Victoria Chemicals Plc (a) Essay

1201 Words Feb 23rd, 2016 5 Pages
Victoria chemicals PLC (A): the Merseyside Project As a world wide major competitor in the chemical industry, Victoria Chemicals is a leading producer of polypropylene, a polymer that is used in a variety of products around the globe. Polypropylene is known for its strength and malleability and was priced as a commodity. The company operates two plants that produce polypropylene, one at Merseyside, England and the other at Rotterdam, Holland. Both plants were identical in scale, design, and age. However, Morris Greystock, the manager for the Merseyside plant saw a decline in the company’s stock, and decided to improve the position of the company. To do that, she came up with a project to increase production efficiency, rationalize the …show more content…
Plus Greystock is doing the company a favor by using their excess capacity.

Concerns of the ICG sales and marketing department: The sales director proposes that if the project is undertaken, they would have to allocate capacity from Rotterdam plant to Merseyside to make up for the increase in volume of output. This allocation of recourses will cause Merseyside to cannibalize the sales of Rotterdam, and thus, a loss of business for the Rotterdam plant will occur. For that reason, the sales director thinks the project should not be undertaken. Greystock argues that a charge for loss of business for the Rotterdam plant should not be included in his analysis because he thinks cannibalization is not a charge. However, I argue with Greystock against the director of sales, because both plants operate in different regions, which doesn’t have to mean that the Merseyside plant will cannibalize the sales of the Rotterdam plant, but rather cannibalize the sales of competitors in that region according to the vice president of marketing. And in due time the market is going to revive from the recession and lost business volume at Rotterdam will return at that time. Thus, no charge is needed for loss of business at Rotterdam because cannibalization is an externality that is not incremental to cash flows.

Concerns of the assistant plant manager: The assistant plant manager, Griffin Tewitt, proposed unusual plan that would make changes to Greystock’s analysis. His plan

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