Dr Rhodes was losing his temper. 'It should be a simple enough decision. There are only two alternatives. You are only being asked to choose a machine!'

The Management Committee looked abashed. Rochem Ltd was one of the largest independent companies supplying the food- processing industry. Its initial success had come with a food preservative used mainly for meat- based products and marketed under the name of 'Lerentyl'. Other products were subsequently developed in the food colouring and food container coating fields, so that now Lerentyl accounted for only 25 per cent of total company sales, which were now slightly over 10 million.

The decision

The problem over which there was such controversy related to the replacement of one of the process units used to manufacture Lerentyl. Only two such units were used; both were 'Chemling' machines. It was the older of the two Chemling units which was giving trouble. High breakdown figures, with erratic quality levels, meant that output-level requirements were only just being reached. The problem was: should the company replace the ageing Chemling with a new Chemling, or should it buy the only other plant on the market capable of the required process, the 'AFU' unit? The Chief Chemist's staff had drawn up a comparison of the two units, shown in Table 8.5.

The body considering the problem was the newly formed Management Committee. The committee consisted of the four senior managers in the firm: the Chief Chemist and the Marketing Manager, who had been with the firm since its beginning, together with the Production Manager and the Accountant, both of whom had joined the com- pany only six months before.

What follows is a condensed version of the information presented by each manager to the committee, together with their attitudes to the decision.

Table: A comparison of the two alternative machines

CHEMLING

AFU

Capital cost

590,000

880,000

Processing costs

Fixed: 15,000/month

Fixed: 40,000/month

Variable: 750/kg

Variable: 600/kg

Design capacity

105 kg/month

140 kg/month

98 ; 0.7% purity

99.5 ; 0.2% purity

Quality

Manual testing

Automatic testing

Maintenance

Adequate but needs servicing

Not known - probably good

After-sales services

Very good

Not known - unlikely to be good

Delivery

Three months

Immediate

The Marketing Manager

The current market for this type of preservative had reached a size of some 5 million, of which Rochem Ltd supplied approximately 48 per cent. There had, of late, been signifi- cant changes in the market - in particular, many of the users of preservatives were now able to buy products similar to Lerentyl. The result had been the evolution of a much more price-sensitive market than had previously been the case. Further market projections were somewhat uncertain. It was clear that the total market would not shrink (in volume terms) and best estimates suggested a market of perhaps 6 million within the next three or four years (at current prices). However, there were some people in the industry who believed that the present market only represented the tip of the iceberg.

Although the food preservative market had advanced by a series of technical innovations, 'real' changes in the basic product were now few and far between. Lerentyl was sold in either solid powder or liquid form, depending on the par- ticular needs of the customer. Prices tended to be related to the weight of chemical used, however. Thus, for example, the current average market price was approximately 10.50 per kg. There were, of course, wide variations depending on order size, etc.

'At the moment I am mainly interested in getting the right quantity and quality of Lerentyl each month and although Production has never let me down yet, I'm worried that unless we get a reliable new unit quickly, it soon will. The AFU machine could be on line in a few weeks, giving better quality too. Furthermore, if demand does increase (but I'm not saying it will), the AFU will give us the extra capacity. I will admit that we are not trying to increase our share of the preservative market as yet. We see our priority as establishing our other products first. When that's achieved, we will go back to con- centrating on the preservative side of things.'

The Chief Chemist

The Chief Chemist was an old friend of John Rhodes and together they had been largely responsible for every prod- uct innovation. At the moment, the major part of his budget was devoted to modifying basic Lerentyl so that it could be used for more acidic food products such as fruit. This was not proving easy and as yet nothing had come of the research, although the Chief Chemist remained optimistic.

'If we succeed in modifying Lerentyl the market opportu- nities will be doubled overnight and we will need the extra capacity. I know we would be taking a risk by going for the AFU machine, but our company has grown by gambling on our research findings, and we must continue to show faith. Also the AFU technology is the way all similar technologies will be in the future. We have to start learning how to exploit it sooner or later.'

The Production Manager

The Lerentyl Department was virtually self-contained as a production unit. In fact, it was physically separate, located in a building a few yards detached from the rest of the plant. Production requirements for Lerentyl were currently at a steady rate of 190 kg per month. The six technicians who staffed the machines were the only technicians in Rochem who did all their own minor repairs and full quality control. The reason for this was largely historical since, when the firm started, the product was experimental and qualified technicians were needed to operate the plant. Four of the six had been with the firm almost from its beginning.

'It's all right for Dave and Eric [Marketing Manager and Chief Chemist] to talk about a big expansion of Lerentyl sales; they don't have to cope with all the problems if it doesn't hap- pen. The fixed costs of the AFU unit are nearly three times those of the Chemling. Just think what that will do to my budget at low volumes of output. As I understand it, there is absolutely no evidence to show a large upswing in Lerentyl. No, the whole idea [of the AFU plant] is just too risky. Not only is there the risk, I don't think it is generally understood what the consequences of the AFU would mean. We would need twice the variety of spares for a start. But what really worries me is the staff 's reaction. As fully qualified technicians they regard themselves as the elite of the firm; so they should, they are paid practically the same as I am! If we get the AFU plant, all their most interesting work, like the testing and the maintenance, will disappear or be greatly reduced. They will finish up as highly paid process workers.'

The Accountant

The company had financed nearly all its recent capital investment from its own retained profits, but would be tak- ing out short-term loans the following year for the first time for several years.

'At the moment, I don't think it wise to invest extra capital we can't afford in an attempt to give us extra capacity we don't need. This year will be an expensive one for the com- pany. We are already committed to considerably increased expenditure on promotion of our other products and capital investment in other parts of the firm, and Dr Rhodes is not in favour of excessive funding from outside the firm. I accept that there might eventually be an upsurge in Lerentyl demand but, if it does come, it probably won't be this year and it will be far bigger than the AFU can cope with anyway, so we might as well have three Chemling plants at that time.

QUESTIONS

1) what form do the:

a) Decision Body

b) Decision Options

c) uncontrollable factors

d) consequences of the decision options take in this particular case?

2) Classify the decision and the context of the decision the decision>

3) Which machine should the company buy, and why?