Group 2: Akshay Lal P(P16037), Abhishek Pandey(P16039), Sourabh (P16040),

V.Ganga Phanindra(P16056), Viral Satra(P16058)

Company background:
Indalex (“Independent Aluminium Extruders”) Ltd is a part of Pillar Holdings Ltd and it is in
the extrusion of aluminium business. It was incorporated in June 1961 in a rented building in
Cheltenham. Indalex focused on offering much better service and qualified assistance to
customers in designing and providing better surface finish. Indalex intentionally concentrated
on more complicated and difficult sections and achieved success. The company entered into
profits in 1962 and enjoyed steadily increased profits since then. New extrusion presses were
added in 1962 and 1969. By 1977 with four separate anodising plants, Indalex had the largest
anodising facilities in U.K and anodised about 60% of the output of its 3 extrusion presses. In
1977, Peter McIlwraith, Managing Director of Indalex Ltd operated with a total management
group of less than 10 people.

Decision Problem Statement:

How should Indalex go for addressing the market demand given the capacity constraints for
extrusion and anodising.

Options available:
Option 1: Increase the extrusion capacity by adding a new extrusion press
Option 2: Add a new anodising plant containing minimum three new tanks
Option 3: Build a recycling plant to avoid tolling
Option 4: Increase the capacity of extrusion as well as anodising process simultaneously

Criteria for Evaluation:

• Net Present Value of the investments done and profits made
• Capacity utilization achieved
• Flexibility towards fluctuation in market demands

Option 1 – Expanding extruder capacity

Description-
Extrusion is the most critical capacity constraint. Extrusion is carried out in hydraulically
operated extrusion process. Currently there are three presses dedicated to extrusion process.
Each press has capacity of 2500-3000 metric tonnes of aluminium extrusion per year. So
current maximum capacity with three extrusion press are 9000 metric tonnes. If Indalex wants
to expand this capacity then it has only option through which it can add single press. This
option will be evaluated based on the several criteria.
 Group 2: Akshay Lal P(P16037), Abhishek Pandey(P16039), Sourabh (P16040),
V.Ganga Phanindra(P16056), Viral Satra(P16058)
Benefits-
• Additional capacity would fulfill the growing demand of the market and in turn
Indalex would grow its sales.
• As per the demand forecast, this additional capacity will enable extruder system to run
on less than its full capacity for next three years, this will reduce the load on the
production and service level will improve.

Drawbacks-
• This option doesn’t provide any scope for gradual expansion. At least 33% (1 extra
machine) expansion is necessary in this case.
• With the adoption of this option, the process would become less flexible. Because it
would be specialized for possibly two billet diameters.
• The basic rational behind choosing this option is to fulfill the forecasted demand. But the
entire european economy is appeared to be stagnant. Therefore the actual market
demand might be too less or more than the forecasted demand.

Option 2: Add a new anodising plant

Description:
• Indalex has four anodising plants which is used to provide corrosion-resistant finish
for the aluminium jobs.
• Using this anodising plant capacity, the company anodised about 60% of the output of
its extrusion presses.
• Anodising is a continuous process which is highly efficient if the operation is carried
out at 100% capacity utilisation.
• The company has an option to add a new anodising plant containing a minimum of
three new tanks with a combined annual capacity of 2000 tonnes.
Benefits:
• This would help replace two of the existing anodising plants that has become obsolete
already and is facing flow control issues
• It would also help meet any surge in demand and production
• helps to focus on more value-added products to consumers
Drawbacks:
• Needs an investment of £800,000 for capacity expansion
• Based on the assumption of growth in demand; is not flexible to market conditions
• May remain unutilised if it is not preceded by capacity expansion as well as demand
surge

Option 3: Setting up a own recycling plant to process its own scrap aluminium
Description: Indalex was collaborating with the outside company for converting the scrap to
reusable aluminium billets. As almost 5000 tonnes of scrap aluminium being produced out of
 Group 2: Akshay Lal P(P16037), Abhishek Pandey(P16039), Sourabh (P16040),
V.Ganga Phanindra(P16056), Viral Satra(P16058)
its current operations, McIlwraith is considering the possibility of setting up an own recycling
plant in the adjacent warehouse building to the Indalex plant site.
Benefits:
• At 5 days a week and 48 weeks a year and 90% efficiency Indalex would be able to
handle its reprocessing needs through the late 1980s.
• This would give control over the second billet as it constitutes about 1/3rd of its total
aluminium usage.
• Indalex can have control over the supply of secondary aluminium billets if the demand
of aluminium exceeds the production capacity
• In times of billets shortage, Indalex would have the option of buying raw aluminium
ingots and converting them into billets itself.
• Proposed plant has two separate melt furnaces and Indalex can continue its operations
with reduced rate if one of its furnace went out of operation.
• Payback period of new installation of recycle plant is approximately 7 years. It would
save Indalex some additional costs due to its own recycling plant.
• The plant would not release any toxic fumes or smoke to the atmosphere.
Drawbacks:
• Labour wage rate might increase across the years and this would additional cost to the
Indalex.
• Needs an immediate investment of 857000.
• If the actual demand is less than the projected demand Indalex might incur additional
inventory costs.
NPV Analysis:

Option NPV
Expanding extruder capacity £ 50,418
Add a new anodising plant £ -66,597
Setting up a own recycling plant to process its own scrap aluminium £ 733215

Recommendation:
• As per the analysis, it is recommended that Indalex should set up its own recycling
plant to process the scrap aluminium (Option 3)