1. INTRODUCTION

Applichem, a manufacturer of specialty chemicals founded in Chicago, had developed a unique product Release-ease to help in formulating a plastic molding compound which released easily from metal molds after compression molding. Applichem had held the patent for it and the product family had been a steady sales and profit generator for the company through 1982. The company has 6 manufacturing plants: 3 in North America (Gary, Canada and Mexico), 1 in Western Europe (Frankfurt), 1 in Latin America (Venezuela) and 1 in Pacific and Rest of the world (Sunchem). Due to variations in number of product lines manufactured, number of packaging varieties, capacities of plants, plant redesigns and regional laws, Applichem experienced large differences in the performance of the manufacturing plants in terms of average yield of raw material and profitability.
2. CURRENT PERFORMANCE

Plants Market Designed capacity (Million Lb) 1982 Production (Million Lb) Idle capacity (Million Lb) Capacity Utilization Yield Last update in Equipment
Mexico North America 22 17.2 4.8 78.18% 94.70% 1978
Canada North America 3.7 2.6 1.1 70.27% 91.10% 1955
Venezuela Latin America 4.5 4.1 0.4 91.11% 91.70% 1964
Frankfurt Western Europe 47 38 9 80.85% 98.90% 1974
Gary North America 18.5 14 4.5 75.67% 90.40% 1964
Sunchem Pacific 5 4 1 80% 98.80% 1969 The percentage of distribution of Applichem across the plants was as follows: 3. PROCESS FLOW
Release-ease was manufactured using a 4 step process which has been illustrated below. 4. FACTORS INFLUENCING THE PERFORMANCE OF PLANTS
a. TECHNOLOGICAL SUPERIORITY

Some plants had more technologically superior machinery which provided them with an edge over others. Also, the performance was depended on the frequency and quality of machinery up gradation. For example, the Venezuelan plant had old equipment and no improvements had been made since 1964. This affected its productivity in an adverse way.
b. GOVERNMENT REGULATION

In some of the plants the performance was also affected as they had to adhere to the government specifications. For example, due to Japanese regulations Sunchem has a very large number of direct and indirect labours which increased the overall cost.
c. WORKER PRODUCTIVITY POTENTIAL

There was also a clear variation in the education level, training and the attitude of the staff at different plants. A highly skilled labour is more likely to be paid a higher wage. For e.g. Mexican operators had sound technical knowledge and were able to maintain process improvements as suggested while the Venezuelans were not able to. In line with this data we have analysed the wage/per hour in USD of the plants as per 1982 data.

Plant Mexico Canada Venezuela Frankfurt Gary Sunchem
Average Gross Money Wages/ hour in USD as per 1982 figures 1.03 8.33 3.34 6.15 8.5 6.06

d. HIGHER NUMBER OF PRODUCT LINES

The number of product lines handled by different plants also varied. Plants like Gary handled 19 product families other than Release-ease which implies that both financial and physical processes need to be shared. This could affect the productivity in terms of Release-ease.
e. PACKAGING TYPES

Various plants had different types of packaging styles. Some plants chose to provide 50kg bags while others used packages in many sizes from 0.5kg on up. This decision also led to additional setup costs. With 80 package sizes and a cost of 13.78 US dollars per hundred pounds of Release- ease, Gary’s number of packages could have an effect on yield. As mentioned in the case “Changing the size of a bag in the packaging line frequently took a day.” With such high setup costs for packaging, the yield is likely to reduce.
f. QUALITY SPECIFICATIONS

Adherence to quality specification was an important determinant of the performance of plants. The high quality maintained at the Canada plant can be inferred from the case facts. Managers were convinced that Frankfurt plant met specifications better than that made in other plants as product specifications was more closely monitored in Europe.
g. CUSTOMER PREFERENCES

European customers used their Release-ease within one year of their purchase, whereas some final customers in the U.S. would use it for as long as 3 years after manufacture. This determined the production rate of various plants situated in different countries.
h. VOLUMES/ CAPACITY

Canada has the lowest annual design capacity of 3.7 million pounds and a capacity utilization of 70.27 %. On the other hand the Frankfurt plant has the largest capacity of 47 million pounds and a capacity utilization of 80.85 %.Therefore the larger the capacity of the plant and its utilization, the higher the average yield for the plant (Given in the case). Deducing from this, the Frankfurt plant should have a higher yield than average while the Canada plant will have a lower than average yield.