Livepool Case Study
Victoria Chemicals, a major competitor in the worldwide chemicals industry, was a leading producer of polypropylene, a polymer used in an extremely wide variety of products. The company has two plants. One is at Merseyside, England and another is at Rotterdam, Holland. These two plants have similar scale, design, and age. the case we know the Victoria Chemicals must improve its financial performance and raise the earnings per share. But as there are 7 major Competitors manufactured polypropylene with various cost level, the price of Polypropylene is very competitive. Lucy Morris was plant manager of Victoria Chemicals Merseyside works in Liverpool, England. Her controller Frank Greystock was discussing a capital project that Morris wanted to propose to senior management. The project consisted of (British Pounds) GBP 12 million expenditures to renovate and rationalize the polypropylene production line at the Merseyside plant in order to make up for deferred maintenance and to exploit opportunities to achieve increased production efficiency. The entire Polymerization line would need to be shut down for 45 days and will loss the customer during shut down cause they cannot apply to customer.
The concern of the Transport Division is they will need a new Tank Car to anticipate growth of the firm in other areas because of increased throughput of the machine. The investment of a new tank car is estimated to be GBP 2 million in 2010 and would have a depreciative life of 10 years using DDB depreciation for the first 8 years and straight-line depreciation for the last two years. I think the need to buy a tank car is economical, which is better for future development.The sales director thinks the polypropylene industry is currently in a downturn and the industry is overcapacity, and the investment in Merseyside will affect Rotterdams sales. But I do not agree about Merseyside will be oversupply and Cannibalize the Rotterdam supply. I think the two factories themselves operate in different regions, so the Merseyside factory will not squeeze the Rotterdam factory sales, but the two companies are in their own region have a stronger competitive edge. And as time passes, the market will recover from the recession. With a new project will reduce the cost at Merseyside and Victoria chemicals might be able to take business from the plants of competitors such as Saone-Poulet or Vaysol.