Applichem Case Study

Summary

Applichem is a worldwide manufacturer of a product called Release-ease, a chemical used by manufacturers of plastic moldings. Release-ease is a powdery substance, applied as part of the manufacturing process that makes it easy to remove plastic from its formation mold. Applichem has made this product since the 1950's and demand has been consistent. They have multiple plants around the world to support their business, including: Gary, Indiana; Windsor, Ontario, Canada; Frankfurt, Germany; Mexico City, Mexico; Caracas, Venezuela; and Osaka, Japan.

Recently Applichem management has been faced with the difficult problem of allocating to its customers the capacity of manufacturing plants that are located around the world. Differences in the technologies used in the plants and in local raw material and labor costs create significant differences in the cost to produce Release-ease in the various regions. Additional constraints include management's hesitance to increase capacity at the plants, along with the varied costs of shipping products around the globe. As a result, oftentimes, profit suffers as a result of poor management of Applichem's overall operations.

This case study will analyze the current plant production costs and capacity, determine optimal use of Applichem's plant capacity, and make recommendations to their management team as to how they can best move forward in creating an environment based on efficient and cost effective operations.

Question 1:

Evaluate the cost associated with the way Applichem's plant capacity is currently being used.

From/To Mexico Canada Venezuela Europe United States Japan

Mexico City 28503.3 96399.45 91292.4

Ontario 25311

Caracas 47699.4

Frankfurt 74919.6 153380 113887.8

Gary 144102

Osaka 61520

Total 837014.95

The cost associated with the way Appichem's plan capacity is currently being used is that there is a lot of shipping outside of the county. The cost is calculated through the combined cost being multiplied by product made and shipped the previous year. The company is being dictated by the demand for the merchandise, and the city that had the merchandise, ships the release ease to that country. There is a large demand for release ease in Venezuela, and as a result, Mexico city, Ontario, and Frankfurt all supply the demand for that country.