Capacity utilization Essay
?Detailed in the Indalex Ltd. case analysis, current production is stretched to the limit, creating a capacity constraint to meet future forecasted demand; hindering the firms objective of a real growth rate of ten percent annually. The issue of deciding on a capacity expansion plan, given uncertainty about near term economic projections was presented.
Indalex concentrates on a competitive priority of service quality, where flexibility and quality are more of a priority than price. This is described in the case study where past and current success of Indalex is attributed to their competitive strategy being strictly based on three words: service, service, service. Indalex set out with the objective of offering a seven-day service, along with offering highly qualified assistance in designing selection for their customers.
Valuing service quality, Indalex manages a close working relationship with their customers, such as responding to needs even under short notice, demonstrating how Indalex understands their factories are an integral part of their customers’ factories. I feel that maintaining reputation along with meeting the growing demand of their existing customers is crucial to the service quality strategy of Indalex. In making a decision for the capacity expansion plan, an emphasis on insuring customer satisfaction and retention is of top priority.
Given the options of either increasing capacity of their extrusion process, increasing anodizing capacity, building a recycling plant to reprocess scrap aluminum, or increase capacity of both the extrusion and anodizing process; a decision had to be made on which of the options should be done first, in order for the new piece of equipment to be available by the beginning of 1979. In regards to flexibility and quality, the option to either increase capacity of the extrusion, increase capacity of anodizing, or increasing capacity of both operations together; offers machine flexibility.
Having excess capacity would allow Indalex to better manage complex orders, ultimately providing an advantage towards their focused service strategy. With the option of building a recycling plant, it would enable more process flexibility and better inventory management. However, this option would generate higher inventory holding costs, creating excess inventory of over a million dollars. Along with requiring new employees with specialized skillsets, the options of adding a recycling plant won’t solve the problem of increasing demand of customer.
Anodizing requires the plant to run at full capacity in order to be efficient, along with costly pollution control measures that would have to be taken. When looking into customer satisfaction and retention, customers will only be retained if Indalex increases capacity. When looking into capacity constraints, the extrusion process is the first area that I feel capacity constraints should be removed. With anodizing, the case details that much of the demand is a result from construction related work.
If there were a decrease in this area, anodizing operations would be effected. Unlike the extrusion process that allows Indalex to “buy demand” by offering a low bid for high volume orders if needed, anodizing operations are much more limited in sourcing a demand. Therefore, I would chose the option of increasing capacity of the extrusion plant; which is the best option to align Indalex with their ten percent growth objective, along with offering feasibility of meeting an increase in demand, with flexibility and quality of their service.
This expansion will require more employees to be hired, which will also reduce the amount of overtime that is currently required. The risk associated with increasing capacity of the extrusion plant is the idea of the U. K. ’s economy not growing as rapid as predicted, leaving the question of what Indalex would do with the new press if it couldn’t be filled naturally with demand.