Problem Defined

In March $2023,$ Standard Electric was faced with a supply problem in its weld rod division. A majo portion of its weld rod supply was manufactured at the company's Birmingham, Alabama, plant. The remaining market demand for Standard Electric's weld rod products was being filled by an independent manufacturing supplier, the Acme Company, Dubuque, Iowa. Acme manufactured and shipped weld rods under the Standard Electric trade name.

Acme recently advised Standard Electric that it had concluded an agreement to merge with a large competitor of Standard Electric and would discontinue manufacturing weld rod for Standard Electric after the end of their existing contractual agreement on January $1,2023.$

The total market for weld rod was expected to continue to expand in the United States. Because Standard Electric's Birmingham plant did not have the capacity to supply the current total sales, the company had an immediate need for additional production facilities. Standard Electric analysts defined their decision alternatives as follows:

$(1)$ expand the Birmingham plant,

$(2)$ maintain Birmingham's production capacity and build new production facilities at a new location,

$(3)$ reduce Birmingham's production to approximately half capacity and manufacture the additional requirement at a new plant, or

$(4)$ abandon the Birmingham plant and build a new plant near the expected future market center.

Product and Market

Weld rod was used in the construction, maintenance, and repair of metal items. It was considered a basic material and was purchased primarily on a price basis. Product differentiation $($brand preference$)$ was not a major sale factor, although the company's overall reputation had been a selling point. The production process was not complicated technologically, and consequently quality control had not been a major problem for Standard Electric or its competitors. Moreover,

there was little likelihood of a major technological improvement in weld rod or of a better substitute being found in the foreseeable future. The actual sales value of weld rod depended upon product type, had fluctuated between $14$ cents and $19$ cents per pound, averaging around $16$ cents. Raw materials cost approximately $11$ cents per pound, or $81\%$ of total costs. The basic raw material was steel, which had averaged $10$ cents per pound. Coating material, copper and aluminum, and various alloys were also used to produce $15$ varieties of weld rod and, together with steel, gave the resulting product a high weight density. The remaining costs were broken down as follows: $(1)$ transportation, $10\%$; $(2)$ labor, $5\%$; $(3$packaging, $1\%$; and $(4)$ overhead expense, $3\%.$Standard Electric had $4\mathrm{.}4\%$ of the national weld rod market and expected to increase this participation to $6\mathrm{.}6\%$ by $2025.$ For $2023,$ Standard Electric forecast weld rod sales of $34,816,000$

pounds. Its $2025$ forecast predicted a sales volume of $60,416,000$ pounds, predicted on the assumption that the company had adequate production capacity and maintained its past level of selling efforts. Increased sales were expected to be concentrated in the following states: Michigan, Ohio, Pennsylvania, Illinois, New York, New Jersey, Texas, Indiana, and Wisconsin.

Birmingham Production Facility During $2021,$ the Birmingham plant produced $21,000,000$ pounds of weld rod. On a $5-$day workweek $(40$ hours$)$ this plant's yearly capacity was $25,600,000$ pounds. On a $6-$day workweek, the capacity was estimated at $28,160,000$ pounds. The Birmingham plant was technologically new. However, Standard Electric found that it was most desirable, from the standpoint of transportation efficiency and customer service, to ship

approximately $30\%$ of its weld rod requirements from the Acme Company, principally into the midwestern territory. Some shipments were made to the West Coast and a few to the Atlantic states region. However, if it were found to be desirable, the Birmingham facilities could be easily expanded to meet the entire $2025$ sales forecast.

In the analysis of marketing patterns, Standard Electric considered their company's present geographical sales pattern and the national marketing pattern published by the National Construction Manufacturing Association $($NCMA$),$ shown in Exhibit $1.$ The NCMA market pattern was considered significant to this decision because a relocation of Standard Electric's production facilities would likely force a change in their geographical sales pattern. For example, if a plant were to be located closely to the NCMA market center, a shift from the present geographical sales distribution to the NCMA marketing pattern would be expected. Standard Electrics weld rod market was as follows: Pennsylvania, New York, New Jersey, Maryland, Delaware, and the New England states, $40\%$; Southeastern states, $30\%$; Illinois, Indiana, Michigan, and Wisconsin, $20\%$; Southwestern states, $5\%$; and the Pacific Coast, $5\%$