Aldens Products

Group Report
By
Daniel Doherty, Elliot Moir, Kaiwen Lin and
Avinash Haorongbam

Table of Contents
IntroduceAPI early 1960s.............................................................................................3
API early 1960s.............................................................................................................4
Performance in 1980s....................................................................................................6
Future Strategy for API..................................................................................................7
Recommendations..........................................................................................................8

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Introduce

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API early 1960s

Looking back, do you agree with the logic that led Alden products international in
1962 to consolidate its continental European production into one single facility?
In the early 1960s, API had several subsidiary plants across Europe. They were
responsible for their own products and distribution networks in there own country. At
this time the company was going through great changes and was expected to be
growing at a rate of 40% a year. This growth would put their current arrangements in
Europe at great strain and if nothing was done to meet this increase in demand the
company would lose out on this great opportunity. At the time there were two options,
to increase capacity at each of their regional subsidiary plants or to consolidate all
European production to one single production centre. A decision was made that API
that it would consolidate all its European ventures into one single operation and turn
the existing factories into regional distribution centres. The site for the new factory
was Nijmegan in Holland and this site opened in 1962.
I believe the decision to change the structure of the company to a single production
centre was the correct decision. I came to this finding by analysing this choice in
terms of operational strategy, I looked at operational strategy in terms of quality,
speed, dependability, flexibility and cost. This gave me the basic strategy and
determining the success of the 1962 plant.
Our most Differentiable factor is our quality, this allows us to charge 15% more than
mass-market products. So, hence the quality is fundamental to our success. In moving
to one factory API were able to cut out their variation in they products. This variation
was caused by API factories using different equipment: having staff with different
levels of ability using this equipment and sourcing raw materials from different
suppliers. This caused huge variation in the same product that was produced by
different factories and would affect our customers enjoyment of there product. This
variation would be cut down to a minimum by using new equipment and having
highly trained staff to run such equipment in the one factory. It would also protected
the security of our secret recipes by having a limited amount of people who had
access to this. This would keep our product safe from competitors.
The speed of the operation was greatly increased by economies of scale. It was now
possible to create production lines that could produce a large volume of goods in a
short space of time that could meet the needs of customers across Europe. This speed
and scale of production allowed the company to expand at an intense rate which
allowed us to increase our market share and keep competition at bay. The speed of
production would never be possible in smaller regional factories and markets would
not be big enough to utilise their equipment fully. Having the factory based in
Nijmegan in Holland gave the company excellent access to raw materials and
effective distribution network through excellent road and rail connections to the rest
of Europe. This helped to reduce the lead time for customers and suppliers.
Dependability was increased when API moves a single factory for its continental
European operations. It allowed the company to meet large orders and the pressures of
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growing customer demand from all across Europe. This ability to meet large orders
improve customer satisfaction and built-up trusts between the different suppliers
helping our company to grow.
Conversely, flexibility was actually increased when moving to a single factory by
increasing the range of different products that the factory could produce. This allowed
regional subsidiaries to create their own separate products that were not available to
other regions and also allowed them to modify formulations to meet the needs of their
own region. They could also have their own labelling and style of bottle to meet the
needs of their customers. All this flexibility allows the company to customise its
products and take advantage of niches in the marketplaces and in different regions.
The cost was a major factor in the decision; it was far cheaper to build one factory
than to expand their operations in many smaller regional factories. It also cut out
duplication that was happening in different factories, with each factory had their own
procurement, finance and administration systems. These functions could be put under
one roof and would cut out wastes and cut overheads. It also allowed the company to
have a greater bargaining power in buying raw materials from supplier, thus reducing
the overall cost. These were clear benefits of a single factory.
In conclusion, I feel the decision to consolidate all there production needs into one
factory in Holland was the right decision for the company. It allowed the company to
grow very fast and expanded over 20 times its original sales. In analysing all the
factors that affect operations I feel each factor had the benefit from this move. Thus,
having a more effective operation has enhanced the customers experience and has
added value to our in product.

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Performance in 1980s
The decision from a multi production unit to a single unit production centre,
Uniplant was built in 30 Hectares property and in operation by mid 1964. As the sales
forecast grew in Europe, Uniplant was expanded six times, latest in 1982. With
reference to the exhibit 3, after the expansion in 1982, the European sales are increase
by just 11% and numbers of units produced by 5% only but the Overhead cost/unit
(mfg. & admin.) is suddenly raised by 33%. This is mainly due to the expansion
which leads to the initial chronic syndrome of plant following the same work flow
everyday and then suddenly the expansion changing the work schedule. So, even after
initial expansion investment of 200 million Dfl., the Uniplant face the high over head
cost. But in later part upcoming year, with the increased in sales, the overhead cost
was maintained within the range of 24-27 % with reference to 1981.
In the European recession of 1970-1988, the Uniplant performance of was not
that much affected even after the increase of Hollands living cost by 70%, the
average cost per unit is only increase by 50% only. This is mainly due to the fact that
Uniplant sources its material from a number of different countries and only about
35% of it comes from Holland. This can also be illustrated from Exhibit 2, that
materials cost play one of the vital factors in total cost of sales and marketing by 62.6
% and the remaining are quit minimal percentage i.e. for direct labor the percentage is
just 6.2% which is like 10% of the cost of material. So, even after the primary rise in
the living cost of Holland, the sales cost is not that much affected.
In 1982, one of the fastest subsidiary units, Alden-Italy stated that due to
difference in the exchange rate between Dutch guilder and Italian lira, the
transportation cost from Uniplant to Italian subside is very high. It was costing
subside, 6% of his total cost which is half as Alden-Europes other subside, and
leading not to be in a position to competitive of the other products in Italy. This leads
to loosing the Italian market of the Alden products, and hence the alternative was to
use local Contract Fillers company which will perform the filling function. The
others was to reduce Uniplants Marks to 5% from 10% or equalize the transportation
cost to all the subsidiaries i.e. charging the north European subside more and the
Italian less. But as per the Alden top management, the Italian Subside was given
freedom for using Local Contract fillers. Hence lead to decrease in operation was
reducing to 70% of the capacity.
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In 1988, Uniplants inventory turnover increases by the factor of 10 (both for

raw materials and packing material), which lead to high turnover of finished goods.
Hence the Overhead cost of production is at the minimal point of 1% from the
previous year.
According to van Zweiten, the performance can be increase by avoiding short
production runs. Short production runs usually took an hour to change over from one
high speed filling to another product or container, frequency of short and changeovers
should be neglected as it reduce the throughputs and increases the average cost. In the
current operation schedule, the fillers was operated 2 shift of 8 hours, 5days a week
and also in weekend in the peak hour. The remaining 8 hours was used for
periodically cleaning the fillers. The other way of improving the performance was to
increase the no of shift to 3 rather than 2, but the only thing was that to face was the
cleaning time of the fillers.

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Future Strategy for API

Capacity requirements
According to the projections produced by management at Alden-Europe, there will be
substantial growth in sales between 1988 and 2000. Further break down of this
growth indicates the following:

An average rate of growth of 5-6% per year is expected during the

1990s
This growth is expected to be most rapid up from 1990-1995, to be
followed by more steady growth from up to the year 2000.
Sales in Europe expected to almost double between 1988 and 2000.

It has been suggested that Alden-Europe will require a further 8-10 high speed filling
lines to be in place by the year 2000 to enable them to meet the demand forecasted
through these projections. A single high speed modern filling line is expected to cost
approx Dfl 6 million ($3 million), and provide capacity of 40 million units/year.
At present capacity between the two European plants (UK & the Netherlands) totals
440million units/year, based on two-shift operations and 100% utilisation. In
actuality, the optimum utilisation has been recognised as being an average of 85%,
this allows for improved short-term market-responsiveness and the ability to resolve
any production bottlenecks. Therefore, to align with the projected double in demand
expected by 2000, it is justified that the company would require investment in 8-10
high speed filling lines to approximately double capacity; adding an extra 320-400
million unit/year production capability.

Location for additional filling capacity

The main strategic decision that now faces Alden-Europe is where the additional
filling lines should be located. The two main options that are being suggested are
either to expand the existing Uniplant facility or open a new facility in Italy or
Southern France.

Option 1: Uniplant
Feasibility

According to the sales projection in 1990s, a total 8 to 10 high-speed filling lines were
needed in order to cope with the expected demand coming from 1988 to 2000.
Uniplant in Holland was a single, industrial area, which allows adding additional
filling lines without buying new land. Furthermore, once in the future, Uniplant have
to expand again, an optional 10 hectares would cost only $250K per hectare. The
effect of land investment for Alden-Europe was very significant.
Another aspect was the equipment cost. A newly high-speed filling line could support
a 40-million-unit capacity per year, and the expected cost for Uniplant just about 10
million. In addition, with plant expansion it enabled Uniplant could have its own
blow-molding facility that would also save the cost for its own plastic bottles.
Per Roland van Zwieten, manager of Alden Products Uniplant, pointed out that due
to the automated production, it allowed Uniplant could hire less labors doing repeated

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work, and whats more, to employ part-time labors from university students
supporting specific high-peak period or short request demand.
Another solution would distribute the production to contract fillers. By increasing
products number on outside fillers, it can give some relief on Uniplant and save direct
manufacturing cost at a range of 5% to 30% depended on different countries and
product types.
Acceptability

By expanding Uniplant, due to its locational advantages such as near the major
harbors for easy approaching to the petrochemicals and packing material, close to rail
lines and highways which were beneficial for raw material purchase and finished
products delivery. It can be seen that Alden-Europe looked for the return revenue from
the raw material bargain power and the reduced direct manufacturing cost for the
expected sales units from the combined demand in Europe.
It was also noticeable that, in 1982, by using contract fillers in Italy, the Alden-Italy
would not worry about the changeable exchange rate between two currency, guilder
and lira, while it could still provide competitive price during the hard time in Europe.
And the contract fillers were also a positive choice for a short term recovery for
Uniplant.
Vulnerability

Turn to look at some risks, even though the preferred option in Uniplant expansion
got more advantages than disadvantages, however, there were still some potential
risks which may affect the final decision.
Firstly, the Uniplant supported the majority of the Alden-Europes production, within
its rapid growth from 1962, the faster it grows the risky it brings. For example, per
static economies of scale, some big companies developed too fast, even though in the
beginning the unit price decreased to a lower level due to mass production. However,
when companies keep growing, it may led to management problems, such as quality
issue, capacity shortage and furthermore, poor customer service.
Secondly, for the risk of enhancing percentage on contract fillers, the obvious concern
was the quality may not easy to control like in house production in Uniplant. Since the
qualified products were the reason of APIs higher cost in the industry. Once the
quality issue happened, it would defect company reputation.
Thirdly, for high-technology products, the top management of Alden-Europe was
unwilling to release ingredient and formulations to contract fillers. It would be
sensitive for outside fillers know about the product secrets.
Recommendation

For the best decision of whether expanding capacity filling lines in Uniplant, it must
be compatible with API competitive guideline. As the attached chart shows, a lower
investment cost including land, equipment, labors, raw material and components,
Uniplant got the most benefit on investment, which meets the company guideline
focusing on cost competitive and manufacturing flexibility, and furthermore, a better
customer service in an appropriate level on manufacturing, distribution, inventory
costs. Also, the automated production in Uniplant keeps higher product quality by
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reducing employees in monotonous jobs. It is recommended that, to expand filling

capacity in exist Uniplant could positively save investment cost.
Another option of increasing contract fillers, the manufacturing cost could lower at
maximum 30% if choosing Italian fillers, however, it caused direct manufacturing
cost risen in Uniplant. To evaluate the possible long term benefits, it is recommended
that only distribute low-value and low-technology products to outside fillers. Since it
considers avoid telling 100% products formulation and ingredients to others and even
if any unexpected case happened, API could still take the high-technology on hand
and not losing control of the product exclusive. This is to protect the expertise in
process technology and maintain state-of-the-art capabilities.
Option 2: New Plant in Southern Europe
Feasibility
Introducing a major new plant in Italy or Southern France will see Alden-Europe
move away from the mainly centralised system that they have operated from Uniplant
in the Netherlands. This shift will require effective change management, as
operational strategy will change fairly significantly. The potential feasibility of a new
plant in this part of Europe is driven primarily by the majority of European market
being located in this area.
Locating in this area of Europe will allow products to be brought nearer to some of
the major markets in Alden-Europes sales region. The French subsidiary currently
accounts for over a third of Alden-Europes sales (the largest subsidiary in Europe),
followed by Italy, accounting for around a sixth of European sales. In recent times
there has been increasingly negative feedback from these countries in relation to
market-responsiveness and late deliveries. These problems have derived primarily
from deterioration in exchange rates (most notably the Dutch Guilder Italian Lira)
and the high transportation costs from Uniplant.
The manager of Alden-Italy has stated that, due to these problems, they are unable to
continue to price competitively in the Italian market, consequently if action is not
taken to tackle these issues soon then Alden-Europe are going to begin to lose large
shares in the European market to their competitors. This has fuelled the argument
within Alden-Europe that locating new production capacity near these markets would
alleviate the majority of the aforementioned problems and enable the company to
maintain and develop their strong market share in these countries. In particular, the
key benefits of this new plant would be substantial cost reduction in labour and
transportation as well as enabling Italy and France to manage and control their own
markets more effectively.
However, as can be expected, there is a trade-off in terms of capital investment
requirements. As has been pointed out by Roland van Zwieten, Uniplant would be
able to begin expansion without purchasing extra land, and if required had the option
under contract to purchase an additional 10 hectares of nearby land for approximately
a mere $250,000/hectare. Compare this with the price of equivalent land in Southern
Europe, which would cost 4 times as much; in the region of $2million/hectare.
Vulnerability
The main risk to Alden-Europe will be the high level of initial capital investment that
is required if it is decided to proceed with the development of a new plant in Southern
Europe. It will have to be ensured that if the company are to proceed down this route
that full company-wide, backing is given to the inevitable change in operational
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strategy that will arise from decentralising production. It appears for example that
van Zweiten, who is highly valued by Alden-Europe, is extremely sceptical about this
approach, although he has accepted that his opinions are to some extent bias due to his
strong links with Uniplant. Earning the backing of the likes of van Zweiten, for
example, could prove a barrier to the success of this shift in strategy.
Additionally, in terms of committing to this investment, although there would be
substantial knowledge transfer available from the existing plants, there would be high
levels of investment required in the training and development of staff at a new plant.
Further complexity arises in the transfer of skills and knowledge to a new country due
to differences in culture, not least the use of a different language.
Alignment with corporate strategy

API Competitive Guidelines

Advantages
Meeting well-defined customer
needs through the identification of
unserved niches and the use of
creative marketing is the overruling
factor of success.
In coming years, we must be able to
develop and introduce large numbers
of new products in a timely manner
We must be able to respond quickly
to changes in market needs and
competitive actions.
Our product quality should be
clearly distinguishable as superior to
the competition in terms of
performance, packaging and design
finish.
Customer service is the critical
success factor in the market place. It
must be competitive - or better.
Exceptional customer service could
be a major success factor, but
generally the appropriate level of
customer service should be
determined by balancing marketing
requirements with
manufacturing/distribution/inventory
costs.
We must develop/maintain expertise
in process technology across an
important share of our product line.
We should maintain state-of-the-art
capabilities in some manufacturing
areas to ensure a degree of technical
pre-eminence in the organisation.
We want both a very high degree of
manufacturing flexibility to respond
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to changing market conditions, and

landed costs that are competitive
with those of important local
competitors.

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Recommendations

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