Victoria Chemical ( a)

Introduction and problem identification

Victoria chemicals, a polypropylene production plant, is a major competitor in the worldwide chemical industry. Polypropylene is a polymer that is used to manufacture medical products to packaging film, carpet fibers and automobile parts for customers in Europe and the Middle East. There are seven major competitors in Victoria chemicals market region. Victoria chemicals consists of two plants. The Merseyside plant and the Rotterdam plant are of identical scale, age and design and were built in 1967.

In 2007 the company was experiencing pressures from investors to improve financial performance because of the accumulation of its common shares by a well-known corporate raider named Sir David Benjamin. The entrance of a corporate raider may have shown that the firms’ assets appeared to be undervalued. Earnings had slumped from 250 pence per share to 180 pence per share. The Merseyside production process was old and required more labor hours than its rivals. The company faced increased costs and reduced revenues. Exhibit 1 shows a graph of the cost of production of Victoria chemical plants in relation to its Major competitors.

Lucy Morris, the plant manager of Victoria chemicals Merseyside, discovered significant opportunities for improvement after conducting a detailed review of operations. She along with her controller Frank Greystock proposed a GPS12 million project that would save energy and improve process flow at Merseyside. The project details were as follows: 1. Relocating and modernizing tank-car unloading areas, which would enable process flow to be streamlined.2. Refurbishing the polymerization tank to achieve higher pressures and thus greater output.3. Renovating the compounding plant to increase extrusion throughput and obtain energy savings.

There were concerns that the project would cause the plant to shut down for 45 days, consequently running the risk of losing customers. The project required acquiring more...