Precision Worldwide

Precision Worldwide, Inc. Case Study

Involved Parties:

Competitor-French Firm: Henri Poulenc

Precision Worlwide, Inc.-German Firm

Hans Thorborg-General Manager

Gerhard Henk-Sales Manager

Bodo Eisenbach- Development Engineer

Patrick Corrigan-Parent Company Spokesman

Background: Precision Worldwide, Inc. (PWI) is responsible for the manufacturing of industrial machines and equipment for sale in numerous countries. Repair and replacement parts account for a substantial part of the company’s business. The replacement part in question, steel rings, occur in the machines manufactured only in PWI’s Frankfurt Germany plant. However the steel rings can also be used on some competitor’s machines. The steel ring manufactured by PWI has an average normal life of about 2 months. Machines require between 2 and 6 rings to operate. Individual rings are replaced as they wear out. Over the years, competition had increased and now a competing company Henri Poulenc, a French Firm has entered the market with a superior plastic ring that replaces the steel ring. The plastic ring is less costly to manufacture and has a longer life.

Situation: The PWI sales manager, Gerhard Henk, is asking when this product will be available for him to sell that his competitor already has on the market, particularly in France where the competition is the strongest. Bodo Eisenbach, the PWI development Engineer, estimates the plastic rings can be produced in about 4 months at cost of about $7,500. PWI currently has about $390,000 worth of special steel in current inventory that cannot be sold, even for scrap. Patrick Corrigan, from the parent company spokesman, expects Thorborg to exhaust all steel supplies. If sales of the steel ring continued until the plastic rings were ready for the market about 15,100 rings would remain in stock upon the plastic rings release date.

Information supplied from PWI’s cost accounting department:

Note: Overhead was allocated based on direct labor...