Bell Chemicals Decision - Coursework Example

Table of contents Executive summary. p.2 Main Body p.3 Recommendation.. p. 7 Bells Chemicals Decision work Executive Summary As a business analyst, through this report, I intend to help Bell Chemicals in solving the problem it is facing currently. The problem is due to lack of consistency in arriving at a common decision in regard to the machine purchase of the company. Bell Chemicals is a ten-year-old company and the machines of its Preserve unit have not been replaced since then. So the breakdown of one of the machines is normal. Since there is more than one choice in the market, there is dilemma regarding which one to purchase. The problem lies in the decision making process. Since the company is not making an autocratic decision, instead involving its key employees in the decision making process there is bound to be contradictions of idea - this is the main problem. The solution is to chart out a decision that works best for the company's reputation and growth. Here the approach should be to take the sum total of the senior management group's (SMG) knowledge and intuition and work around it for the best results. My decision is to go for the Chemex machine. The characteristic of this decision can be termed as a rational approach to decision making. I have tried optimising in order to reach to this decision. In the words of Rue and Byars, "One rational approach, called optimizing, involves following six steps: (1) recognize the need for a decision; (2) establish, rank, and weigh the criteria; (3) gather available information and data; (4) identify possible alternatives; (5) evaluate each alternative with respect to each criteria; and (6) select the best alternative." (1992, p.73) This approach can be linked to the normative decision-making model, on which I have based the explanation of my decision or in other words the main body of my report. The explanation of my decision (Main body of the report) The company accountant has revealed that the company had recently financed nearly all its recent capital investments from its own retained profits for products and capital investments in other parts of the firm. Hence it would be taking short-term loans for the first time in several years. Mr. Bell himself is not interested in much of outside funding. Capital required to install a new Chemex machine is much lower than the AFU unit. Internal funding will be a major issue for the firm in this financial year, as the company has exhausted accrued profits for expansion and developments in other parts of the firm. This will affect the funding of regular operations of the firm throughout the year. Operating cost of AFU unit is more than double of Chemex. The company is not in a position to cover additional cost of 18000 as operating cost against advantages, which are hardly visible or relevant to the firm at this market stage. Through the facts and assumptions given by the marketing manager - an experienced old timer of the Bell Chemicals, following information on current & expected market can be derived: Table 1: Bell Chemicals Ltd: Comparison of Current & Expected Market Curent Market Expected Market Annual Market Requirement 200000 Kg 250000 Kg Firm's Production Requirement 90000 Kg 100000 Kg There is no indication of any upsurge in market demand. With new competitors in the market, retaining present market share should be the aim. Research activities of the chief chemist in modifying the Preserve so that it can be used in wider range of food products has not given any fruitful result uptil now. Hence increase in demand of production is not predicted. Thus increase in production capacity by installing a new Chemex machine will be sufficient to cover the market growth for next two years. Production and selling cost estimate of 320 per Kg for AFU unit is advantageous as compared to 350 for Chemex machine. The AFU unit can reduce production and selling cost by 2700000 a year at current production rate (30 on 90000 Kg produced) but this recurring benefit is marred by high acquisition and operating cost. Quality is one of the major issues for the marketing manager, as the market is getting competitive with new companies entering the segment. The marketing manager will always try to increase, or at least retain his market share. With two different machines, the firm will have two different quality of same product in the market. Customers might feel cheated and can react negatively if they get a low quality product after using a high quality one. The company might also loose its loyal customers due to this. There is not much quality difference if the capital costs are considered. Quality control of the machines is taken care by the technicians who are using the Chemex machines since the very beginning. Installing AFU unit with automatic quality control system will not reduce cost of quality control, as wages of technicians who are working from the beginning cannot be re-negotiated. Maintenance of AFU unit is expected to be good but it is yet to be tested. On the other hand Chemex machines have been tested for long and it has been observed that they require regular maintenance. Chemex being a local company can immediately attend any major breakdown. The technicians operating the machine can address minor maintenance themselves, as they are experienced with the machine after working with it for long. On the other hand, not only for major but even the minor maintenance of AFU, Bell Chemicals will have to be dependent on the supplier. The time taken to repair will always be higher as the AFU's supplier is not present locally. Even after high breakdown and erratic quality level of the old Chemex machine, production requirement were somehow being met. The replacement of the old Chemex machine with the new one of the same company will surely smoothen the operation and meet both quality and quantity demands. After Sales Service of Chemex has already been proved to be very good and the company can rely on it in future too. If after sales service of the AFU unit is not up to the mark then during the breakdown period, the production will highly get affected for long durations. While evaluating the viability of both the machines, along with the Optimising model, I have also applied the Creative Decision Making model. This model is a very practical model and parts of the Optimising model are incorporated in it. I have used this model to generate new ideas in favour of the Chemex machine in comparison to the alternative available to the company. This model helped me in the following ways: Firstly I was able to recognise the actual problem. Then it became easy for me to systematically gather information regarding the current scenario. I was able to gather information regarding what each member of SMG had to say about the pros and cons of the two machines. By this, I was able arrange the available information about the decision situation in correct order. Next, I was able to analyse the whole problem with the help of the information that I had organised. I tried to list several restatements of the problem. This helped me in getting multiple solutions to the problem. When I reworked on the ideas or solutions that were earlier generated, I was able to combine, modify and rearrange some of the previous ideas into a few more ideas. My list of potential possibilities was ready and I evaluated each of them and chose the criteria, which was the most, appropriate one. I want to point out that the management should not come to a decision by only keeping in mind the financial viability and profit of the company but also looking at the human side of the problem. If we go for AFU then the morale of the four technicians employed for the proper functioning of the Chemex machines will highly get affected because they will not be able to get fully involved in quality test and maintenance of their section that they had been doing proudly since the beginning. They get satisfaction from the fact that they are skilled technicians and this satisfaction gets transferred into good performance. Also the Production manager will have to maintain two sets of spares for two different makes of machines, which will increase the complexity of the situation. While coming to the conclusion and writing this report I have tried to structure it around the Normative Decision Making model. This means I have tried to follow the following steps: (1) defining the problem; (2) identifying the objectives; (3) finding out alternatives; (4) making evaluation;(5) choosing the best alternative; (6) sensitivity analysis; and finally (7) pointing and recommending the most appropriate decision. Recommendation Evaluating all the benefits of Chemex machines, I recommend that it will be wiser to wait for 3 months for it rather than placing an order on AFU. The AFU unit will give immediate delivery, but at a higher acquisition and maintenance cost. Since the company is employing friendly approach rather than autocratic approach the majority of the staff will appreciate this decision too. A company is successful only when investments, profits and staff support are in its side. Through this decision it can have the luxury of all three. References Rue, L.W., and Byars, L.L., 1992. Management Skills And Application. 6th ed. USA: IRWIN. Read More