Corn Products International Refurbishes Ohio Plant

Case Type: operations strategy.
Consulting Firm: Hewitt Associates (now Aon Hewitt) 2nd round job interview.
Industry Coverage: Food and Beverages.

Case Interview Questions #00064: Your client Corn Products International (NYSE: CPO) is an Illinois-based corn feed company that refines and processes corn-based food additives and sweeteners. Corn Products International has eight manufacturing plants located in the Midwest. These eight plants service the entire United States. Recently, their plant in Ohio is in need of refurbishing and they have hired you to help them with it. The company has four possible options:

1. Refurbish the existing plant
2. Build a larger plant at the current location
3. Build a similar size plant at a new location
4. Build a larger plant at a new location

Which is the best option for your client Corn Products International?

Possible Answers:

There are two issues to this decision. The plant size and the plant location should be considered separately.

1. Size of Plant

First consideration is the demand for the product.

Corn feed is a commodity product. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process.

There are four main players ‑ our client Corn Products International is the second largest. All four players have similar manufacturing processes and similar cost structure.

The proposed larger plant will not have economies of scales not currently present at the existing plant. The capacity utilization of client’s existing plant is 65% which is industry standard.

The current customers buy from all four manufacturers in order to guarantee supply. Currently demand is being met and there are no alternative use for corn feed.

2. Location of Plant

Transportation cost and perishability are the main issues with location. The transportation cost for the corn stock (raw material) is much higher than the cost of transporting the actual corn feed. The corn is grown in the Ohio area and the feed is sold to the East Coast. The raw material is perishable where as the corn feed can be stored for any length of time and easier to transport. Cost analysis of the transportation cost of feed versus raw materials should be completed. Included in this analysis would be the % of spoilage for longer transportation of corn stock

Conclusion:

The current plant is located close to the corn fields and this is the best location for the plant from the cost/benefit analysis. Therefore, option #1 “Refurbish the existing plant” is the best choice for the client.