32015928-Diamond-Chemicals-Case-1

32015928-Diamond-Chemicals-Case-1 - Lebanese American...

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Lebanese American Universit FIN 499 Diamond Chemicals plc (A): The Mersey Side Project Case Study Mohammad Sinno Waleed Chehab Ramzi Tawm Hussein Zeini Mahmoud Tello Instructor: Mr. Michel Majdalani
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Diamond Chemicals plc (A): The Mersey Side Project Tuesday, May 11 th , 2010 2
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Diamond Chemicals plc (A): The Mersey Side Project Table of Contents 3
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Diamond Chemicals plc (A): The Mersey Side Project Executive Summary Diamond Chemicals plc was a leading producer in the chemicals industry and a part of the Intermediate Chemicals Group (ICG). The plant focused on producing polypropylene, a polymer used in an extremely wide variety of products including packaging film, carpet fibers, and automobile components. The company was established in 1967 launching with two plants one located in Merseyside, United Kingdom and the second in Rotterdam, Holland both having identical scale, age, and design. The major stock holder was called Sir David Benjamin. Due to the economic recession the company was under pressure to improve its financial performance. From 1999 to 2000 the earnings per share (EPS) of Diamond Chemicals dropped from £60 to £30. After Lucy Morris, was assigned as plant manager of Diamond Chemicals Merseyside she found out that the company had a huge window of opportunity to improve its production of polypropylene. This step became essential after it was ignored by previous managers for many years. The proposed capital program was summarized in these three steps: 1. Relocating and modernizing tank-car unloading areas 2. Refurbishing the polymerization tank 3. Renovating the compounding plant In order to achieve these goals, Morris projected a budget of £9 million. The main drawback of this expansion and enhancement was that the plant had to be shut down for 45 days. However, the advantages of the project were: 1. Lower Energy Requirement for production 4
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Diamond Chemicals plc (A): The Mersey Side Project 2. A 7% increase in manufacturing throughput 3. Improving gross margin from 11.5% to 12.5% According to Exhibit 1, that presents the comparative information on the seven largest polypropylene plants in Europe, Diamond Chemicals is the second largest polypropylene manufacturer in Europe. The proposed expansion drew many concerns from the various departments of the plant. First, the transport division had a main concern which was increasing its allocation of tank cars to Merseyside because of the project’s increased throughput. This project would cost the firm £2 million and the trucks would fully depreciate in 10 years. Second, the ICG Sales and Marketing departments also had their own concern. The director of sales advised Greystock that the best course of action in this severe economic recession would be to cannibalize the Rotterdam plant in Merseyside’s favor, a recommendation which was rejected by Greystock. Next, Griffin Tewitt, the assistant plant manager, proposed that a renovation in the production of ethylene-propylene-copolymer (EPC) would decrease cost, and
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This note was uploaded on 06/07/2011 for the course BMGT 892 taught by Professor Donsmith during the Spring '11 term at UNL.

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32015928-Diamond-Chemicals-Case-1 - Lebanese American...

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