Proper Business Case Essay, Research Paper
Overview regarding the current situation of AWC Inc.
The company that will be analyzed in this report is that of AWC Inc. AWC Inc., is an aluminum manufacturing company located in Southwestern Ontario. The company has been around since 1950, and was founded by Mr. Jim MacDonald, father of the current president Mr. Alex MacDonald. AWC specializes in the fabrication of aluminum windows, doors, storefronts, and curtain wall products. AWC has 100 committed staff with 45 in production, and 55 in the offices. The company is well known for the high quality of it s products and their competitive prices. AWC Inc. is facing a decision regarding air treatment in the welding portion of the plant, as new government regulations are introduced to the industry. Currently there is a recession in the construction industry, and it is projected to last another three years. Buying the air cleaning equipment would devastate the companies profits and cash flows. Fines are ever-present, however highly unlikely. The air cleansing equipment is between $240,000 and $400,000.
SWOT analysis of the current issue
Strengths with respect to the current issue are.
- Quality design and competitive prices.
- Popularity of the new aluminum doors.
- Extremely committed employees.
- Experienced and family owned (since 1950).
- Not located where neighbors would complain ( near cement quarry).
Weaknesses of AWC Inc. with regard to the issue are.
- no current ventilation systems.
- Alex MacDonald has limited experience (1 year running company).
- Limited money to spend due to 3% profit margins on normal contracts.
- Contemplating costly second shift for welding line.
Opportunities for AWC Inc. too look at externally.
- AWC can earn up to 20% on specified contracts.
- Interest in commercial aluminum doors (high volume).
- free trade agreement with U.S. (tariff free contract opportunities).
- One third of it s competitors are out of business.
- Fines are highly unlikely.
Threats externally to AWC Inc.
- Cost of cleaning equipment devastating to cash flow, and profits.
- Government regulations (Inspectors snooping around).
- U.S. competition (new), local competition (37 firms in Southwestern Ontario).
- Recession in the construction industry could last up to three years.
- up to $500,000 fine for non-compliance.
Lets Identify The Problem
The problem that AWC faces is that of compliance. Shall the company comply with the regulations, and face the possibility of going bankrupt, or, do nothing and face possible fines. The problem has been caused by increased public awareness of industrial pollution. The concern of the government is to improve worker safety. The emissions caused by welding have been linked to health concerns associated with the tiny particles of metal released in the emissions. The government studies have concluded that this is a cancer risk and as dangerous as, smoking a whole pack of cigarettes as one government official put it. There is some questions as per the legitimacy of these studies however. Alex s father has advised him that the government is not likely to come down hard on AWC, in light of the local economy performing poorly as of late.
The local officials would fear losing 100 jobs, and a company that provides honest work to the local citizens. The risk of non-compliance appears to be considerably low at this time.
Alternatives to AWC s current problem
The three most viable solutions for resolving this issue are.
- Acquiring a ventilation system and proper licensing (starting cost $240,000).
- Acquiring a recirculating filtration system, licensing & training, (startup cost $400,000)
- Status Quo, no new system in the current period.
It is truly a shame that there is no clear alternative to the problem at this point. Which ever one is chosen, there will be definite questions to be answered about AWC s future.
Criteria upon which a decision will be made.
The three most important criteria to AWC Inc. are.
- Financial Stability
- Job Security for employees
- Maintaining current production.
Financial stability is obviously the top priority in this case. The solution must be cost effective in order to insure that AWC survives the impending recession. Job security is also important. Being a family business, nurturing long term relationships with employees is key.
The company must also be able to maintain the current production, and efficiency that will be paying the bills. The company is at a very fragile state in light of the recession.
Decision Matrix (Analysis of the Alternatives) -Table Form
Beneath is a matrix comparing the three Alternatives ,to the decision Criteria.
Financial Job Security Production
Ventilation Medium Medium Medium
Recirculation Worst Worst Worst
Status Quo Best Best Best
Analysis of the Alternatives based on the three criteria
Alternative one is a Ventilation system, venting fumes outside of the plant. This system would satisfy health and safety regulations, however, would be subject to Ministry of Environmental regulations concerning external emissions of by-products. It is by no means cost effective at a price of $ 240,000, which would cripple AWC financially, and eventually force the layoff of workers. It would also be difficult to maintain production with such an injured cashflow, and debt incurred.
Alternative number two is a recirculation filtration system. The cost of the system that AWC would require is $400,000, and approval from the Ministry of Labor. The cost of this system may potentially bankrupt AWC. The recirculating system would also require additional training in waste disposal. The two litres of toxic sludge that the system creates every week costs $500.00 to dispose of with a cost of $200 to test. AWC is not licensed to store or transport toxic waste, forcing them to pay to have it disposed of. AWC simply could not afford this system, it would be devastating to the current production, and probably put one hundred people on employment insurance.
The third alternative is Status Quo. AWC is a smaller company compared to some of it s larger competitors. Also, the pollution that AWC creates is obviously not as visible as some of these larger firms. Alex had found that a thousand companies had been charged for releasing harmful emissions. Of these companies, only one hundred were fined an average of $30,000 each, and one person incarcerated. It was estimated that 50,000 companies were affected by the law, and 70-80% were in violation of it. The chances of being caught are slim.
Recommendation and Most Likely outcomes from this decision.
The recommendation chosen based on the available criteria is, the third one, Status Quo.
In order to survive this recession AWC cannot risk paying hundreds of thousands of dollars on a ventilation system. A new system may be feasible in the future, however, it presents too great of a financial risk at this time. The company will continue to operate as normal. If pressures do arise from the government, AWC will simply state that without financial help, a air cleaning system would not be feasible at this time. There is a good chance of appeasement from the government. The government loves to keep people working, now more than ever. In Addition, they have never seen a government inspector snooping around the plat, why would there be one now.
The reaction to this decision will be limited, due to the lack of change it creates. The employees of AWC are not likely to complain, they are extremely faithful. It is a good decision financially for the company, all management should be happy. I have confidence that a cheaper alternative may also show up in the future.
Step 1 Inform the employees of the regulations and open the floor for suggestions to the problem.
Step 2 Inform the employees of the decision made, and take in feedback.
Step 3 Get some fresh air into the welding area (Cut Hole/ Vents).
Step 4 Continue full speed production of aluminum doors.
Step 5 Continue to run the company at a high level of efficiency and lets make it through this recession.
It is not likely or feasible to do anything about the ventilation at this time. This ventilation idea, may be saved for more prosperous times. No one seems to be complaining at the factory, so there is no immediate cause for alarm. AWC Inc. is a relatively small company, and the government has bigger fish to fry. Also, the chance of getting caught is next to nothing. The systems would be installed in two years, which doesn t attach much urgency to the situation either.
AWC Inc. should re-evaluate the problem after the recession.