The Feasibility for Building a New Chemical Distribution Facility

Executive Summary

Hawthorne Corporation is an internationally accredited organization that has ventured and invested heavily in different businesses. Current the organization boasts of a number of business ownership that cut across aviation, “finance, trucking, automobile, industrial, real estate and recreational services” (Hawthorne Corporation, N.d). Its financial capitalization has been improving every year and this has further enabled the corporation to increase and enlarge its business tendrils.

Under Chemical Business Group, the corporation has invested more in the processing and selling of liquid chemicals, a business that has attracted a large consumer market. The Chemical Business Group has a number of facilities; the main one is at Tulsa, Oklahoma, a facility near Toledo in Ohio, another facility at Denver, Colorado and near Huntsville in Alabama. These facilities have continued to perform well despite facing some challenges.

Of importance is that, the Business group has been looking at the idea of setting up another facility in the Northeast regions. Recent developments in the regions in terms of market prospect and population increase call for an effective and detailed feasibility study to outline the possibilities of implementing the idea. Basically, the Northeast region gives many prospects for a new chemical facility, for instance, its population is large for a stable market, the location of the facility in the region will be strategic and Hawthorne can utilize on its already established channels to propagate for the success of the new plant. Therefore a feasibility study conducted revealed that the idea of implementing the plan was viable but some pertinent existing issues needed to be addressed.

Background Information

Hawthorne is a USA-based Multi-national Corporation that is a publicly traded and manufacturing company with annual sales nearing $10 billion. Founded in 1932, in South Carolina, it initially dealt with aviation services before expanding into the defense sector by being a major contractor during the Second World War. As from the year 1960, Hawthorne Company began to expand its business acquisitions by establishing ownership in such businesses as, “trucking, finance, automobile, industrial, real estate and recreational services” (Hawthorne Corporation, N.d).

More important is Hawthorne’s role as a pioneer in the petrochemical industry, for instance, in the superb of Tulsa, Oklahoma, the company operates a facility for the Chemical Business Group which contains the Divisional Research and Engineering Department that largely deals with production processes. Another department is known as Engineering and Research Department largely has experts who criss-cross their expertise and mostly, they work as internal consultants for the divisional research and engineering groups and sometimes they also work on plant level issues. What is unique with Hawthorne is that it has promoted the production of low-cost products and due to its vast investment projects, the company benefits from large licensing royalty checks for those technologies. More so, Hawthorne marketing approach has been based largely on providing a wide selection of products from a single location than what its competitors does.

Hawthorne Chemical Business Group is headed by Mr. Villani, who is assisted by various Vice Presidents. The VPs are the one’s who are more on the ground and in many cases the President; Mr. Villani relies on their information and solution to various issues arising. For instance, currently, in the Chemical Business Group, there is internal pressure for a new distribution facility in the Midwest while at a facility near Toledo, Ohio, there are problems of quality; indeed, this plant specifically serves the automobile market of Michigan.

At the same time, in most distribution locations there continues to be problems associated with customer service, more so at the facility near Denver, Colorado. Moreover, at a facility near Huntsville, Alabama there exist problems of inventory and material handling. Looking at the facility at Denver that exhibits most product quality and distribution problems; it is evident that the facility has experienced slow growth since it was established.

The Proposed construction of a new plant

The sales and marketing manager has pointed out the potential capability of the Northeast area and the suggestion forwarded is that it can be an ideal location for a new liquid chemical distribution facility. The reason expressed is that the northeast is the most densely populated region of the country.

At the same time, the market research shows that since the region is served only by two facilities of Hawthorne, the market share in the region will decline by 5 per cent for the next 5 years then stabilize, but if a new facility is constructed in the area, research indicates that the region’s market share will increase by 10-15 per cent every year for the next three years then increase by between 5-8 per cent for the next two years. This increase in the market share represents a 15 per cent increase in annualized sales volume. Therefore, any analysis must evaluate whether having a new liquid plant near New York City is justifiable and economically viable to Hawthorne Corporation.

Analysis of past studies

Analysis of records from the central records storage shows that two previous studies that looked at the viability of constructing a new liquid chemical distribution facility in Northeast had some vital observations. For instant, the studies suggested that to minimize product transportation costs, liquid chemicals would be delivered to the new facility by ocean-going barge. Analyzing the cost it is evident that on cost-per-pound mile basis, trucking costs are more expensive than rail, while rail is more expensive than barge and which is slightly more expensive than sea-going ship. In both studies, findings suggested that, the cost of construction, plus the cost of operation, plus the cost of transportation outweighed the potential growth in sales.

Northeast location

Looking at cities in Northeast, one city in eastern Pennsylvania (Harrisburg) is located at the juncture of three interstate; Ohio, Washington and Delaware highway and this has the capacity to lead to major population centers. At the same time, two major railroads serve this city, providing many advantages.

Market Analysis

Hawthorne is a large company with a financial base that is stable. It has a rich history, excellent reputation, vast experience and global contacts (Hawthorne Corporation, N.d) that have been beneficial to its marketing strategy. The company realizes an annual sale that is almost $10 billion. The company has diversified in different market sectors, an aspect that has boosted its financial capitalization. The company has succeeded in providing low-cost products and wide selection of products from a single location which has benefited the company a lot. The client base of the company is diverse, cutting across individuals, institutions and other large organizations. What is still of concern as far as marketing is concerned is the aspect that customers drive from point to point within the plant picking up each product, leading to many queues at the loading points.

Products quality has been essential especially from the feedback of the customers. Good product quality needs to be enhanced to satisfy the customers, enhance sales and also enhance customer retention. Further training in quality management aspects and rules such as ISO 9000, needs to be the vision of the company, indeed, although no great competition from outside, quality should not be compromised due to this. On overall, the market life-cycle for the company is growing with new customers’ base rising. In terms of having a leverage advantage, Hawthorne benefits from large licensing royalty checks.

In Northeast, the potentiality of market growth for the company is positive and the increasing population forms undetached but viable market. Moreover, the competitors in the area are under-producing therefore the market remains largely untapped. Statistics indicate that with a new facility in the area market share is destined to increase by 15 per cent translated in annual sales volume. What is important is that recommendations about customer service and quality need to be addressed before any further expansion is planned. Indeed, lack of effective programs to address issues of customers will amount to accumulating unresolved issues which can be costly to the company in its future prospects.

Technical feasibility

Hawthorne Corporation has two vital departments; the Central Engineering and Research Department (CERG) and Divisional Research and Engineering Department (DRE). This department falls under the Chemical Business Group that has interests in the electronics business. However, this section of the business has faced some challenges such as the quality problems at Toledo facility, which serves customers of Michigan; inventory and material handling problems at Huntsville facility and lastly the distribution problems at Denver.

On overall, volume in major facilities has remained stable despite some of these challenges. Past studies have recommended for expansion based on the inadequacy of the existing facilities to meet customer demands but such suggestions in practical sense need an adequate budgetary allocation.

The company has largely utilized various modes of transport for its products. Trucks have been used in transporting the chemical products although their reliability and their environmental costs have not been good. On cost analysis, trucks are calculated to incur more expenses than the rail while on the other hand, the rail costs exceeds those of the barge which is slightly more expensive than the sea-going ship.

But looking at the geographies of the cities in which the facilities are located, the viability of sea-going ship has not been fully utilized leaving the most available modes of transport to be used. On overall, the transport costs for the company have been relatively high with an additional causal aspect being the location of raw materials for the company that is in different points from the facilities. From the transport records, it is evident that the company has favored the use of barge as a mode of transport to the facilities and from the facilities to the customers.

From the past analysis of the viability of constructing a new facility, the essence of summing up the construction costs plus the costs of operation and costs of transportation have been greater than the revenue that can be anticipated. The analysis of transport costs largely factored in the barge mode of transport although it did not look at the sea-going mode of transport. What again the reports did not indicate is the locations that had been proposed earlier, how the competition environment was constituted also missed in the earlier studies. The viability of the market, the customer demand for the products and the possibilities of central management at the main plant without having to incur further costs at the new facility’s point again missed in the earlier reports.

In constructing the estimate of construction costs, factors such as land acquisition, facility design, procurement and construction, operational costs and the financing costs need to be evaluated (Bean, 1951). Basically, an effective cost estimate helps in determining the effective design or process which the company can take; this is also used in determining the financial arrangements and also in site selection. What is needed is that, Hawthorne should consult a reputable builder of process plants for estimate assistance. In addition, each phase, each factor and each condition needs to be investigated thoroughly to determine its impact on the new facility, and when results are recommended they should be weighed and checked by alternate approaches before a viable judgment is reached.

What needs to be analyzed is the capability of the new company being located near the raw materials but relatively close to the intended market. At the same time, the new facility has the advantage of being located in a city that is at juncture connecting three interstate. Such an opportunity has the capacity to increase the customer-base, enlarge the market potential for the company, almost bring the products closer to company’s customers in the three states and, to extent, reduce the transport costs significantly.

Although the costs in the initial stages will be high when compared to the financial capability of the company and advantages, it accrues as a result of economics of scale one should be assured that in the medium and long-run the returns for the company will exceed the costs. This will again be boosted by a growth in the customer base as a result of exploitation of the new markets. Being located in Northeast, the company and the new facility can transport the liquid chemical products by rail and thereafter make shipments by tank trucks, although at the same time modes of transport such as ship and the barge can be considered in accordance to the volume of chemical liquid to be transported, as well as the nature and frequency of demand and the relative reduction in transport costs in accordance to the growth of the market for the products of the company.

Financial Feasibility

Hawthorne as a multi-national corporation has a sustainable capital base that can be utilized in the constructing of the new facility. With annual sales of almost $ 10 billion the capital base of the company is strong. Considering its location in an area that is densely populated, the financial prospects of the new plant are positive especially in the long-run. The financial construction of the new plan basically will need to be evaluated and cost estimate weighed with other options. What should be paramount is that with an effective market analysis and potential indications of market growing and increasing, the financial stability of the company in the long-run should actually be stable. There will be a need to estimate the costs of installing the new facilities in form of equipment and inventories; working capital also should be estimated until revenues start being realized in full capacity.

Estimation of other capital needs in terms of technological malfunction, market access delays transport (Hofstrand and Holz-Clause, 2009), thus market promotion will need to be evaluated and factored. In all cases of capital needs estimation, the available data concerning market prospects, potentiality of tapping in new markets and the likelihood of big population on company’s product demand should always form the benchmark on which to guide the decisions to construct a new plant. On average, due to the fact that the company benefits from large licensing royalty checks, this can translate into the company continuing with its production of low-cost products and compared to the products of other competitors in the market, the company possess the capability to appeal to large section of existing and potential customers. This has the effect of assurance to the financial growth of the company.

Study conclusions

A new facility for the company envisions bringing about efficiency especially in the Northeast regions of the country. Basing on the past data and reports, it is necessary to analyze the viability of the new facility. First, the new facility is likely to gain from the high population presence in the Northeast regions. In essence, a large population indicates the potentials for market. Second, the new facility location can be said to be well strategically placed. Located in Harrisburg city which connects three states gives a clear indication of the viability of the facility to serve a large base of customers.

Also, the location can be strategic in reducing the transport costs especially if sea-going mode can be adopted. Third, involved in the production of low-cost products, the facility has the potential to benefit from the scales of economies when compared to other competitors. Indeed, less pricing without incurring loss is likely to increase the customer base and therefore increase the financial prospects of the facility.

Despite these, some aspects will need to be addressed, for instance, an appropriate mode of transport will need to be identified that is cost-effective; inventory levels and valuation will largely be affected, hence effective mechanisms to address them will be required that relies on past information and data; operating costs should be maintained at a level that need not compromise the capital needs; and the issue of volume especially in relation to other facilities needs to be addressed to ensure that there is smooth operation in all other facilities. In broader perspective, the viability of the new facility will depend on the effectiveness of the market analysis, financial analysis, technical analysis and the managerial analysis.


Bean, T. W. (1951). Estimating Construction Costs in Chemical Process Industries. Research Article. ACS Publications. Web.

Hawthorne Corporation. (N.d). History. Hawthorne Corporation website. Web.

Hofstrand, D. and Holz-Clause, M. (2009). Feasibility Study Outline. Web.

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