Recommendations for installation of emission control systems

Due to slowdown in construction industry over 1989-1991 period, AWC is facing intense competition in the industry. The margin of AWC has reduced to 3 percent. Upcoming free-trade agreement between U.

S. and Canada would further add to its woes owing to low cost products of U. S. To counter the competition, AWC has developed a low-priced high-quality door design which has led to significant increase in AWC’s sales. This new design requires double usage of welding line.Thus, AWC either has to operate in second shift or buy a second welding line.

Over previous few years, the laws pertaining to releasing environmentally harmful fumes inside or outside plant have been strengthened. Since AWC does not have any emission control system currently, it runs the risk of being fined heavily. The probability of being fined is only 0. 002 but the health implications on the employees can be huge, ranging from respiratory problems to cancer. The two vailable options for emission control are exhaust system and air recirculating filtration system. The criteria for the evaluation of options are: financial impact, employees’ health concern, ethics and abidance by the law.

If AWC installs exhaust system or air recirculating filtration system, it would incur a cost of $240,000 and $400,000 respectively. It would not face any penalty or legal action as it would abide by the law. AWC would be ethical in doing so and would also mitigate the risk posed to the health of its workers.Since AWC has increased sales because of the new product, the installation of either equipment could be supported by the revenue generated, saving the company from a financial burden.

If AWC does not install any emission control system, it would not incur any costs but could be penalized as much as $500,000 if gets caught. Although none of the employee’s health has suffered in the past, AWC would pose a huge risk to its employees especially now when the welding has increased. Also, it would be unethical to do so. Thus, AWC is recommended to install exhaust system and a second welding line.

Situation AnalysisAWC 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 supervisor2.

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 and work in process inventory.

From Toronto Trade Show held recently, Alex has become aware of the law forbidding release of environmentally harmful fumes and particles inside or outside plant. According to Ministry of Environment (MoE) and Ministry of Labor (MoL) studies, these fumes, when inhaled even in small quantities, can cause serious respiratory problems as well as cancer when exposed for long durations. To abide by the law, AWC needs to install emission control systems. It can be done in two ways: 1. Exhaust system that vents fumes outside the plant.

It costs $240,000 and needs to be approved by MoE. 2. Recirculating filtration system that recirculates the treated air into the plant. It costs $400,000 and needs to be approved by MoL.The filters in the system need to be cleansed and the cleaner requires special employee training. It also generates two liters of toxic waste which has to be disposed by a specialized company and involves a fixed fee of $500 per trip.

Another $200 has to be spent on testing the substance before being disposed. The probability of AWC being fined was only 0.002 (Exhibit 3).Also, in AWC’s case, the firm can be charged a maximum of $500,000, Alex for $25,000 and his employees up to $25,000. The dilemma being faced by Alex is whether he should install an emission control system or not.

His father is of the view that the law is meant only for big companies. Alex’s experience tells that no environmental inspector has visited small companies ever. Also, he and his employees have never faced any health issues even after working in AWC for many years. Installation of any system would take a huge toll on AWC’s financial health and might lead to the unemployment of 100 people. At the same time, Alex is also conscious of not abiding by the law.