Sands Corporation
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SANDS CORPORATIONWritten analysis and communication| August 1961August,1961President, Sands Corporation.Subject: Letter of TransmittalDear President,I am writing you to handover the report regarding the decision to select the location for the new plant. Each option was analyzed from all angles and implications of all proposals were analyzed to come up with best possible future course of action. Each option was thoroughly evaluated with respect to all the criteria set for evaluation and then only a final option was selected keeping in mind the tradeoffs associated with each course of actionI hope this report helps in taking the best future course of action.Sincerely,Vice president,Manufacturing,Sands Corporation.SummarySands Corporation is in need of a new plant to meet the demand for a new defence contract and other products . Two sites Kimberley and Hampton are selected for final consideration. Kimberley has cheaper cost but it possesses a risk of strike because of workers union. While Hampton has inadequate labor work force. But there is no risk of labor union and hence no strikes. workers can be hire from industries in nearby large cities to solve labor problem. Hampton is a better option due to long term benefits with respect to bargaining power with workers, product line expansion and timely delivery of order.Situational AnalysisSands Corporation is a manufacturer of parts for the aircraft, automotive and agricultural equipments industry. The company has main plant in Clairmont, a highly industrialized city and two branch plants in small towns, 60 kms apart from Clairmont.Sands Corporation had acquired a contract for military aircraft parts through competitive bidding and had to start delivering from April 10, 1962 failing to do so will attract a penalty as well as risk of losing future government contracts due to hampered reputation. By August 1961 need for an additional plant and equipment to fulfill the contract for military aircraft parts was felt as it cannot be manufactured on the available machinery because of their larger specifications which required special equipments. Also, the current setup is expected to reach its maximum capacity within one year.75000 square feet of floor space was estimated for new plant with expected completion time between December-February. Plant would be used for manufacturing aircraft parts and other products (under product line expansion programme) to serve varied markets and to make up for decline in demand of defence equipments during peace time.Two sites, Kimberley street and Hampton were selected for final consideration of location. Kimberley street was near to main plant while Hampton was located in small farming town 180 miles away from main plant. Resale value of plant was high in Kimberley street because of highly industrialized locality as compared to Hampton which had no industries. Along with Cheaper utilities cost, surplus labor was also available in Kimberley but the labor force of new plant would become part of the workers union in main plant which went on a strike for three weeks last march to demand for increase in wages. Although a new one-year contract with increased wages was signed but the discontent among the union workers was still present and it posed a risk of strikes in new plant in Kimberley thus delaying the delivery of defence contract. There was no risk of workers union and strikes in Hampton as Sands Corporation was the sole manufacturer there but availability of the labor was a problem in Hampton as most of the labor force was engaged in farming or in industries in nearby large cities which were 20-40 miles apart. Survey of 700 workers carried by the company revealed that unskilled labor was available in required numbers but skilled (35 [5%] +105[15%] =140 available) and semiskilled labor (70 [10%] available) was inadequate.
Hourly wages rates in US increased from 0.961 to 2.91$ with a CAGR of 5% [1]. Following table compares cost incurred in both sites.Cost of utilitiesAnnual requirementKimberleyHamptonCost/unitTotal costCost/unitTotal costElectricity4000000 KW-hrs0.101 KW-hr404000.21840000Gas50000000 ft30.46/1000 ft3230000.7135500Water24000000 gallons0.11/1000 gallons26400.256000Total429640881500Labor Costs [5% more than the current rate for Hampton]Annual requirement (assume 250 working days)wagesTotal costwagesTotal costSkilled3002.251687502.15161250Semi-skilled1501.85693751.8368625Unskilled1501.5562501.4755125Total294375285000Other costsKimberleyHamptonLand50000 (2 acre)20000 (10 acres)Tax3.34/100$17702.4/100$480Admin-63000Total5177083480Total cost7757851249980Setting up a new plant in Hampton is costly as well as more effort is required in starting the operations as labor is not readily available but it mitigates the risk associated with workers union by preventing strikes which might have affected timely delivery of contract order. There are two large cities (within 40-mile radius) near Hampton having low unemployment level which indicates the availability of labor and these can be poached (by giving 5% higher wages) to meet the additional demand of labor for new plant.