Strategic management Apsl case study f297 ocr revision

37) Should APSL accept the order for 60 doors made from Flaxiboard from Albion Aerospace?

Flaxiboard is a new material which John has been investigation for a while, to see it if would be a useful material for APSL to start using. In a conversation with Albion Aerospace many months ago it was briefly mentioned and since Albion Aerospace has approached John and asked for 60 doors to be made from this new material. This would be a great way to test out Flaxiboard, however it would include many new costs, such as training, which APSL may be unwilling to pay.

There are a number of benefits of Flaxiboard against ordinary plastic which APSL was using before. It is much lighter and stronger, as opposed to plastic, as well as giving on non-toxic fumes when burnt, and then being both biodegradable and renewable, which plastic is not. Being lighter is a key characteristic for Albion Aerospace, as they are always trying new ways to make airplanes as light as possible. This is to do with the decrease in fuel needed, and therefore it saves costs, as well as being more environmentally friendly. Similarly it is useful that Flaxiboard does not give off the toxic fumes plastic does when burnt, as safety is always a major factor for airlines. Flaxiboard also fits in well with the business environmental aims, as it is both renewable and biodegradable.

APSL could also consider doing a trail run of Flaxiboard, using the order placed by Albion Aerospace. They could see exactly how the material works, and test of the practicalities of it, such as the longer time needed to be pressed. They could then use this information to see if Flaxiboard would be a good material for certain markets, such as Aeroplanes, and if it would be a good future investment for the business.

However there are also many drawbacks of Flaxiboard, including that its 80% more expensive, takes an extra minute per item to be pressed, and is much more difficult to work into the complex shapes needed, resulting in double the time needed to finish them, and 10% lower compliance rate. As APSL also has problems at the moment with non-compliant products, this means they have a lot of waste, some of which has been illegally dumped. Using Flaxiboard instead would increase their costs here, as more would be non-compliant and have to be disposed of.

Depending on APSL’s Price Elasticity of Demand, the cost of the new materials could be a huge problem in getting people to buy Flaxiboard products compared with others that may be much cheaper. Therefore demand would go down, along with sales, and therefore profits. This would make it hard for APSL to achieve its Key Objectives, of a higher solvency ratio, and thereby higher shareholder dividends. However some markets, such as Albion Aerospace, might feel like the added points, are worth the overall increased costs, and therefore should be used instead.

If APSL were to accept this order, it would mean they would have to get the space and resources needed to make these doors. Employees would need to be pulled from their current roles, to be trained especially for this order. This would mean decreased productivity, as well as the high cost of training. As the business is also close to capacity, it may mean there is little room for them to both store the materials, and train staff. They would have to store all the materials, as the JIT system they have in operation would need include Flaxiboard, due to the different companies they would be from.

Overall APSL should consider doing this first order, as a trail to see exactly how the material would work, and be successful. It would have high costs to set up at first, however the profit from the order may cover parts of this, and if APSL were serious about this material, it would need to be done anyway. It would open up several new markets for the business to expand into, as well as giving it another strategic advantage, as few other companies are currently using it.

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Strategic management Apsl case study f297 ocr revision

35) Discuss the extent to which the location of APSL is important to its success?

APSL currently supplies its products to company’s all of England, and even to some other areas of the world. One of their key targets to achieve by 2018 is to increase all exports to 15% of the business, in order to decrease the reliance to the UK business cycle. The business is also currently trying to decide whether or not to relocate their business from Gainsbury to Hull, some 40 miles away, in order to increase capacity. As APSL are considering this decision, based on whether it would be the most beneficial way to improve their business, in terms of capacity, this suggests that location is not something that matters highly to them, compared with all the other factors.

Instead the business is more likely to be effected by the other issues of different locations, such as the lease of any factories. Operating in a cheaper area, such as Gainsbury, means the business is able achieve higher profit margins, as well as having more competitive pricing strategies, compared with a business operating in central London, where overheads will always be much higher. This would help the business to achieve its other key objectives of increasing solvency and shareholder ratios. Operating in cheaper areas would also mean that the business would be able to have a much bigger factory than they would have in an expensive area, for the same sort of price, as Kate believes they are operating far too close to capacity at the moment this would be a necessity for the business. However if APSL was to be located nearer to busier cities, this would help them to reduce delivery costs and times, due to the higher number of motorways and other methods of transportation. This would please the customers of the business as they would get a much greater service from the company.

Another issue which will change depending on the different area the business is operating in, is the cost of labour. As APSL aims to pay all employees’ 10% higher than they would get paid at another local workplace, this means that difference in wages, while being small originally, would become much larger with the 10% increase. If APSL were to move to a higher paying area, then they may struggle to pay the full 10% extra which they currently do. This would remove their ability to choose the best employee’s rather than simply accepting them, something which Peter is very keen on. However a different location would also have a different percentage of unemployed and overall population. Therefore the business may end up with more people applying for a job with APSL than at current, so even without the extra 10% APSL might still be able to choose its employee’s out of the larger range.

However aside from the issues of APSL finances, the location would not matter a lot, as long as they were able to fully operate, and be close enough to major transport links that they were able to deliverer all of their products to the intended company, both instead and outside of the UK. However the finances, due to APSL’s bad cash flow, would potentially cause a problem, and as they would be unable to pay the rent on the lease if it was far too high, and also the cost of any employee’s that are hired. Therefore this would prevent APSL from locating in many top locations in major cities. Essentially, any location that is affordable with good transport links would be fine for APSL to operate in, and it would make little difference to APSL’s daily running.

Apsl case study business studies f297 Revision ocr Strategic management

33) Should APSL introduce a third shift to increase capacity? Justify your opinion.

Having a third shift, means APSL can increase capacity by around 33%, without the need for the substantial costs, that would come from other methods, such as the relocation to Hull. It would however require many more resources, such as employee’s and energy,

A third shift would require many new staff to be recruited, and therefore a large recruitment cost will be necessary for the business. They will then also need to train all new employees to a high standard, and therefore have a large training programme as well. These will both be high in cost, as you need to have both a place to do this, and a team to run it. However this will only be a one off cost, and not one that affects the business on a regular basis, so therefore would only have a small impact on the business. Once you have then hired and trained all the new employee’s, they then need to be paid. As this is for the night shift, a higher pay is generally needed, especially as APSL plans to pay 10% above other local employers. This would create further costs on the business that would have to pay regularly.

Current employees may also be unhappy about the change. They have worked with the same group of people for a long time, and moving people from one team to another would affect friendships, and motivation in the team. As once the third shift was sorted, the three would start rotating, all employee’s would now have to work nights, even if its every 3 weeks. This would cause some resistance from the workers, not wanting to have to work overnights. Some employee’s may feel that due to personal circumstances, such as young children, they would be unable to continue the job, opting for one that is purely day time, even if at a lower rate. Many employees would therefore quit working for APSL, and they would have to then recruit even more employee’s, another cost on the business. This would also effect the relationship between the business and its employee’s, the well-known great working conditions at APSL would suffer, and unhappy employees could start to get here trade unions involved. However APSL could consider making one of these three shifts not rotating, meaning they were to always be operating the day shift. Employees who feel very strongly about not wanting to work the night shift could then be transferred to this shift. This would stop the need for a further recruitment and training programme, as well as helping to make all the employee’s happy, and valued.

The business might also have to take into consideration the local community. Although they would benefit from more jobs becoming available, they would also have to put up with noise and light pollution coming from the units, at all hours. This could be a cause of great concern for many in the short run, being unable to get used to the large amount of noise. They could therefore appeal to the local council, to put up some restrictions, on what hours and the amount of noise. If this were to happen, it would take a long time for them to reach a decision, and the business would suffer during this time. They would also have to make sure that there are no terms in the lease of the units, stating which times it could be opened.

APSL currently operates a “Just In Time” system, meaning that all parts needed for the APSL to make the products, are delivered exactly when needed, and not before. This is useful as it cuts down on costs for storage. However if they were to consider a third shift, the suppliers would also have to start a night shift to deliver the parts. The suppliers could want to be paid more for this, as its workers would have to be paid more. This would create a huge permanent cost on the business, and they would make much less profit per product. They might therefore have to consider raising prices, but depending on the PED, this would mean less sales. This would prevent the business from being able to achieve its objectives, of increase solvency ratios. If they are unwilling to do so, APSL would be unable to make its products during the night shift. The only way they would be able to solve this, would be for the suppliers to deliver the products at the end of the previous shift, and they were stored somewhere else during the shift. However this would again create problems with the units being close to capacity, and therefore not having the space to store these parts, without expanding.

If they were to introduce this third shift, they would also have to consider how this would be managed. They might have to consult with different managers, about their feelings, and their teams. They would also have to have a strong line of communication with all the different stakeholders about this change, and how it would affect them. If it is managed badly, people are less likely to be on board with the project, and therefore more resistance would be put up.

Overall APSL should introduce the third shift, as it is a far cheaper and easier method of expanding capacity, than the proposed move to Hull. However they would have to manage the change properly, and make sure no stakeholder were angry about the night shift, especially the suppliers and the employees. A compromise would most likely have to be made with these two stakeholders, preferably not increasing the overall costs.

Apsl case study business studies f297 Revision ocr Strategic management

29) Should APSL relocate to the factory in Hull in order to increase capacity?

Apsl are considering mobbing their factory to Hull, 40 miles away, in order to improve their capacity. This would involve moving from three separate factories, totalling 12,000km to one factory of 20,000km, adding 67%.

The main reason APSL are considering the current move is Kate believes that the current workspace is operating close to capacity. This creates several problems for the business including cramped workplace conditions, lowering motivation of employees. Moving would increase this workspace, meaning they would have more room to expand their products. This would mean an increase in productivity, and therefore sales and profits. As they currently have cash flow problems, this would help to improve this, and then have more money to complete the objective of boosting dividends. However only in the long run, as before they can do this they would incur several new expenses that they may be unable to pay, without financial help.

Moving factories would mean that the factory is easier to manage, as it’s all in one place rather than three, therefore communication and control would be improved, making employees feel more secure and happy at work. It would also mean that problems in the past with JIT could be removed, saving many hours of production time, and money. Also managerial staff would be able to cover a wider area, reducing the need for them. There would also be a reduction in transportation fees, of moving items from one unit to another. This would all mean that less money could be spent on small overheads, and this would improve the company’s low cash flow, and achieve their key objectives.

However, APSL currently has cash flow issues, and therefore will be unlikely to have the finance available to move units. As there is much more space available in the new factory, rent would be much higher, as well as increased overheads. The business would also have to wait until the lease of their current units are all up, as they are three separate ones they would end at different times, meaning they may still have to pay rent on one or two of the old units, as well as the new one. Meaning even more cash flow issues for that month. During the move, production would also have to come to a halt, as the machines will need to be dismantles and then reassembled at the new unit. Therefore there would be no money coming in for the months during the move. Costs would also be introduced by any building work that needed to be done on the new unit, to make it suitable to them to use. Therefore APSL would have to look into ways of financing the business during this time. This could be done by getting a bank loan, or maybe they could consider becoming a PLC, and selling some of their shares. This however would open up the business to many more threats, such as a takeover, or having items repossessed when they were unable to pay. They would also have to consider interest rates if they were to get a bank loan, especially as these are set to rise by 3% over the next few years.

Although APSL currently has great working conditions, and employees are happy working there, they may feel annoyed by the prospects of a move of 40 miles. Many employees may choose to go leave the company rather than face traveling 80 miles each day. This means the business would have to pay redundancy payments to many of its 180 staff. They then would have to pay for a large recruiting and training programme to replace these employees. This would also mean that while they are recruiting there staff, they would have a loss of production again, as they choose not to you temporary staff. They would also lose out on quality while the new employees were getting used to their new jobs and how it all works, this would also mean less customer satisfaction.  As peter is also very wary of the wages, choosing to be 10% above everywhere else, he may also have to raise wages even more due to higher average pay in Hull than current. This would mean increased overheads, and a higher breakeven point. The company would then make less profit for each sale, and along with increased overheads, may even make none. To avoid this, and be able to achieve their objectives, they would have to consider raising prices, and depending on the Price Elasticity of Demand of APSL, this would likely mean they start to lose sales.

Therefore moving factories to Hull would be an expensive move that even if they manage to survive, would be unlikely to benefit the company in long run. It would be much simpler and cost effective to expand the company by renting another unit close to the original three and use them all, or even just by introducing a third night shift.

 

Apsl case study business studies f297 Revision ocr Strategic management

28) Recommend how APSL should respond to Mr Gilman’s letter?

Mr Gilman, a local farmer, has recently found 15 tonne of waste dumped near to, and blocking, the entrance to his fields. This is also not the first time this has happened to Mr Gilman in the recent months. Some of this waste is clearly identifiable as being from APSL due to a distinctive kite marking. Fly tipping is illegal, carrying a large penalty fine, for both the person dumping it, and any people who had knowledge but did not stop this. Therefore it is a high importance to APSL for them to sort this matter out quickly, ensuring that it never happens again.

APSL contracts out its entire waste disposal to a local company, Waste-away Ltd, doing none for themselves. This, along with the fact that not all of the waste was from APSL, suggests that APSL itself is not at fault, but in fact Waste-away LTD is. Therefore the first thing that APSL would need to do, is contact Waste-away LTD and inform them of the matter, demanding there to be a full scale enquiry as to why this has happened, especially three times. Waste-away LTD would want to avoid any legal action, if possible, so they could be motived and want to deal with this matter quickly. However any investigation done by them would be slightly bias, as they are unlikely to admit they are in the wrong, due to the finical pay-outs and damage to their reputation. APSL could also threaten Waste-away LTD, with the prospects of leaving their company for a different one. This would be likely to motivate them highly, as it means less customers, and therefore profits for Waste-away LTD.

If Waste-away LTD is not taking this matter seriously, APSL might also have to look into getting a new waste disposal company, or even doing it for themselves from now onwards. This is something Peter has always believed would be much more beneficial to the business, as it would cut down costs, and help APSL to improve its cash flow situation. However finding a new company would take time, and APSL would have to sort out a new way to dispose of this waste in the meantime, especially due to the lack of capacity in their warehouses meaning they would be unable to store it until they found a new company. Kate and John would be against moving away from Waste-away LTD however, as they believe this gets rid of their competitive advantage.

APSL should also contact Mr Gilman, and explain carefully to him the steps they have made to ensure this never happens again, including the steps made by Waste-away LTD. It would be important for APSL to ensure Mr Gilman is satisfied with their quick response, and understands that it was not APSL but instead Waste-away LTD .If he was not satisfied, he would come away even more upset with the business than he was before, and this would be damaging for APSL’s reputation, even if ultimately it was not their fault.

If this issue was to get out somehow, it would mean a lot of bad press for APSL. As APSL has such a strong environmental policy, that this goes against in many instances, such as “being a good neighbour” and the “minimisation of waste”. Therefore any strongly environmental customers which APSL has, would be angered by this instance, and could move to a competing business that was much more environmentally friendly. Therefore if this is issue is not sorted out quickly and discretely, it could mean reduced sales, and therefore profits. A major setback in the objective of increasing solvency ratios, and thereby increase shareholder dividends.

Overall, fixing this problem would have to be a high priority with the business, and one that needs to get sorted to avoid legal action. Although the problem is with Waste-away LTD, it would still damage their reputation more, as it was their products that were identifiable. Therefore they would want to deal with this as quick and efficiently as possible, and may have to put pressure of Waste-away LTD to ensure they do to.

Apsl case study business studies f297 question ocr Strategic management

26) Waste is expensive and unethical. Recommend a strategy APSL could adopt in order to minimise the occurrence of non-compliant parts?

Non-compliant parts are parts which somehow go wrong during the manufacturing, and therefore are unsuitable to APSL to use. Whenever this happens the part has to be thrown away, and then remanufactured. This wastes a large amount of resources, and time for the business. APSL also currently contracts this waste disposal out to another company, meaning higher costs. Reducing this would mean a massive decrease in costs, as there is no need to remake any parts, saving resources time and energy, as well as a need to dispose of this somehow. Therefore quality assurance is a very important factor for the business in order for them to achieve their strategic objectives.

From table 2 in the case study, we can see that plastic is 100% compliant. This suggests that any problems with compliance are likely to be from employee mistakes, rather than from the machines. There are several ways in which APSL employees could reduce the number of non-compliant parts they make. Training all employee’s to a higher standard, as well as increasing the number of quality checks that are made and rewarding employees who have low rates of non-compliant parts, would help APSL to reduce this number.

 Training employees can be done fairly quickly, and for very low costs, but still be highly effective. Better trained employees are usually better at their job, and therefore make fewer mistakes, and therefore non-compliant parts. Therefore if APSL were to ensure that all employees were trained fully and regularly, they could easily decrease the number of non-compliant parts. As APSL currently operates a “employee only” policy, this means that all employees are there on a permanent basis, and therefore training would be an easy process. However if APSL changed this policy, it might be difficult, and costly for them to ensure all are trained to the same level.

Carrying out regular quality checks helps, not only to ensure that the employees are doing all work to the high standard they should be, but also to help correct any mistakes they might make early enough that few resources are wasted. The employee could then be trained not to make this mistake again in the future. This is something the supervisors could do regularly, without increasing the costs, yet still being highly effective. However it may demotivate the staff, as they may feel they have little trust from the supervisors, and the owners of APSL. This may lead them to be unstatisied with their job.

The employees at APSL are highly motivated by pay, as we can see from their reluctance to get fringe benefits if it would lower their pay slightly. Awarding employees, who have low non-compliance records, would help motivate all employees into trying to make fewer mistakes and lowering theirs to. This also would help the business also to see which employees are motivated and which are not, and they could then try and find new ways to motivate them. However this would be highly costly for the business, as they would have higher wages to pay, and therefore it would go directly against the business key objectives of lowering solvency ratios. On the other hand, the business could work out a way to increase wages less than the decrease in cost from the wasted materials, and having less waste disposal. This would mean that the business was able to make a small amount of profit, while making employee’s happy and motivate them.

Overall training staff, while carrying out more quality checks, and then rewarding them for low non-compliance records, would be a fairly cheap and easy way of reducing the amount of non-compliance parts, with little risk to the business. If it doesn’t work the business would not lose out on much, just the cost of training them.

 

Apsl case study business studies f297 question ocr Strategic management

**Done by a classmate of mine.

23) Should APSL invest in the energy saving device? Justify your opinion?

At present APSL’s overheads are 50% just from energy bills, and this is still steadily rising. As its fixed price contract ended last year, the suffered from “a sizeable increase in energy costs”. Therefore getting a device installed to reduce their energy bills would be likely to improve their overhead costs, and therefore the current cash flow issues. However as this cost a large amount, and Peter is very unsure that the 4% saving, is not worth paying the overall £250,000.

The large cost is worrying for Peter, as he is not convinced this will be a good investment for the business overall. Currently the business is spending around £600,000, and if they were to save 4% on this, they would then be saving around £24,000 a year, assuming the 4% quoted figure is accurate. This would mean that after  10 years APSL would have paid this initial cost back with the bills increasing at a high rate, the saving would also be increasing at this rate, and they would start saving more and more each year. Therefore this initial 10 years to pay back, could be reduced to 8, or even less. However this £250,000 may not take into account other costs that affect the business. This could include installation costs and servicing costs. As the business also has bad cash flow at the moment, they would have to consider a new way to fund this project. This could be a bank loan, which would then mean the business would have to pay back interest as well as the loan, depending on the interest rates, this would take even longer for them to pay back. This would also go against the business aims of trying to eliminate expenses from the profit and loss account.

The business would also have to take into account other factors, such as the expected lifetime of the product. If the expected lifetime is very short, as in much lower than the number of years it would take for this to be paid back, then this would likely to be a bad decision for the business, as they would not be able to pay back the cost, before the machine would need replacing.

John however believes that the decision should not be based on quantitative factors, but qualitative. He believes for example that the business should be taking into consideration the environmental factors. If APSL were to get this new machine, it would harvest waste heat energy escaping from the machines, and harvest it. APSL currently has a strong environmental policy that all employees are required to sign when they start work. As part of this it states they try and ensure “to exceed environmental protection standards as required by regulation and legislation”. This new machinery would fit in with this aim, and many of the others. The environment is something that is of high importance to many people, and with climate change becoming more and more apparent, have an environmentally friendly company could be a USP for the business, and help to beat other competitors.

Overall, in order to justify getting the new machinery, APSL would need to look further into it, and find out key facts such as average lifetime of the product. However this machinery is not something that they strongly need, and would not help the business to lower its overheads, just replace high energy bills with the repayments of a bank loan. Therefore it would be a bad strategic move for the business, especially in order to achieve its key objectives.