendability a significant property Competition was fierce in Europe
Quality and Product specification significant Consumption mostly within one year of purchase Purchase mostly in 50 Kilo bags

US
Comparatively a lesser significant property Lesser competitive threat in US
Quality and product specification less monitored Consumption could be even after three years Purchase in bags of smaller denominations

Release-ease: Technology
Reaction
Raw materials combined in a precise sequence under pressure and heat to form Release-ease Size and composition depended on temperature, pressure, federates, heat-removal & agitation

Cleaning
Cleaning and isolating the Release-ease particles from slurry by moving it on conveyorbelt

Release-ease: Technology
Drying
Release-ease particles formed from the cleaning step are dried to form Relese-ease powder

Packaging
Release-ease powder is packaged in bags on an automated filling and packaging-line Losses typically account for the physical losses and loss due to incomplete convertibility

Process Flow Release- Ease

Reaction Clean Clean and Isolate Release ease particles Dry Packaging

Raw Materials to Slurry

Raw Material s

Release particles are dried

Packaging of release ease particles

Final Product

Recapturing Waste Materials

Laboratory Inspection

Applichem: Manufacturing plants

Gary Plant
Manufactured 19 product families in addition to Release-ease Had a total of 100 non-union employees, down from 2000 in 1960s Had a total capacity of 26 million pounds of Release-ease a year Actual capacity of only 14 million pounds manufactured by 60 people

Applichem: Manufacturing plants

Frankfurt Plant
Managed by German nationals who reported through the European area Supplied customers in Europe, the Middle-East, and Africa and other plants Manufactured 12 product families in addition to Release-ease Had 600 employees making 38 million pounds of Release-ease a year Had two manufacturing processes with major modification to increase capacity

Applichem: Manufacturing plants

Mexican Plant
Manufactured 6 product families in addition to Release-ease A wholly owned subsidiary of Applichem and managed by Mexicans Supplied mostly to the Mexican market and some markets in the Far-East Had a design capacity of 27 million pounds & actual capacity of 17.2 million pounds Packaging was done in 50 Kg bags and had extra drying capacity introduced in 1970

Applichem: Manufacturing plants

Sunchem plant
Applichems 50% Japanese joint venture for two products Managed by Japanese nationals and reported to Applichems Pacific Area Automation and advanced waste-recovery system introduced in 1969 A designed capacity of 5 mn pounds and actual capacity of 4 mn pounds Technically excellent, the Japanese employees did more development work Work rules, regulations in Japan and drying capacity of the plant constrained volume

Factors affecting performance of plants

Worker Productivity Educational levels and training Higher number of product families

Number of package sizes

Additional setup costs of 1 day Release ease shelf life Leads to different proportions of active ingredients Plant design and automation

Labour Productivity
Wages taken as proxy for labour productivity Low productivity -> Low yield Exhibit 5 1982 figures High labour productivity in U.S and Japan
Mexico (Pesos) Germany (Deutsche Mark) U.S (Dollar) Japan (Yen)

Average Exchange Rate (Currency/$1 US)

Average Gross Money Wages

96.5
99.82

2.38
14.64

1
8.5

235
1424.86

Average Gross Money Wages (In US Dollar)

Rank

1.03
4

6.15
2

8.5
1

6.06
3

Influence of various factors on average yield and performance

L - Low M Medium H - High

Plant

Worker Producti vity

No. of product lines

No. of package types

Product Develop ment

Emphasi s on active ingredie nt M M H

Laws

Mexico Frankfurt Gary

L M M

M H H

L L H

L M H

M M M

Sunchem

Comparative Performance of Plants

Lower measure of performance for Gary and Sunchem
Gary Due to Release ease being in distribution for more than 2 years greater emphasis on active ingredients Batch operation for research Exchange rates Sunchem Strict Japanese laws Labour issues

Comparative Performance of Plants

From Exhibit 3
Plant Mexico Frankfurt Sunchem Gary

No. of Workers
1982 Production Volume(million lbs)

45
17.2

86
38

31
4

58
14

No. of .38 pounds/Worker Average Yield on Raw Material A 94.7%

.44 98.9%

.12 98.8%

.24 90.4%

Factors for control

What Management can control?
No. of package types Plant design Emphasis on active ingredients Automation

What is outside the scope of management?

Labour productivity

What goes where Exports/Imports?

Mexico 50 kilo bags Sunchem and 1 kilo packages Frankfurt 50 kilo packages Gary About 80 package sizes
Plant Sales 1982 Productio n 14 Exports Imports

Gary

29

15

Frankfurt
Mexico Sunchem

20
12.3 11.9

38
17.2 4

18
4.9 0

0
0 7.9

Capacity Management
Demand for Release ease expected to remain constant for the next 5 years Different costs of production for different plants

Different sizes available for packaging

Plants with excess capacity Export to areas where cost of production is high based on Production + Transportation cost

Costs of Inter Plant Exports/Imports

From/To Cost of Productio n (US $) 85.64 142.42 68.91 88.75 Gary Sunchem Frankfurt Mexico Gary Sunchem Frankfurt Mexico 90.64 156.42 79.41 99.75 98.24 144.42 82.21 102.85 95.74 156.72 70.91 99.85 97.14 155.72 81.81 96.25

Plants with excess capacity - Export plants where cost of production is higher than combined cost of production and transportation at these plants Assumption: Packaging to be done at respective import plant location

What future holds for Gary?

Shifting Garys Release ease production to Frankfurt
Not feasible Frankfurt has excess capacity of 9 million pounds Demand from Gary is 14 million pounds R&D facility will also need to be shifted which will bring in inefficiencies in Frankfurt Different shelf lives for Frankfurt and Garys products Extremely loyal labour force in Gary - Generational occupation and the Gary kid

Recommendations
Sunchem does not seem to be a viable plant due to high costs Import from Frankfurt and package in Sunchem Centralized R&D team for product development rather than area wise teams Better adoption of new innovations Information exchange between different plants

One of the core pillars of SCM

Scale up small plants as yield increases with volumes

Recommendations
Implement computer control reaction in every plant Recapture wastes Important source of yield increase Extensive solids recovery and waste management like Frankfurt plant Focus on outdated machinery Expected life is 20 years In some plants machinery installed in 1959 is being used in 1982!! Will result in significant yield improvements