23.) Should APSL invest in the energy saving device? (Suggested in line 89-96)
In 2013, APSL’s statistical figures show the business spending much of it’s overheads (“almost half) towards overheads. Consequently, Peter and Kate have discovered a device which allows wasted heat from presses to contribute towards a fraction of APSL’s hot water costs. Despite the obvious long term savings that will be derived from this investment, APSL will need to consider how this decision will influence other aspects of their business such as objectives and their corporate social responsibility.
First of all, APSL will need to evaluate how this costly investment of £250,00 will impact the ability of APSL successfully achieving its objectives. Currently, APSL have set two ten year strategic objectives- one of which being to expand their export market to an overall 15%. In order to do this, APSL will need to spend a lot of money marketing and exporting to countries outside the EU and therefore this particular investment in an energy saving machine may mean that APSL have insufficient funds to effectively fulfill this objective to the maximum potential. Therefore, it may not be a good decision in the short term for APSL to invest in a costly energy saving machine when it may hinder APSL’s ability to achieve their goals.
Secondly, APSL will need to evaluate the actual benefits that can be derived from this machine. Despite the device claiming to save 4% per year, Peter believes that the financial return may be to low to cover the cost of the expensive machine. Rightly so, it could be argued that the device does not provide a sufficient return on the investment and thus Peter correctly criticises the machine for taking too long to “repay itself.” Additionally, this investment could also trigger some cash flow issues. If the money taken to pay for the machine will be retained profit – it is a possibility that APSL may experience issues in their forecast. For example, if external influences such as the economy mean that APSL aren’t making their predicted budget, APSL will have less money than thought to cover the costs for the rest of the month. Thus, by investing in this costly piece of machinery, APSL may not have enough retained profit in order to cover contingencies within the business. Furthermore, if APSL decide to take out a loan to buy the machine, they will need to explore the often hefty price tags attached to taking out loans which essentially may leave APSL in a worse place (spending more money paying for the piece of equipment, rather than saving as intended.) APSL will need to evaluate their financial status extensively before pursing the device as it may prove as a catalyst to further problems rather than solutions at APSL.
John is also critical of the decision of the capital expenditure being based on solely quantitive factors. Therefore, it is also important that APSL evaluate the other factors outside of profits and numerical figures in a way that they might benefit. One way APSL may benefit from the device externally is benefitting from their corporate social responsibility. By utilising a machine that is able to use excess heat from presses by converting it into the heat meeting hot water requirements, APSL is able to be more economically sustainable and thus help the environment. Customers may view APSL’s investment as being socially responsible for the environment by playing an active role in their responsibility. Ultimately, if APSL do invest in this device-it means that they gain good word of mouth through positively helping the environment and thus it is likely to benefit the overall customer loyalty to APSL.
It appears that APSL have taken a lot of responsibilities on at once such as trying to move to a new factory, purchasing new machinery and introducing a third time shift. The evidence suggests that due to this, it will be beneficial for APSL to hold off on the investment of buying new machinery, as the financial aspects as well as the current objectives should play a dominant focus currently in the business. It is clear that the machine will provide benefits in the long term; however APSL will not be able to waste time that is required to physically benefit from this capital investment.