Century Chemical Company Sample Case Study

Century Chemical Company

A Case Study

Prepared for:

Prof. Manuel Ocampo

Prepared by:

Mary Annjaynette I. Dalupang

BS Management - III

Date of Submission: September 15, 2011

Introduction

The Century Chemical Company was formed in 1975 through the merging of three smaller firms. It produces chlorine and caustic soda through the electrolysis of brine. Its largest plant located in St. Gabriel, Louisiana operates at capacity; its entire output is sold.

The main problem for the production manager of the company is the gradual deterioration of the plant’s compressor capacity because of the fouling of the component parts. With these compressor failures, management chooses to incur the downtime and loss in sales. To avoid these failures, management considers the installation of a spare compressor.

Objectives

* To determine the additional profit brought by the installation

* To determine the total cost of the installation of the spare compressor

* To compare the total costs against the additional profit, to see whether the benefits outweigh the costs, and by how much revenue is gained.

Statement of the Problem (Major)

* Should the management of the Century Chemical Company install the spare compressor?

Courses of Actions

* Install the spare compressor.

* Do nothing.

Analysis

(1) ADDITIONAL REVENUE:

ACTIVITY 1 (Compressor 1 only)

Compressor 1

Raw Materials Final Product

P (Compressor 1 down) = 0.08

* In days (assuming Compressor 1 works 24/7 for 365 days), the 8% downtime is equal to 29.2 days (365 * 0.08).

* The lost sales is worth, given that the downtime is 29.2 days and each day the compressor produces 1500 tons of chlorine worth $50/ton and 1700 tons of caustic soda $40/ton,:

CHLORINE: 1500 * $50/ton * 29.2 days = $ 2 190 000

CAUSTIC SODA: 1700 * $40/ton * 29.2 days = $ 1 985 600

TOTAL: $ 2 190 000 + $ 1 985 600 = $ 4 175 600

P (Compressor 1 works) = 0.92

* In days (assuming Compressor...