Precision Worldwide - Japanese Prototype of Steel Ring

Precision Worldwide Inc is currently in the dilemma of determining how to go about the introduction of a new Japanese prototype of their steel ring. The Japanese were able to reinvent this plastic ring at a lower cost and more durable at the same time. This is extremely detrimental to the steel ring market and will force Precision Worldwide out of business if action steps are not taken. Some of the factors that Precision Worldwide will be facing are how to deal with their excessive inventory levels of steel rings and how to strategically enter the plastic ring market. Hans Thorborg needs to take into account the sunk cost of the steel ring and how to be effective with the production of the plastic ring.

Hans Thorborg needs to realize that the cost of the steel ring is actually a sunk cost. The actual cost of the steel ring is $2.95 when all sunk costs are taken out from the original number of $6.76. According to the article, The Sunk Cost Fallacy, "sunk costs" are sunk whatever your decision; only the future matters. The fallacy in thinking about sunk costs is precisely that people feel compelled to get their "money's worth," even if it makes them suffer (Schartz 2005). Whether or not the steel rings sell, well over 50% of the cost is considered sunk and is irrelevant. The second aspect that will influence Han's decision is the fact that he will have to be strategic in the way that he deals with his excessive inventory. He will still have over 15000 units when the date of the plastic rings roll out. Finally, Hans Thorborg will have to be strategic in the way that he deals with the specific rollout of the plastic ring in France, as well as the rest of the country. All of these factors will be involved in his decision to deal with his team and strategic instruction he will give everyone.

Recommendation

Hans Thorborg will have to sell through as many steel rings as possible and successfully begin production of the plastic rings. The first step would be to sell the steel rings at a significantly reduced cost. The next course of action would be to work with the sales manager, Gerhard Henk. He would work with him to reduce the cost and aggressively go after the selling down of the steel ring inventory. This will allow Precision Worldwide to reduce inventory. The price reduction will be in conjunction with the fact that the steel rings will not last as long as the plastic rings. The ripple effect of this will be the fact that the steel rings will sell at a more rapid pace and Precision Worldwide Inc will be able to alleviate their heavy inventory sooner.

In addition to reducing the cost of the steel rings, Han Thorborg would then instruct his engineer to immediately begin production of the plastic rings. The adaptability of the company is key in entering this new prototype for the business. For example, according to the article, Three tips to be Flexible and