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Merseyside Essay

1912 words - 8 pages

Table of Contents

Executive Summary: 1
Problem Description: 2
Analysis & Recommendation 3
Conclusion: 7

Diamond Chemicals Plc

Executive Summary:

Diamond Chemicals - one of the global leaders in production of polypropylene, a polymer used in an extremely wide variety of products from carpet fibers to automobile parts was under financial pressure, After a worldwide economic slowdown and accumulation of shares by a single investor Sir David Benjamin, Diamond Chemicals, with earning per share dropping in half over a year’s time £60.00 in 1999 to £30.00 in 2000.

The declining financial situation along with Merseyside’s outdated process flows and labor intensive operation ...view middle of the document...

They had two plants one in Rotterdam Holland and another plant at Merseyside England with Lucy Morris being the assigned Plant Manager for the latter and had been reviewing the production operations and found major areas of improvement in the production process of polypropylene as a result of the review.
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Morris had spent some time reviewing the production operations and found major areas of improvement in the production process of polypropylene as a result of the review.
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Morris suggested modernizing the plant in a way that could help optimize the production throughputs while saving energy in addition to an overall process flow improvement. Morris’s capital project suggestion has a proposed outlay of $9 Million.
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With a strict process in place for selecting projects, Diamond Chemicals was to select a project which would create more value for its shareholders and investors by adding value to overall business venture and better financial returns. Morris saw this as an opportunity to obtain funding from headquarters to renovate and modernize the existing infrastructure. However, the project involved ample amounts of Risks and as a consequence, restrictions are faced by Morris and Greystock to get their project accepted by the senior management.
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Risks & restrictions:
* Achieving the required throughput that is estimated required after project completion.
* Selling the additional throughput with the economic slowdown.
* Shutting down of plant for at least 45 days in order to complete the upgrade
* Getting the old customers back from the competitors after project completion.
* Surpassing the competition of the other chemical companies.
* Ensuring that self-cannibalization of business does not occur with its Rotterdam plant.
* The capital program to achieve the MARR of 10%.
* Project should be able to sustain a reasonable portion of the corporate overhead expense.
* Getting control over the logistics and the costs on the transport department.
Analysis & Recommendation

For a similar project falling under the engineering efficiency category, Diamond Chemicals established four criteria to conduct investment appraisal, which include:
1. Net Present Value (NPV) calculation on the basis of relevant opportunity cost of capital,
2. Internal Rate of Return (IRR),
3. Payback period...

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