Victoria Chemicals Case
Question 1
Issues Arising From Case
The issues are the future viability of the plant for producing EPC and the long-term effects of not upgrading this production line. The additional upgrade will result in additional production, but as mentioned by the sales director if there is no demand for the increase in supply and Rotterdam plants excess will be added to the Mersey side quantities the plant upgrade could ultimately result in a dropping of prices to shift supply. The transport division is also in dire need for the upgrade in order to facilitate the additional output form the plant and has suggested this to the plan t manager. The business shouldn’t be concerned about the cannibalization the resulting upgrade could have on the Rotterdam plant, as this is already a possibility without additional outputs. The reality of the situation is that the business should be seeking to increase efficiencies, resulting in higher output and ultimately a better value proposition to its customers and a higher return on capital.
Transport Division: The transport division has suggested that the cost of the rail carts should be included in the cost of the project, as the additional output from the upgrade will need to be accommodated by the transport division. Although the transport couldn’t be accommodated correctly in reality the business if it needed to could outsource this business unit. The current culture and procedure within the business is to operate as silos and as a result each business unit is individually accountable. I would recommend the transport costs be added into the project, as the project remains viable by doing so. I wouldn’t do this without the explicit agreement from the management and board that the project would take this into consideration and either exclude this additional capital expenditure from the transport business unit or recommend to the board that running the business in silos has resulted in a lack of organizational congruency which could in
Issues Arising From Case
The issues are the future viability of the plant for producing EPC and the long-term effects of not upgrading this production line. The additional upgrade will result in additional production, but as mentioned by the sales director if there is no demand for the increase in supply and Rotterdam plants excess will be added to the Mersey side quantities the plant upgrade could ultimately result in a dropping of prices to shift supply. The transport division is also in dire need for the upgrade in order to facilitate the additional output form the plant and has suggested this to the plan t manager. The business shouldn’t be concerned about the cannibalization the resulting upgrade could have on the Rotterdam plant, as this is already a possibility without additional outputs. The reality of the situation is that the business should be seeking to increase efficiencies, resulting in higher output and ultimately a better value proposition to its customers and a higher return on capital.
Transport Division: The transport division has suggested that the cost of the rail carts should be included in the cost of the project, as the additional output from the upgrade will need to be accommodated by the transport division. Although the transport couldn’t be accommodated correctly in reality the business if it needed to could outsource this business unit. The current culture and procedure within the business is to operate as silos and as a result each business unit is individually accountable. I would recommend the transport costs be added into the project, as the project remains viable by doing so. I wouldn’t do this without the explicit agreement from the management and board that the project would take this into consideration and either exclude this additional capital expenditure from the transport business unit or recommend to the board that running the business in silos has resulted in a lack of organizational congruency which could in