Bells Chemicals is at present facing a major problem that it had never faced since its inception. As I have been given the responsibility to sort it out, I will work to the best of my knowledge and capabilities in arriving at an appropriate decision. The four-member team appointed to decide which of the two machines (Chemex and AFU) to purchase for its oldest product – Preserve, has not been successful in doing so.
All the four members have their own viewpoints and the situation has become very confusing. The machines in the Preserve unit have not been replaced ever.
They were performing well all these ten years, but now there is breakdown of one of the machines. There are two choices for the company i. e. buying the Chemex machine (the one that was being used all these years) again or to go for the new AFU unit. Arriving at a correct decision is the problem. Had the company made an autocratic decision there would have been no need to consult its key professionals. But this approach would have been termed unfriendly. The friendly approach has some of the disadvantages like the current dilemma.
However, keeping aside other things, coming up with a perfect solution is the need of the hour now. I think the company should go for the Chemex machine. This decision of mine can be characterised as the rational way of decision-making. The Normative Decision Making model i. e. defining a problem and rigorously working around it has helped me in arriving at this decision. I have optimized as much as possible to come to a decision beneficial to the organisation. The rational approach of problem solving is the path I have taken. Main body of the report Mr. Steve Bell is not much interested in getting funds from outside.
Especially when the company had recently financed most of its capital investments from its own retained profits, for products and capital investments for other products of the company. Capital required to install a new Chemex machine is much lower than the AFU unit. Not only this, by installing the Chemex machine the company will also be saved with the hassle and stress of taking its first short term loan. The funding of regular operations of the company all round the year will get affected as the company has exhausted accumulated profits in developments and expansion of other products.
Hence this financial year, internal funding is a major issue too. Operating cost of AFU unit is extremely expensive when compared to the operating cost of the Chemex. machine. At the present market stage it is impossible for the company to cover additional cost of ? 18000 as operating cost against advantages, which are not very well defined. If we go through the viewpoints of the marketing manager we can derive the following information about our present and expected market. • Company’s production need for current market: 90000 Kg
• Company’s production need for expected market: 100000 Kg • Annual market need for current market: 200000 Kg • Annual market need for expected market: 250000 Kg When compared to the production and selling cost estimate of ? 320 per Kg for AFU unit to production and selling cost of ? 350 for Chemex machine, the AFU unit brings forward a brighter picture. Also with the AFU unit production and selling cost can be reduced by ? 2700000 a year at current production rate but we cannot neglect the high acquisition and operating cost attached to the AFU unit either.
Retaining present market share should be the current goal of the company keeping in mind the emergence of new competitors in the market. The chief chemist has been trying to modify the product; Preserve so that it can be used in wider ranges of food products, but has not been successful yet. The increase in market demand at this market stage can also not be predicted. Therefore demand for increase in production is out of the way. Hence for the next couple of years it is advisable to install a new Chemex machine instead of the AFU unit to satisfactorily cover the market growth.
Why to waste money on an expensive machine when a cheaper one can meet the requirements successfully? Quality is one of the major issues for the marketing manager with new competitors in the horizon. The marketing manager will naturally aim to increase, or at least retain his market share for the best benefits. If the AFU unit is installed then, there will be a major quality inconsistency. Chances are that the other Chemex machine that is giving good performance and the new AFU unit will produce different qualities of the same product. This is quiet normal because two different machines can give different end results.
The integrity of the company will become questionable then. Customers will find two different items in two similarly packaged products. They might react negatively in this situation and chances are they might even turn to the products of our competitors. This is a big price to pay if AFU is installed. Installing AFU unit has one advantage and that is – it does not require expenditure in quality control as it has an automatic quality control system. On the other hand the recruited technicians of the company do the quality control of the Chemex machines.
They are the regularly paid staff. With the installation of the AFU unit they will have to be paid the same money for half of the their actual work. Their salary cannot be cut down as chances of revolt in the company can erupt because they will never allow a cut in their salaries for no fault of theirs. Hence from this angle too it is a more intelligent step to go for the Chemex machine instead of the AFU unit. Keeping the high cost of the AFU unit, its maintenance will probably be good but we cannot be sure without testing it.
Chemex machines require regular maintenance but this is not a problem for the company. Since Chemex is a local company, any breakdown is immediately rectified. After working with the Chemex machines for such a long period of time, the technicians have also become experts in handling its minor problems to a great extent. But the breakdown of the AFU unit will become a major headache for the company for sometime. Each time anything will go wrong, the company will have to get totally dependent on its manufactures who are not local like that of the Chemex machines.
A lot of time will get wasted in all this. Keeping this factor in mind, again the Chemex machine scores over the AFU unit. Another major concern is the after sales service. After Sales Service of Chemex has been tested and they have always satisfied the company so the future is secure with this supplier. This cannot be said in the AFU’s case at the moment. I have applied Creative Decision Making model, Optimizing model, Kralijic’c Purchasing model and of course the Normative Decision Making model while arriving at the decision regarding the purchase of the correct machine.
Through Creative Decision Making model I recognized the problem after going through the case study. By going through the viewpoints of the four key members of the SMG team, I coherently arranged the information regarding the two machines. I analyzed the whole problem from different angles with the help of the information I had gathered and arranged. I came out with multiple solutions of the same problem. Then I went through all the alternatives one by one and chose the most correct option. Through the Optimizing model I was able to optimise the alternatives of the problem situation.
Since this model is similar to the Creative Decision Making Model and the rational approach that I took, things became easier to sort out. According to Have et. al. (2003, p. 115) “The Kralijic’s (1983) purchasing model and the variations developed over the last decades help management select the most appropriate purchasing strategies for different types of products, thereby optimizing the trade-off between cost and risk. Costs include both the direct and indirect cost of purchasing, for example, management time, and trouble shooting and drawing up contracts. Two basic dimensions are included in Kraljic’s matrix:
• Impact on financial result • Supply risk (or uncertainty)” I went through this approach too, to arrive at a strong and appropriate decision. Since requirement of this report was to base it on the Normative Decision Making model I followed the following steps while approaching the decision: • Defining of the exact problem • Setting of the objectives • Identifying the alternatives • Evaluating appropriately • Making choice of the best alternative • Sensitivity Analysis • Arriving at the best decision Recommendation I recommend the company to go ahead and purchase the Chemex machine.
By doing so the company would not only be paying attention to the profitability of the company, financial viability of the decision but also the satisfaction level of its entire staff. The customer will also remain loyal to the company because they will not find any inconsistency in the products they have got used to since the past ten years. The members of the SMG team who were pro AFU unit will also agree with me if they go through this report as at this stage when we have limited resources and growing number of competitors we should stick to the theory that ‘the old is gold’.
References Drennan, D. , and Pennington, S. , 1999. 12 Ladders To World Class Performance: how YOUR organization can compete with the best in the world. UK: Kogan Page Limited. Fitzroy, P. , and Hulbert, J. , 2005. Strategic Management: Creating Value In Turbulent Times. Great Britain: John Wiley & Sons, INC. Have, S. T. , et. al. , 2003. Key Management Models: the management tools and practices that will improve your business. Great Britain: Pearson Education Limited. Hegde, Y. S. , and Krishna, R. , 1993. The A to Z of Management Skills. New Delhi: UBSPD.
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