Awc Inc: The Ventilation Dilemma

Executive Summary

AWC Inc was established in 1950 as an Aluminium fabrication plant. AWC specializes in the production of commercial aluminium windows, doors, storefronts etc. The company is known for its products designs and competitive prices. Due to the recent recession, the industry itself became more competitive, which in turn also reduced the margins of AWC. The recession is expected to continue for another 3 years. Recently AWC introduced a superior door design which significantly increased the company’s sales. But, it also requires a new welding line to be built for it. Also, AWC recently found out that there were certain laws by the government regarding the toxic emissions.

AWC is currently facing the dilemma of whether to install an emission system to deal with toxic particles emitted during the welding process. There are two emission control systems available to deal with it. Exhaust system and air recirculating filtration system. The decision will be based on the impact on profits, employee health, community welfare, and legal challenges. If no system is installed, it will put employees health at risk, according to the government. Installation of Exhaust system costs around $240K. If employees hikes can be put on hold and if the executive salary is decreased by 30%, the above method is feasible. Also, if there is an increase in sales of 1.5% due to new door design, it will also allow the break even in 4years. But, Air recirculating filtration system costs $400K. Even if employees hikes are put on hold, and executive salary is decreased by 30%, the company remains under losses even till 1995. But, if there is an increase in sales of 3.2% due to new door design(effective sales increase 6.2%), it will also allow the break even in 4years. But, achieving 6.2% increase in the current recession seems improbable. Hence, it is recommended to install the exhaust system after getting the certificate of approval from the ministry of environment to release the toxic particles directly outside to environment.

Situational Analysis:

Competition in Aluminum fabrication Industry has been increasing, due to minimal costs required to set-up the industry. Not only that, due to the ongoing recession and the subsequent slowdown in the construction industry, the competition for contracts has become fierce and this bought down the profit margins on a contract to 3%. Due to this 1/3rd of the competitors already exited the industry. This competition may further increase due to the Canada-US FTA which allows U.S aluminum industries to enter the already competitive Canada market. The reduction in tariffs will allow the U.S industries to offer lower-priced products of equal quality due to lower cost structures.

AWC Inc has also similarly seen fierce competition, as there were 37 competitors and 15 suppliers in southwestern Ontario alone. Also, as AWC is known for the quality, design and the competitive price of its products, it had seen its margins decreased to 0.13% in 1990. This was less than the industry’s average of 3%. As margins were becoming less, industries started laying off employees to survive. But, most of the people working in AWC were children of first employees, and it was more of a family than a company. So, it was also difficult to lay off the employees.

Recently, AWC has introduced a superior door design which increased it’s aluminum door sales. But, this product required more time during welding. Hence, the welding line is currently being used full time and also on a second shift basis. If used on second shift constantly, AWC will require a second supervisor. But, if a second welding line was built, AWC would save a shift premium. Also, at the same time, the equipment would cost around $75000 which is costly.

Currently, there also certain rules regarding the emissions of various substances into the air by the government that would attract penalties if not followed. Companies have to either install Exhaust system or Air Recirculating Filtration system to not affect the environment due to toxic particles released during welding. AWC is also a company that strives for community welfare.

Problem Statement:

What is the way forward for AWC Inc with regards to toxic particles emitted during welding?

Options:

1. Do not install any emission systems.

2. Install the exhaust system

3. Install the air recirculating filtration system

Evaluation Criteria:

1. Impact on profits due to the decision

2. Employee health and community welfare

3. Legal challenges

Evaluation:

Option 1 - Do not install any emission systems

Impact on profits due to the decision

From exhibit 3, it can be seen that profit in 1992 decreases first, and then increases in later years. This may be due to the economy coming out of recession.

Employee health and community welfare

As per the govt, prolonged exposure to the toxic particles may lead to health issues like respiratory problems and cancer. Employee health is being neglected here.

Legal challenges

The above choice is violating govt laws and may lead to severe penalties up to $400000. But, the probability of this happening is very low. Historically, no small companies have ever been penalized till now.

Option 2 - Install the exhaust system

Impact on profits due to the decision

After the installation of the exhaust system which costs $240000, the company will have to bear losses for a period. So, executive(Alex) salary has to be cut down and hikes for employees can be provided once every two years till 1996. Since employees have good relations with AWC, the above choice can be feasible. From exhibit 2, it can be seen that the company is in the loss for 1992 and 1993. It becomes profitable again in 1994.

From exhibit 4, it can be seen that due to the new welding line, AWC needs the increase in sales of 4.5% to achieve break even by 1995. Even though it is a recession time, it is feasible to achieve.

Employee health and community welfare

The toxic particles after the installation will be released outside the unit. So, the employee's health will not be affected due to this.