Industrial Grinders Case Solution

INDUSTRIAL GRINDERS

After reviewing the information presented to Industrial Grinders, we have come up with three options that we would recommend Industrial Grinders consider as well as our personal recommendation for what they should do. We will explain each option below and as well as explain back them up with calculations based on the information presented to us. Please note that all of our options are based on switching from steel rings to the plastic rings full time to help compete with Henri Poulenc. We feel that the plastic rings are where the future business will be and it does not make sense to wait. For this we intend to have I.G. use the work force from the German plant to start converting the inventory as soon as possible. During the 14 weeks from June 1 – mid September, steel rings should be sold exclusively at their full price for all scenarios listed below.

OPTION 1: Sell plastic rings to 100% of market.

Our first option for I.G. to consider is to scrap the remaining steel rings in inventory as soon as the plastic rings are ready, as well as the special steel that they still have left over. By selling the plastic rings to 100% of the market by mid September, Industrial Grinders would gain a competitive edge on the remaining 90% of the market that Henri Poulenc has yet to enter. Doing so would result in a huge loss of already produced inventory but does not risk alienating any future machine business. This results in a loss of $28,425 after year one because of the sunk cost incurred from scrapping the steel inventory. In subsequent years, the difference in the profit margins, $3.44 per plastic ring and $.52 per steel ring, would continue to help recover the cost of switching over and continue to be much more profitable in the future.

OPTION 2: Sell metal to 90%, plastic to 10% of market.

Our second option is for I.G. to consider would be for them to scrap the special steel that they have remaining, but continue to sell the...