We are presented with the Dilemma of a new competitor in this case study. The competitor has released a plastic ring to compete with our steel rings. The issue that arises from this is the plastic rings from our competitor lasts four times as long as our steel rings; which is a problem because it makes our steel rings obsolete as a technology. We have a sales manager who has presented the idea of buoying up our business by producing the plastic rings ourselves therefore making the competition to have to compete with us versus having an inferior product.
We could get this done by mid-September with a cost of 7,500 for the new tools and equipment. I believe this would be a good choice for the company to produce the plastic rings because it puts us in the race while not doing this will be like dropping out of the race. As far as a price point for them we will sell them for the same price we are currently selling the steel rings since our competition is doing the same. This will cause us profit because there is considerably less cost to produce plastic rings than their steel counterpart. To illustrate this I have developed a table to break down costs. 100 plastic rings| 100 steel rings| Material| 17. 65| 321. 90| Direct Labor| 65. 50| 196. 50| Overhead| 196. 50| 589. 50| Total| 279. 65| 1,107. 90| So if we look at the pricing point of 1,350 per 100 rings we look at a decent profit by switching to the plastic rings of 1070. 35 versus 242. 11 for the steel rings. Looking at this information it would be beneficial to start producing the steel rings. Our Manager Corrigan does want us to use the processed finished rings before we get rid of production of the steel rings at the current sale rate of 690 per week.
We should be able to sell our current stock of 15,100 rings in 22 weeks. If we only sell the plastic rings where our competitor is selling them for those 22 weeks we will avoid having to eat the costs of 167,292. 90 it took to make those rings. Even though these are sunk costs these must be looked at going forward since our manager wants these to be sold. We will look for an alternative market to sell the special steel we used to make the rings that are left over and instead focus our production on the plastic rings. This will save us 382,225. in production costs. The cost of the material would be covered with the profit of the plastic rings in 15 weeks. As far as the problem about other customers finding out about the plastic rings when they are buying steel rings. We will use PR to spin this as we had to test them before widespread release of the rings since we will only be selling them to 10% of our market to begin with. If we take these actions we should position ourselves to be profitable and competitive in the future. * * Told as if Hans was writing it.