Delta Synthetic Fibres (DSF) is a company engaged in the production of artificial fibre, the brand name of which is Britlene. The company heavily depends upon the sale of Britlene as it accounts for 95 per cent of total sales. The company developed a new product, namely Britlon, in the year 2006, which the company says is superior to the former product. The new product has all the qualities of Britlene but is more heat-resistant capable. The new product is likely to open up new clothing uses and industrial uses. The company could solve the problems of mass production of Britlon by late 2006.
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The production procedure of both Britlene and Britlon is almost similar to that of all artificial fibre products. The production involves the polymerization of an oil-based organic chemical in conditions of high pressure and heat. The raw materials for both products come from Teesside. The production of Britlene is carried out in three locations, each of which has one plant except Teesside Factory, where there are three plants. The annual production capacity of all five pants after providing for annual maintenance and shutdown is 5 million kg. All five plants operate on a 24 hours X 7 days basis.
The production method of Britlon is almost similar to that of Britlene, with the exception that a new polymerization mechanism is needed for a process prior to the extraction stage. The company has approached Alpen Engineering Company, an international chemical plant construction company, for designing a large-scale plant design for the new unit. DSF now wants the working party, one committee set up by the company, to forward a proposal as to how the new product be phased into its activities.
The likely capacity requirements for Delta Synthetic Fibres over the next six years (2007)
Capacity Requirement Planning
It is an important aspect of production management. It refers to the process of determining the production capacity needed for meeting the changing demands of customers. The central issue of capacity requirement planning is balancing the discrepancies between the production capacity and customers demand. The discrepancy may be favourable or unfavourable, but both are dangerous to the firm. If the capacity is not sufficient enough to meet the demand of customers, the company may lose its customers. On the other hand, if the demand side is lower than plant capacity, that will result in capacity underutilization. In a manufacturing firm, it is mostly associated with the production schedule. It is the act of reconciling the production schedule with plant capacity.
Capacity Requirement Plan (in Million Kg)
|Potential sales||Britlene||Britlon||Total||Plant Capacity||Discrepancy|
The company has Capacity requirement Discrepancy in all years. The plant capacity is for all plants are 5 million kg each, and five pants put together come to 25 million kg per annum. In the first year, where the actual information is given, the company faced a negative discrepancy of 0.3 million kg, which reveals that the company could not utilize its full capacity. The problem of underutilization of plant capacity continues to exist in the first four years, including the first year. But, it could be overcome from 2010 onwards. Even though the new product was launched in 2006, the company expected to start commercial production only in 2010. It is also evident from the plan that the introduction of Britlon has affected Britlene in demand, but together can utilize the plant capacity in full. However, from 2010 onwards, the company could not meet the demand of all customers as the demand is much greater than the plant capacity.
Locations to make the capacity changes
Plant location refers to the preference of an area and the selection of a particular site for setting up a business or factory. The cost and benefits of different alternative sites are the major issues to be considered for finalizing the plant location. It is a strategic decision that cannot be changed once taken. However, the company’s requirements and circumstances of location should be given priority. Each location has pros and cons, but the company should try to make an attempt for the optimum or ideal location. “An ideal location is one where the cost of the product is kept to a minimum, with a large market share, the least risk and the maximum social gain. It is the place of maximum net advantage or which gives the lowest unit cost of production and distribution. For achieving this objective, a small-scale entrepreneur can make use of location analysis for this purpose.” (Kumar, p. 93).
Location Analysis is the process of analyzing the appropriateness or otherwise of various alternative plant locations so as to minimize cost and maximize the company’s profit.
- (Demographic Analysis: It is the study of demographic factors like age composition, per capita income, educational level, occupational structure etc.
- Trade Area Analysis: It is the study of the geographic area where the plant is likely to be located. The commercial viability of the area is analyzed in detail to assess the profitability of the project.
- Competitive Analysis: It attempts to study the factors affecting the business, such as the number of competitors, quality of substitute products, and nature of the industry.
- Traffic analysis: This is to ensure that how many potential customers are passing by the side of the proposed site.
- Site economics: In this analysis, the establishment and maintenance/operational costs of various alternative sites are evaluated so as to fix the best one.
Criteria used to select the plant location
The selection of plant location is an important production strategy. Companies must try to locate a location for the plant which can maximize profit and minimize cost. Profit maximization or cost reductions are the ultimate goals of plant location decisions. But, immediate considerations must be paid to a number of factors, such as the availability of raw material.
These common factors include:
- Raw materials availability
- Energy availability
- Meteorological data
- Market study
- Transportation facilities
- Water supply
- Waste disposal
- Labour supply
- Taxation and legal restrictions
- Site characteristics
- Safety and Environmental measures
- Community factors (Shrinivas).
Among these, raw material availability, water, energy availability etc., account for the central issues in the selection of plant location. Similarly, the availability of human power at low cost is also a factor to be taken care especially for a manufacturing firm where the majority of processes is done manually.
DSF need to consider mainly the availability of raw material and human labour. The production heavily depends upon manual processes, and as such, the company requires human resources without any disruption. Therefore, it is advisable to increase the capacity of the Teesside Plant where three of five plants are located and wherefrom raw materials are collected for all the five plants.
The main dangers facing DSF as it changes its capacity over the next five or six years
There are two ways of increasing the capacity for the production of Britlon to meet the increased needs of consumers. Either the existing plant of Britlene can be converted, or an entirely new plant can be constructed. The possibility of the two choices, however, can be discussed below:
Conversion of Existing Plant
The first thing to be noticed is the time duration required to finish the conversion process. As the new product involves a little bit different technology, the existing plant can be converted with two years time span. Another thing is the economics of change in plant capacity. When the existing plant is converted into another one, the production of old products will be slightly affected. However, from the table, it is clear that the introduction of new products has enhanced the use of plant capacity and reduction in plant maintenance costs. The Chief Executive Officer has opined that the closure of an existing site for a new plant will result in the erosion of investment made in the plant in the form of human capital and physical resources.
Construction of New Plant
If the company goes with the decision to construct a new plant, the pros and cons of the same must be analyzed in detail. In the words of the Chief Executive Officer, the construction of a new plant will result in complexities of multiple operations, and that will contribute to complete troubles and chaos.
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Therefore, it is advisable for the company to expand one of the three sites in Teesside for meeting the requirements of a new product.
- Kumar, Abha. Lesson 7: Plant Location and Layout. 2008.
- Shrinivas, Prashantkumar Kudli. Selection of Plant Location for Establishing a Chemical Industry. Go Articles. 2008.