Indalex Ltd Harvard Case Solution & Analysis

Q2.) How would you persuade divisional management to accept your proposal?

Since Indalex is a profit making company, but it still needs to maintain its market share and customer base for the long term success of its operations, hence, the addition of a production capacity would allow Indalex to meet the growing demand of Aluminum products. On the other hand, if do not increase the production capacity then the growth in the market would be captured by the small competitors, meanwhile, due to the increased demand Indalex might not be able to provide the aluminum products to the long established customers, which would lead to discouragement of customers and if a customer is lost he or she seldom comes back. Further, the evaluation criteria set by the holding company requires to meet the 10% pre-tax growth targets and addition in the production capacity would allow Indalex to meet this 10% hurdle rate. In addition to this, the increased production facility would mean that more permanent worker would be required to operate the plants, hence, the need for overtime will be eliminated, which requires high wage rates due to overtime, therefore, the capacity enhancement would allow Indalex to labor cost.

Q3.) What other changes in Indalex’s operation would you propose?

Since the holding company controls all the subsidiaries, including Indalex and let them operate independently, hence no coordination is developed between the individual subsidiaries, however, if Indalex management can ask for some relaxation from the holding company regarding intelligence and research & development sharing between them, then it would not only help Indalex to reduce its cost but it will also help the entire group in order to reduce to their expenses. Further, Indalex is currently incurring a high level of wages due to overtime, which is increasing its production cost, hence, Indalex should try to increase workforce so that the excessive overtime requirements can be eliminated or reduced to a minimum and the resultant high level of overtime wage payments can be avoided. In addition to this the increase, manpower will help the organization in improving the process and bring innovation ideas at Indalex.

However, since Indalex’s is a prime supplier of almost complete range of aluminum Ancillaries for which the construction companies are more reliant on Indalex productions, therefore, Indalex should capture the opportunity and diversify itself into the construction business. With this diversification Indalex will not only be able to increase its revenues, but it will also strengthen its customer base. In addition to this Indalex should try to control the percentage of scrap this will enable the Indalex to increase its production capacity. Meanwhile, Indalex should introduce performance based payments that should be designed to reward the innovations introduced by the workforce, hence, rewarding the innovation will encourage the employees to introduce innovation in process and product development which would lead to the improved performance of its business operations.

Recommendation and Conclusion

Based on the above analysis, it is clear that if Indalex decides to increase the production capacity of extrusion and surface finish process, then the major part of the additional capacity would remain unutilized. However, since the current extrusion plants are operating at 95% capacity and are not able to meet the demand of 12000 tons of extrusion, therefore, the investment in extrusion process followed by additional investment in anodizing plants would need to be made in order to maintain its competitive position. In addition to this, additional capacity would generate additional contribution; hence, this addition in capacity would also help Indalex to meet the 10% hurdle rate set by the holding company. In addition to this, Indalex would be recommended to expand into construction business because Indalex is providing a full range of aluminum products for the construction of buildings, hence, it would be more profitable for Indalex to expand into the construction industry and use its own produced aluminum products in the construction of buildings...............................

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