Precision Worlwide Case Study

Precision Worldwide, Inc

In the history of manufacturing, companies need to continually looking at their competitors and the goods they manufacture to ensure they keep their market share and increase profits. Precision Worldwide manufactured industrial machines and equipment. Precision Worldwide also supplied replacement part for their industrial machines. These ring parts are made of a special type of steel that Precision Worldwide has purchased. The concern of PWI in 2004 was a competitor was now offering a plastic ring in 10% of the market. PWI was concerned of losing market share to the competitor's plastic rings. Several members of the company had different ideas on the approach that PWI should take. This will be outlined later in the review.

The plastic rings (substitute product) are cheaper to manufacture and four times more durable than the steel rings. PWI competitor, Henri Poulence, was charging the same as the steel ring price offered by PWI. PWI felt they could potentially lose market share to Henri Poulence in France because of the benefit the plastic rings offered to customers. The dilemmas, should PWI do the research and begin to manufacture plastic rings and how should PWI handle the existing supply of steel rings and materials to produce additional rings?

One concern for PWI is the existing replacement part of steel rings and how to switch over from steel ring to the more reliable, low manufacturing cost plastic rings. PWI had a total cost of inventories of $390,000 at the time. PWI is forecasting the inventory of steel rings to be 15,100 by the middle of September. PWI had enough material on had to produce 34, 500 rings. The cost of producing steel rings is $1,107.50 for every one hundred rings. The special steel that PWI currently holds cannot be sold as scrap. The dilemma - what to do with existing supply of steel rings?

Steel ring inventory and materials used for manufacturing needs to be greatly reduced by middle of September. The fact the material and the steel rings cannot be sold as scrap really gives PWI insight in what they need to do. If they decide to manufacture plastic rings, they need reduce the cost spent on steel rings as much as possible. This strategy will allow PWI to reduce phasing costs incurred to bring in a new product and stop production of a previous less efficient one. The opportunity cost will need to equal the cost of existing inventory. Using the workers that are 70% of wages to mass produce as many steel rings in the allotted time and possibly completely using the rest of the excess steel they have on hand would increase the potential profit margin even if they were to sell the steel ring temporarily with a higher profit margin. At that same time PWI can begin making preparations to sell the plastic ring which is more profitable during normal labor rates and also better suited to the customers' contentment.