Assignment 1: Sands Corporation
A Report Submitted to
Prof. Girija Shankar Semuwal
In partial fulfilment of the requirements of the course
Written Analysis and Communication-I
By
SUBHAJIT ROY
Section D
Roll No. 1911264
On
30-07-2019
To,
The President Sands Corporation
Date: August, 1961
Subject: A report on installation of new plant at Kemberley or Hampton
and analyzing the suitable location
Dear Sir,
I am submitting the detailed report on the installation of the new plant.
Sands Corporation has only two options of installing the new plant, either
at Kimberly Street or at Hampton. Various factors such as location,
proximity, availability of labour, capital cost, labour cost, electricity
cost,gas and water cost and other overhead expenses have been taken in to
consideration.
Regards,
Subhajit Roy(Independent Consultant)
Executive Summary :
Sands Corporation which was established in 1941 manufactures a wide
range of product such as parts for aircraft, automotive and agricultural
equipment industries. The company operated three plants : one main
plant and two branch plants which is approximately 200 miles away
from the main plant.
The step-up in military and space programs in 1960 and 1961 led to
increased orders for the Sands Corporation. In 1961 Sands Corporation
won the competitive bidding to supply the military aircraft parts. Since
existing facilities did not lend themselves to the production of such
items company executives decided to install a new plant to fulfill this
contract in stipulated time. After investigation and studying various
plant locations, company has two options to locate the new plant either
at Kimberly Street or at Hampton
Taking in to consideration the various factors such as land, labour,
electricity and other factors both the options are analyzed.
[Link] Analysis :
The company manufactures wide range of parts for the
aircraft, automotive and agricultural equipment
industries. It operated at three plants which were located
in Midwestern section of United States.
Sands corporation won the competitive bidding in 1961
to supply the military aircraft parts. To fulfill this order,
Sands Corporation decided to install a new plant as the
order could not be manufactured in existing plant as the
specifications mentioned were of larger [Link]
company officials predicted that existing facilities would
reach capacity at some time during the next 12 months.
After discussion with government and aircraft industry
company executives concluded that a new plant would
require a space of 75,000 square feet and it was estimated
that a new plant would cost approximately $6, 00,000
with a requirement of 600 employees with one-half
requiring skilled workers and another half equally
divided between semiskilled and unskilled workers.
After studying various locations the company has to
choose between two options, a site at Kimberly Street or
at Hampton.
The construction of the new plant would
approximately take 4-6 months under the condition that
work should be started within the next two weeks if the
foundations were to be laid before the first frost.
Government orders required delivery starting April
20,1962 with a penalty of $1000 would be charged /
day in case of late delivery after a grace period of a
week.
It was estimated that to install a new plant at Kimberly
street it would cost $33,07,410 and at Hampton it would
cost $35,11,980. (see exhibit 3). These cost include the
cost of land, labour and other overhead expenses.
2. Problem Statement :
To decide whether the plant has to be set up at
Kimberly Street or at Hampton considering all the
factors and profitability of Sands Corporation.
3. Options Available :
These are the following options to be considered.
a. Set up a plant at Kimberly Street.
b. Set up a plant at Hampton.
4. Criteria for Evaluation :
• Capital Expenses like cost of land and property tax
• Overhead Expenses like electricity, water and gas
• Labour availability and costs
• Transport Facility like Road, Rail and Airways
• Savings and other Benefits
5. Evaluation of Options :
I. Kimberly Street
a). Capital expenses:
The cost of the land is $50000 for 2 acres. The property tax
rate and the real estate price when calculated on the Cost of
land is $1770.(see exhibit 2)
b). Overhead expenses: The total cost of electricity, water
and gas annually comes to $4,29,640.(see exhibit 2)
c). Labour availability and costs : When the survey was
conducted by the US Employment service it showed that
approximately 1000 skilled, 2000 semiskilled and 3300
unskilled female workers are available .The total Cost of
Labour annually is around in $28,26,000. It includes the cost
of 600 employees. Which consists of 300 skilled labours, 150
semi-skilled, 150 unskilled. (see exhibit 1)
d). Transport facility: Transportation facilities were
considered to be good. Well connected by air, rail and road.
More over it is few blocks away from the main plant.
e). Savings and other benefits: A savings of $ 63,000 as
salary of seven fewer employees could be made if the plant is
located at Kimberly Street. As the assistant manager of the
main plant would become the new defence plant manager it
would be easier for him to relocate, as the new plant is just
few blocks away from the main plant.
II. Hampton
a). Capital expenses:
The cost of the land is $20,000 for 10 acres of land. The
property tax rate and real estate price when calculated on
the cost of land is $480.(see exhibit 2)
b). Overhead expenses:
The total cost of electricity, water and gas comes to
$8,81,500 annually (exhibit 2)
c). Labour availability and costs:
Company had conducted a mail survey of labour force
which showed that Out of 7800 people in the town only 700
were available for employment. In that only 35 were skilled,
70 were semiskilled and 105 were unskilled. So the
company has to bear an additional cost to train them. If we
hire employees from outside then the company will have to
bear an additional cost of transportation and rent of their
stay. The total labour costs incurred is $26,10,[Link]
includes 300 skilled,150 semi-skilled and 150 unskilled(see
exhibit 1)
d). Transport facility:
Transport facilities were adequate; it is located along the
main line of a major rail road and one block away from
the U.S. highway.
e). Savings and other benefits:
In Hampton only the cost of land is less when compared to
Kimberly. When overhead costs are compared they are
higher than Kimberly. As the site is 180 miles away from the
main plant it becomes difficult for the defense manager to
travel and report in the main plant. So no savings can be
done.
6. Recommendation :
Sands Corporation should consider Kimberly Street to for
installing at the new plant after analysing the above criteria.
Company will make a saving of $2,67,570 when compared to
Hampton. Kimberly is also easily accessible as it is just few
blocks away from the main plant . Labour force was is available
in abundant in Kimberly in case of any shortage or emergency
without incurring any extra costs.
From the future point of view Hampton could be considered as
an alternative for the company’s future expansion as the
sufficient land is available at cheaper price.
7. Action plan
• Start the construction within next two weeks so that the plant
is ready for the manufacturing process and goods can be
delivered in time.
•The relationship between the employer-employee should be
well maintained so that labours work more efficiently and
maximize the production.
•Labours should be motivated to work by giving incentives and
promotion on the basis of their performance.
•Shift system should be implemented as the workers are available
in abundance. With the help of this, parts can be manufactured on
large scale in emergency.
8. Exhibits : 1
Labour Cost At Kimberly :
Rate per Working No. of
Types Hour Hours No.
days in a workers Total
of ($) in of
year required
Labour Shift Shift
Skilled 2.25 8 1 300 300 1,620,000
.00
Semi - 1.85 8 1 300 150 666,000.0
Skilled 0
Un-Skilled 1.5 8 1 300 150 540,000.0
0
Total 2,826,000
.00
Labour Cost At Hampton :
Rate Working No. of
Types per Hours No.
days in a workers Total
of Hour in of
year required
Labour ($) Shift Shift
Skilled 2.05 8 1 300 300 1,476,000.00
Semi - 1.75 8 1 300 150 630,000.00
Skilled
Un-Skilled 1.4 8 1 300 150 504,000.00
Total 2,610,000.00
Exhibit : 2
Overhead Cost At Kimberly :
Types of Annual Rate Total ($)
per Units
Overhead Requirement
($)
cost
Electricity 4,000,000 0.101 1 kw 404000
Water 24,000,000 0.11 1000 gallons 2640
Gas 50,000,000 0.46 1000 cubic feet 23000
Grand Total 429640
Overhead Cost At Hampton :
Electricity 4,000,000 0.21 1 kw 840000
Water 24,000,00 0.25 1000 gallons 6000
0
Gas 50,000,00 0.71 1000 cubic feet 35500
0
Grand Total 881500
Property Tax :
City Rate per Valuation Total
Kimberly $3.54 $100 $50,000 $1,770.00
Hampton $2.40 $100 $20,000 $480.00
Exhibit : 3
Total Cost Of Each Plant Site :
Cost/ City Hampton Kimberly
Land Cost $20,000 $50,000
Property Tax $480 $1,770
Labour Cost $2,610,000 $2,826,000
Overhead Cost $881,500 $429,640
Exec. Salary $63,000 $0
Total $3,574,980 $3,307,410
Savings = $3,574,980 - $3,307,410 = $267,570
So we have a savings of $ 267,570 if we choose to have the plant
installed at Kimberly Street.
