Letter of Transmittal

17 August 1961

To

The President

Sands Corporation

Subject: Selection of new manufacturing unit

This is a analysis report regarding the decision to select the new manufacturing unit, either at
Kimberly or at Hampton.

Yours Sincerely,

Mughalu k yeptho

Consultant
Executive Summary

Sands corporation is a manufacturing company, in need of in need of new plant to meet the demand
of new defence contract and other products. There are two side that the company has to choose i.e
Kimberly and the other Hampton. According to my analysis Hampton has better option due to long
term benefit.
SITUATION ANALYSIS

Sands Corporation is a company located in the Midwest section of the United States. Sands
Corporation is a manufacturer of parts for the aircraft, automobiles and agricultural equipment
industry. The company has the main plant in Clairmont, a highly industrialised city and two branch
plants in small towns 60 miles apart, approximately 200 miles from the main plant.

In 1960 and 1961, the step-up in military and space programs led to increased orders for the Sands
Corporation, mainly for fitting in military aircraft, tanks, and other military vehicles. Sands
Corporation got a contract for the military aircraft part through competitive bidding and had to start
delivering from April 10, 1962; failing to do so will be penalised and also there is a risk of losing
future government contracts. The company needs an additional plant and equipment to fulfil the
contract for the military aircraft parts was felt as it cannot begin on the available machinery because
of their specification, which required special equipment.

After the discussion with the Government and aircraft industry representatives, company executive
concluded that a new plant would need 75,000 square feet of floor space for the production of
military aircraft parts.

The company executive chose two sites, Kimberley street, and Hampton for final consideration of
location. The first site was Kimberly street, which was near the main plant and second was located in
Hampton, a small town approximately 180 miles away from the main plant. The value of the plant
was high in Kimberley because of the highly industrialised locality as compared to Hampton. In
Kimberly, the labour force of a new plant would become a part of the workers union in the main
plant which went on strike for three weeks to demand an increase in wages. In Hampton, there was
no risk of workers union and strikes, but the availability of the labour was a problem in Hampton as
most of the labour force was engaged in farming or employed by an industrial concern in one of the
nearby large cities.

The survey of the labour force was conducted. In response, 700 people said that they would be
available, out of 700 there was more unskilled labour than skilled and semiskilled labour.

The company has two weeks to plan and start the laying of the foundations, before that the
company has to decide which location to opt for, Kimberly or Hampton.

PROBLEM STATEMENT

The company will have to decide on which plant to choose by looking at the overall profitability of
the company and future expansion.

OPTIONS

The two option that the company has to choose based on the availability of resources are:

 Kimberly
 Hampton

CRITERIA FOR EVALUATION

 Impact on the delivery deadline

 Impact on operating cost
 Potential for expansion
 Union
 Resale value
 Government satisfaction

EVALUATION OF OPTIONS

Kimberly

Kimberly is a highly industrialised locality and has a prime location to set up a plant, and because of
its highly industrialised area, it has a high resale value of the plant, and there is an availability of
skilled labour. Kimberly has less administrative cost, and also the cost of utility is less as compared to
Hampton (Exhibit 1).

Kimberly is a prime location to set up a plant, but there is a constraint on the expansion of the site
since its not an open area like Hampton. Setting up a plant in Kimberly, the company will have to be
a part of the union which is unorganised, and also there has been a strike in march 1961, which will
end in march 1962 (uncertain).

Hampton

Hampton has a larger land area and is capable for expansion of the plant, and also the there is no
union involved, and also the government of Hampton is happy for setting the plant because the
economy in the region will be benefited.

Since Hampton is situated far away from the main plant, there will be a difficulty in reselling the
plant. Unlike Kimberly, there is no enough skilled labour, which will lag in the smooth operation of
the organisation.

RECOMMENDATION

Based on the Criteria of evaluation stated above, I would recommend Hampton over Kimberly.

Setting up a new plant in Hampton is costly as well as more effort will be required in starting the
operations as labour is readily available, but it avoids the risk associated with workers union by
preventing strikes which might have affected the timely delivery of contract order. There are two
large cities near Hampton having low unemployment level which indicates the availability of labour,
and these can be poached by giving some per cent higher wages to meet the demand for labour for
new plant.

ACTION PLAN

 Startup the construction as soon as possible

 Start hiring labour
 Train labour for better workforce
 Make better connection with the government and the society to avoid
Exhibit

Cost of Annual Kimberly Hampton Yearly Total Total

Labour requirement hours Kimberly Hampton

Skilled 300 2.25 2.05 8*260 1404000 1279200

Semi-skilled 150 1.85 1.75 8*260 577200 546000
unskilled 150 1.5 1.4 8*260 468000 436800

Total 2449200 2262000

Utility Kimberly Rate Hampton Rate Annual Kimberly Hampton

Requirement Total Total
Electricity .101 .21 4000000 404000 840000
Gas .46 .71 50000000 23000 35500
Water .11 .25 24000000 2640 6000
429640 881500