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.