BBMK

Case Analysis
(Precision Worldwide, Inc.)

Group No. 48
Name
Abhimanyu Dev
Vijayeta Bhatia
Kumar Abhishek
Bhuyan
Saurabh Doshi

Roll No.
15F601
15S755
15F527
15S639

Introduction:
PWI is manufacturing industrial machines and equipment for sale since 90
years. PWI manufactured steel tings whose normal life was about 2

months. After the rings were worn out they used to replace the rings. The
repair and replacement of parts formed a significant part of the
companys business. The head office was in Toledo, Ohio and the plants
were located outside the United States. The competition started in 1990s
when Japanese manufactures entered. But the problem became big when
a French firm Henri Poulenc entered the business with a substitute
product, a plastic ring. The plastic ring had many advantages over, it had
longer life than steel rings and it had low manufacturing cost. PWI now
had a problem to introduce plastic rings. The accumulated special steel
inventory could not be used for anything else. It could not even be sold as
scrap. With a total book value of $ 390, 000 this huge cash implication
had a bearing on the management decision of whether to produce the
plastic rings and when to produce and sell. Also, PWI had to think if they
should continue selling steel rings once plastic rings are available.
Solution:
The development engineer Bodo Eisenbach estimated that plastic rings
would be ready till mid- September and the tools will be obtained at
$7500. PWI had 4 alternatives which are as follows:
1. Sell steel rings till plastic rings are ready and then start selling only
plastic rings
Pros:
It will take over the competition as PWI is an established brand
Cons:
Cost of scrapping unused manufactured steel rings and the
cost of scrapping unused steel stock will be added
The customers may get confused with the sudden shift from
steel to plastic and company may start losing its loyal
customers
2. Sell steel rings till plastic rings are ready and then sell plastic rings
only where competitor is selling it. For the rest of market sell steel
rings
Pros:
The competitors market will be taken by PWI in plastic rings
Company will not lose customers preferring steel rings
Cons:

Customers not getting plastic steel in their region may feel

biased as not being offered a superior quality product to them
Some other player might establish in plastic rings business in
the regions not supplying PWI plastic rings

Abhimanyu Dev (15F601) Vijayeta Bhatia (15S755) Kumar Abhishek Bhuyan (15F527)
Saurabh Doshi (15S639)

Customers may get confused by seeing different products of

the same company

3. Sell steel rings till plastic rings are ready and then sell plastic rings
and also steel rings at reduced price
Pros:
Cost of scrapping unused manufactured steel rings and the
cost of scrapping unused steel stock will be removed
Customers in all region will get superior product
PWI will be able to establish itself in the market where plastic
rings are still not introduced and have first mover advantage
Cons:

With the introduction of a better substitute, customers may

not buy steel rings at lower cost. This will increase the sunk
cost

4. Sell steel rings only and no plastic rings

Pros:
PWI will remain the leader in steel ring business
Cons:

Company will lose both existing and potential customers

Table showing profit for steel and plastic

Selling price

Plastic
1350

steel
1350

Rings sold per week

690

690

Revenue per week

9315

9315

Manufacturing cost

279.65

1107.9

Incremental cost

1929.585

7644.51

Profit

7385.415

1670.49

Abhimanyu Dev (15F601) Vijayeta Bhatia (15S755) Kumar Abhishek Bhuyan (15F527)
Saurabh Doshi (15S639)

Table showing contribution margin for

plastic and steel
Plastic
steel
ring
ring
(100
(100
units)
units)
Sales
Variable cost
Material
direct labour
overhead
TOTAL
contribution
margin
Fixed cost
Profit

1350

1350

17.65
65.5
52.4
135.55

321.9
196.5
157.2
675.6

1214.45

674.4

144.1

432.3

1070.35

242.1

Variable overhead cost amounted to 40% of the departmental amount

Conclusion:
PWI should go with the 3rd alternative which is to sell steel rings till plastic
rings are ready and then sell plastic rings at original price and steel rings
at reduced price.

Abhimanyu Dev (15F601) Vijayeta Bhatia (15S755) Kumar Abhishek Bhuyan (15F527)
Saurabh Doshi (15S639)