- Conversion
A conversion would consist on transforming a plant that actually produces some Britlene into a plant that would produce some Britlon.
The major advantages of a conversion are:
- It keeps the management together
- It reduces the construction time and cost
- It avoids splitting up operations
But in case of over expanding the plant, poor material handling may occur as well as an increase in the complexity of the production control and often lack of space.
In this particular case, Teesside has three plants so one of them could be converted first. To convert a plant, the plant has to close down. Polymer unit will then be installed and be connected to the extrusion unit which would require minor conversion as well.
The company has forecast that to convert a plant it would take two years. But Delta synthetic fibres still need to meet its demand. So, if Teesside closes one of the plants in 1997, there will be only four plants left for production, producing 20 million of kilogram of Britlene a year during 1997 and 1998. Which means that the forecast sales for those two years will not be achieved and the other ones neither if an other plant is converted in 1999 and 2000.
For the above reasons, it would not be recommendable to use conversions, at least by itself, for this project.
- New plant
This would mean creating a whole new plant at a selected location.
The major advantages of creating new plant are:
- The firm does not have to rely on the production of the existing sites
- It can hire new and possibly more productive and more skilled people.
- It can modernize the process with new technology
- It can reduce transportation cost.
But creating new plant could also mean, as the Chief Executive Officer of DSF said, that I would increase “the complexity of multi site operation” to an incontrollable level.
Creating a new plant will mean that a new location must be found, then, the new plant would be built from 1997 to 1998. In 1999, DSF will have four plants that produce some Britlene after the closure of one where a lot of investments have been lost and one plant that is ready to produce some Britlon. In order to meet the forecast sales in 1999, DSF needs three plants to produce Britlene and one plant to produce some Britlon. So one of the plant will be ineffective and if the company closes two plants, there will be major loses.
For the above reasons, it would not be recommendable to only build new plants in this project.
- Combination of conversion and new plant.
This combination offers the best way for DSF to meet its demand today and in the future with the proper timing required to build and converse plant.
The numbers next to the volume of sales that are in brackets are the number of plant needed to produce the quantity demanded, taking in account the stock not sold in previous years.
By the year 2001, height plants will be needed to produce the quantity of product demanded.
Three plants will need to be converted to leave only two out the five to build some Britlene and three other plants will need to be constructed in order to have six plants that produce some Britlon in order to meet the demand by 2002.
3. Location for new plants
3.1 Influences
There are many factors that will influence the location decisions for new plants. They can be divided in two main kinds:
- Labour cost: The cost of skilled labour at Teesside may increase as it has competition from two other firms. Bradford and Dumfries do not have much competition so the cost can be kept low.
-There is also land cost and energy cost to take into consideration but as the sites are relatively close together, there is not much difference between them.
-Transportation cost: As the raw material is produced at Teesside, it will be cheap for the on site plant but Bradford is further away than Dumfries from Teesside so the cost of transporting resources from one plant to the other will be higher.
-Then there are the community factors which consist on the social, political and economic environment. Teesside and Bradford are surrounded by big cities which provide a good social environment. Dumfries is a smaller but sufficient.
-Labour skills: the unemployment rate in Teesside is quite low but there are few skilled or semi-skilled workers unemployed. In Bradford and Dumfries there is a bigger availability for skilled labour as there is no or almost no competition in the area.
-The sites must be suitable for what there are used for. As the sites are the same that before, and, there were found suitable sites, and, that no problems are encountered today, this factors will not be regarded as important.
- Convenience for consumers: As the site are quite close together and are close to motorway, it will be relatively easy to transport goods to the consumers
3.2 Technical method
This method involves selecting relevant criteria, put a score on each of them for each location and calculate the one that have the most points. It gives a quantitative way to help to select the right location needed.
The highest score is Bradford, so it is the most suitable site in general to build new plants. This report recommends building two new plants in Bradford, one new plant in Dumfries and none at Teesside because of the lack of skilled labour.
3. Dangers threatening Delta Synthetic Fibres’ capacity changes.
DSF is having a big change in its capacity its demand will go from 24.7m.kg in 1996 to 39m.kg in 2002. But those sales are only forecast, they assume that it will be this way with all the other variations unchanged. But a lot of obstacles may rise creating unplanned changes and making the company lose money.
This is one of the main dangers. In making decisions for the future and forecast sales, assumptions have to be made. Those assumptions may change and change the whole demand or supply chain.
- The external environment.
The company does not control the external environment and it can change anytime. Government may introduce new regulations; competition may arise and take some clients away from them. Consumers may prefer Britlene instead of Britlon, so the sale of Britlon may not rise so fast. The cost of making raw material may go up. Inflation may be high when they need to sell stock in 1999. Technological changes may also affect the company.
Conclusion
In order to meet it forecast sales, DSF will need to convert three existing plants and build three new plants. The locations recommended are at the exiting sites: Teesside, Bradford and Dumfries so the management will not be divided and make the operations run more smoothly. DSF should also be aware of the danger they are facing with the uncertainty of the environment.
