Applichem Case Study Pt. 4

On a year-to-year basis, Applichem’s aggregate variable costs dropped from $631 per hundred lbs. of Release-ease in 1978 to $580 per hundred lbs. of Release-ease in 1981.  These decreased costs were attributable to the drop in Sunchem’s and Frankfurt’s raw material costs in from 1978 to 1981.

Because of the Gary plant’s large volume of international trade activity, a significant amount of packaging, loading and shipping costs are incurred by the U.S. operation.  As shown in the tables below, similar costs at the other plants are negligible in relation to total costs.

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Our analysis also highlights the various plants’ underutilized manufacturing capacities based on each location’s designed capacity and actual production.  The table below illustrates the excess capacity by plant:

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Operating Costs:

Import tax as a percent of the product is highest in Mexico and Venezuela. These countries have significant requirements for local use of the product because of the large industrial base and can easily export the product to the United States at a low cost if needed. Importing into these countries during low inventory or high demand periods would reduce profit margins.

As stated in the market analysis the transportation of hazardous materials can be costly in highly populated and regulated countries. Raw material transport in Mexico and Venezuela can be done cheaply due to low regulatory infringements. In addition waste exhumed from the finished product is expensive to handle and dispose in highly regulated countries. Japan, Canada and the US have high containment costs.

In addition direct labor cost in Venezuela and Mexico are the lowest out of the 6 plants by at least 20%. This mature product line does not require highly skilled labor for a high volume batch driven process.