The solution is to chart out a decision that works best for the company's reputation and growth.
Here the approach should be to take the sum total of the senior management group's (SMG) knowledge and intuition and work around it for the best results. My decision is to go for the Chemex machine. The characteristic of this decision can be termed as a rational approach to decision making. I have tried optimising in order to reach to this decision. In the words of Rue and Byars, "One rational approach, called optimizing, involves following six steps: (1) recognize the need for a decision; (2) establish, rank, and weigh the criteria; (3) gather available information and data; (4) identify possible alternatives; (5) evaluate each alternative with respect to each criteria; and (6) select the best alternative." (1992, p.73) This approach can be linked to the normative decision-making model, on which I have based the explanation of my decision or in other words the main body of my report.
The company accountant has revealed that the company had recently financed nearly all its recent capital investments from its own retained profits for products and capital investments in other parts of the firm. ...
Mr. Bell himself is not interested in much of outside funding. Capital required to install a new Chemex machine is much lower than the AFU unit.
Internal funding will be a major issue for the firm in this financial year, as the company has exhausted accrued profits for expansion and developments in other parts of the firm. This will affect the funding of regular operations of the firm throughout the year. Operating cost of AFU unit is more than double of Chemex. The company is not in a position to cover additional cost of 18000 as operating cost against advantages, which are hardly visible or relevant to the firm at this market stage.
Through the facts and assumptions given by the marketing manager - an experienced old timer of the Bell Chemicals, following information on current & expected market can be derived:
Table 1: Bell Chemicals Ltd: Comparison of Current & Expected Market
Annual Market Requirement
Firm's Production Requirement
There is no indication of any upsurge in market demand. With new competitors in the market, retaining present market share should be the aim. Research activities of the chief chemist in modifying the Preserve so that it can be used in wider range of food products has not given any fruitful result uptil now. Hence increase in demand of production is not predicted. Thus increase in production capacity by installing a new Chemex machine will be sufficient to cover the market growth for next two years.
Production and selling cost estimate of 320 per Kg for AFU unit is advantageous as compared to 350 for Chemex machine. The AFU unit can reduce production and selling cost by 2700000 a year at current production rate (30 on 90000 Kg produced) but this