Pyrex Case Study Essay
Pyrex Case Study
The current dilemma with World Kitchen is to continuing making Pyrex themselves, or to contract the manufacturing out and buying it that way. This problems has arisen because of the aging Pyrex plant in Charleroi needs an upgrading and they have decided to look at it to see if it is better to outsource it or to upgrade the plant and continue to make it. Pyrex was first started in the early 1900’s by Corning Glass Works. It was made by mistake when Bessie Littleton the wife of a Corning chemist ask her husband to bring home s some strong shatterproof glass for her to use in the kitchen. What her husband did was bring two jars home, made of low- expansion glass. Bessie had cooked a sponge cake in one of the glasses and she found out that the cooking time was shorter, it did not stick to the glass, the flavor washed off of it and did not stick to the glass, and she could see through it to see how the cake was baking. The Chemist then took the cake to his work the following day and had his coworkers look at what she had made with the glass he took home. They then began a two year process to perfect the glass and to start selling it. So in 1915 Pyrex started to hit department and China stores everywhere. World Kitchen was formed in 2000 and is the current owner of Pyrex. World Kitchen already outsources a bunch of their products and this is so they can stay competitive with the competition.
That is because with a lot of their current products they are made cheaper overseas versus the cost it would be to make them in the states. By 2006 World Kitchen only owned two plants in United Stated the Pyrex one in Charleroi and a Corelle Plant. The two plants use different forms of technology, the Charleroi plant uses tempering the thick translucent glass while the Corelle plant uses a processes by pressing three layers of thin strengthened opaque glass together. In the Charleroi plant they have a furnace that has to run 24 hours a day and it is extremely costly to run. So if they were to keep the Charleroi Plant the first thing that they would have to change is the furnace and find a better way to heat the glass. That way they would not have to constantly run it and they could slow down and speed up production accordingly. Since World Kitchen currently outsources the manufacturing of a lot of their other products they have existing relationships with potential manufacturers that might be interested in making the Pyrex Line. The problem is that there might not be a foreign plant that can meet the demand for the Pyrex line of products.
Also with contracting the product and making it overseas, in order for World Kitchen to get the product back in the United States they will be paying Tariffs and those Tariffs vary from country to country. World Kitchen is currently a privately owned company which is better because with the decision to either continuing to manufacture Pyrex or to outsource it will be done directly by the head CEO’s and they will not need to worry about what stockholders think. According to market research done in 2006 it was an estimate that 79 percent of homes owned at least one Pyrex product. It also showed that Pyrex held a 75 percent share of the current market. World Kitchen s market share was dominant among makers of glass makers, the Pyrex products was also compared to no glass products such as metal, plastic, and ceramic bake ware. So we are going to look at the pro’s and cons that are associated with continueing production at the Charleroi plant or if it will be better to outsource the production of Pyrex.
1. What are the pros and cons of continuing production at the Charleroi plant?
When a supply chain is choosing a manufacturer or a product to carry, one of the things they usually look at is where it is made. This is because depending on the location there are different pro’s and con’s that can be associated with the product. For example Pyrex is made in Charleroi, Pennsylvania and I am going to talk about the pros and the cons of Pyrex continuing the production here. One of the main good things about continuing the production at the Charleroi plant is that you can manage the production and the quality on a day to day basis or however you like. If it was somewhere out of the country than you would not be able to visit the plant as often and assure the same standard of quality that was suspected of it. Another good thing about continuing production here is that is has the stamp “Made in the USA” which is a good marketing strategy within itself. That is because people in the US like and are willing to buy a product more if it was made on it’s on soil. The logistics of transporting the goods will be cheaper and you will not have to jump through the hoops of importing it into the states. This will mean that you will always have the same delivery time for an order to whomever you are sending it to. If it is made overseas there are a numerous number of things that can delay an order that is out of the manufacturers and buyers hands.
A lot of states offer companies tax credits for having a plant in the state and creating jobs for people within that state. Another thing about continuing production at the Charleroi plant is that Pyrex will not have to change anything it is currently doing with production, logistics, and personnel. When you change something that you are currently manufacturing and the way it is made you are risking the possibility of a drastic change to the product. There are also costs related to changing the location and bringing in people to help make that happen. Along with the good things about having the Charleroi plant in operation there are also a number of cons that haunt this. One thing is that you might lose some of the market because the competition will be selling a product that is cheaper and this is because it is cheaper to make overseas. You might not be able to compete with the price and thus lose customers. Another downside would be having to deal with unionized workers in the US, if they do not like their pay or some type of labor condition they could go on strike which will than put production on a halt and money and product will be lost. Another downside about the Charleroi plant is the furnace and the costs to operate it each year.
They stated one year they were to make 41 million pieces of Pyrex and the cost to make the pieces would be 39 million. So making that much product you would only have a 2 million dollar profit, which isn’t bad but the labor and the costs of paying the workers is the most expensive thing and can be cut down or even out if there are better and cheaper ways to make. Along with the expense you do not have the flexibility to operate the furnace when you want and you do not have the flexibility to change the speed of production that much either. You cannot control how many products and how much time it takes to make as well and this is because the furnace controls that because you cannot speed it up or slow it down. The furnace is the bottle neck of the batch process and even to upgrade it and make it a better process is going to cost Pyrex quite a bit of money and time. Probably the main con about continuing production here is the cost that is going to be associated with upgrading the facility. Just rebuilding the furnace alone is going to cost an estimated 12 million dollars. While you are rebuilding the furnace and upgrading the facilities you are going to have to look at a different location to help with the production of Pyrex anyways. This goes in hand with the current profit margin which was only 2 million dollars off of 39 million dollars’ worth of product. This is because of the high costs that was associated with making the Pyrex at the Charleroi plant. 2. What downside might there be with the offshore outsourcing production of the Pyrex product line to oversea suppliers.
One of the major downsides of offshore outsourcing of the product lines to different countries is getting the product back in the United States. This is called Tariffs and they can range from 22.5 percent to 4 percent depending on the country and what the US import rate is for that country. So that is something that will overall make the product price somewhat even out. You will have the cheaper labor and not-so strict manufacturing guidelines in some other countries but you will have to pay the tariff to get it back here. One of the major and first things that they need to look at though is to make sure that the over sea companies will be able to match the productivity with the demand of the product. If they are not able to manufacture enough of the product in a certain time than Pyrex will be losing money to the competition that might have the similar type of product in stock. Another thing that the suppliers quoted were the lead times that it could take them to get the product to the distribution center. These times ranged from 4 days to 36 days, depending on what country the product would come from.
These can change from day to day according to the situation as well, because there might be a delay at the inspection to get the freight into the United States or a storm holds off the shipment on the other side of the world. So orders will need to be put in almost 2 months ahead of time. This is possible as we have learned in previous chapter, to do but will not be as accurate versus 2 weeks ahead of time. So this can lead to either an over or understock of items. This is because the demand for the product can change on a weekly basis based off many factors. If the work and process is outsourced than you also run the possibility of another country or company getting the process and making a copycat product. This was actually done in China when they were searching for glass manufacturers there. This is because other countries might not follow or have the strict patent laws that the US follows. This is one reason why there are a lot of “fake” items made in other countries. In China, they uncovered companies claiming to be the producers of the product and even used the Pyrex logo on their website.
Another thing that I mention in question number one is they will not have control over the manufacturing of the product as much as they do now. If they contract it out overseas, unless they hire someone to always be at the plant they will not know if the contractor is making the product like it was originally made and if the contractor takes short cuts than the product will lose its originality and quality possibly. That means the recipe to make the product can be changed and with something like glass, when you barely change the way it is made it will drastically effect the quality. If you have a strict contract that states the product will be made for a number years the exact same way, you cannot just change it in the middle of a contract when you contract it overseas. That means if market research shows the product can be more effective or cost effective made a certain way, you have to wait until the contract ends with the current manufacturer before you can change anything about it. If it still made by the company in the states you can change the product however you want whenever you want. That includes if you want to start manufacturing a new line of products with the Pyrex quality and name. It will be much longer because you will have to negotiate the process and prices with the contractor versus just getting the numbers and materials yourself and starting it when it is the most appropriate.
3. If the recommendation is to offshore outsource, what issues have to be addressed with the Charleroi plant? If Pyrex decides to go to offshoring outsourcing the product than the Charleroi plant has to have some type of shutdown procedure. These procedures are important because it is a plan that will help lay off or redistribute the workers as well as the products and equipment. One of the biggest problems is to retain and layoff the workers once they find out the Charleroi plant is being shut down. Shutdowns are usually announcements that the company or organization will tell everyone so they can prepare what to do next. They need to retain a number of workers though while they look for and implement their outsourced manufactures to start making the products. A lot of workers will start looking for new jobs and quit to start those new jobs, this can be good because the company will not have to lay off a bunch of workers. They might be able to transfer some workers to the New York Plant though. They do need to give some workers an incentive to stay though until the shutdown is complete. Next all of the equipment used to make the product will either need to be sold or sent to the new operations facilities. They need to figure out if the old equipment is worth keeping or if they want to upgrade it to make a better product.
They do not want to sell the equipment to possible competitors though because then they will be able to copy their process of making the Pyrex. We also need to look at and make sure that the overseas plant will be able to completely fulfill the orders and if not than the Charleroi plant might not have to shut down completely. They might be able to keep it and operate it only at 10 percent to help with increased orders or high demand, that is only if the outsourced manufactures cannot produce enough of the product. After everything is out and the plant is shut down the company needs to look at if they want to keep the building or not. If the New York plant is still running and the shipment of the products overseas need a place to stay before they are sent to stores, than the building might be able to be turned into a warehouse.
Which than Pyrex needs to determine how they can transfer the manufacturing plant into a warehouse because of the unpredictability of the shipping of the products from overseas, Pyrex needs to be able to get products to customers fast. They also need to figure out how much it is going to actually cost to shut down the plant because at the same time the company is going to be spending a lot of money on getting the new manufactures up to speed on the product. So there are a number of issues that need to be addressed when shutting down the Charleroi and they are the rearranging of personnel, how long it will take to shut the plant down, what to do with all the assets inside the plant, and even what to do with the building after everything is gone and shutdown.