Situation Analysis
AWC Inc. is a small-scale Southern Ontario aluminum fabrication plant.
AWC employs 100 people (Exhibit 1). It is employee friendly and also works for community welfare. Thus, AWC has a highly motivated and loyal workforce. Also, many of the present employees are the second-generation employees for AWC.
Since there are more than 37 competitors operating in southwestern Ontario, slowdown in construction industry over 1989-1991 period has further added to the cut-throat competition and reduced the profit from earlier five to seven percent to only three percent. To survive the competition, Alex, President and owner of AWC, has reduced the workforce through attrition with much heartache, drastically cut prices, margins and profits, and increased efficiency.
The implementation of Canada-U.S. Free Trade Agreement in the near future will further add to the competition in the aluminum fabrication industry because of the lower priced products offered by U.S.
To counter the competition, AWC has recently developed a superior door design. Because of its lower price and higher quality with respect to comparable products, AWC had a significant increase in its sales. This new design has led to full-time usage of the welding line, requiring second-shift frequently although the production is done in one-shift most often. AWC now has to either move to second-shift on welding line or install a second one. Following are the issues with the implementation of second-shift:
1. Search cost for finding additional supervisor
2. Unavailability of supervisors in industry
3. Training cost for supervisor
4. Wage premium to six operators of line
5. No easily accessible storage area for the output
These would cost $64,128 for 1991 (Exhibit 2).
In case of second line, although the equipment cost is $75,000, it would save the additional supervisor cost, wage premiums