Precision Worldwide, Inc Havard Case Study

SUBJECT preciseness Worldwide, Inc. RECOMMENDATION My recommendation for Precision Worldwide, Inc. (PWI) is to immediately stop the turn outpution of poise sound. PWI then needs to handle the remaining stain rings to at least recoup slightly of their initial investment. In the meantime they should start producing, distributeing, and distri plainlying moldable rings to their built-in market of customers while attracting new customers who may prefer this new option. shoemakers last By changing their production oblation to the plastic rings, PWI allow pretend more(prenominal) profit which in turn go away keep them forth of competitors in the industry.The remaining 15, ascorbic acid brand name rings will prepare to be calculated as a sunk approach. With this new product offering, PWI will be able to acquire new clientele across the orb and still be able to maintain the loyalty of their existing patrons. RESULTS When PWI sells coulomb plastic rings, they are expected to make $838. 25 more in profit than the sale of hundred steel rings. It be $1107. 90 to assign one coke steel rings. When that is compared to creating a hundred plastic rings, which only if be $279. 65, it becomes more evident why PWI should switch their product line. plastic rings are also more durable than their steel counterparts and at long last a better product overall. APPENDIX The choice that Precision Worldwide, Inc. moldiness make can essentially make or break them. Hans Thorborg, the world(a) Manager, faces a predicament with how to deal with their existing and the in process inventory. He also has to come to a finish regarding the materials that have been obtained for inventory but PWI did not have the chance to actually process them before the deviate was do.Before Thorborg can make a decision, there are triplet main factors that need to be taken into consideration the opportunity costs, the product substitution, and sunken costs. I would recommend that Pre cision Worldwide, Inc. immediately start producing the plastic rings that were created by Bodo Eisenbach and halt the production of the steel rings. The sale and distribution of the plastic rings should begin immediately after to all of their branches so that way PWI can start earning profits as quickly as possible.PWI acceptedly has a specialized inventory because the steel rings that they puddled were made from a unique type of steel. There would be sunk costs that would ultimately come from the failure of PWI to sell back the specialized steel because of the same features that make the steel unique would in the end be the reason that they are difficult to resell. There is over $390,000 in estimated costs of the specialized unprocessed steel and the already completed rings, as intumesce as steel rings that were a work in process.By immediately stopping production of the steel rings PWI will retreat quite a bit of money, but in the long contain they will be able to bring in a big profit and more clientele with the production of the plastic rings. To minimize the tot up of that Precision Worldwide, Inc. lives to lose (close to $400,000) they can raise its opportunity cost by bringing to an end the work in process of the specialized steel rings. During the production phase of the new plastic rings, PWI can try to sell all of the remaining steel rings that they have in stock.By doing so, they will be able to decrease the amount of money that they stand to lose when switching product lines. The new profit margin is $828. 25 per hundred rings (Cost of the steel rings $1,107. 90 minus cost of the plastic rings $279. 65). PWI has the potential to earn $1070. 35 per one hundred plastic rings because they are going to be sold at the same price as the steel rings $1350. By complementary a product substitution, PWI will help reduce the debt and hopefully enlarge the amount of sales by generating new customers and maintaining the practice and loyalty of their current clientele.Due to the profit margin being over $1000/100 rings sold, PWI will be able to completely wipe out their debt in a matter of a hardly a(prenominal) months. Although there will be competitors selling other plastic rings, they will be few and far between. PWI will be one of the graduation exercise companies to sell it consequently obtaining more of the market share and becoming a leader in this field. The fact that PWI is worldwide will prove to be an advantage in generating new clientele in new areas by being the first to have the merchandise in their regions.By creating new clientele, PWI will produce larger profits and hopefully due to the quality of their product offerings, trust and loyalty in the new clientele. Company shareholders will also have more trust in PWI for making a wise decision and eventually increasing the value of their shares. Fortunately for PWI that the profit margin is towering enough to offset the quantities of plastic rings that are sold . Since they are stronger and more durable than the steel rings, less plastic rings will be purchased. One of the reasons that Precision Worldwide, Inc. eeds to take the risk in producing the plastic rings is because they can afford to halt production of the steel rings. After winning into consideration their opportunity costs it would be the wisest decision for GM Thorborg to ascend with the production of plastic rings and immediately halt the production of the steel ones. PWI not only stands to bring in larger profits in the long term, they will also open the eyes of consumers who will soon become their clientele due to a better product offering APPENDIXFixed Overhead Item Plastic Rings brand name Rings Material$17. 65$321. 90 Direct labor$65. 50$196. 50 Direct o/h $52. 40$157. 20 arrive$135. 55$675. 60 Item Plastic RingsSteel Rings Profit make (per 100 sold) $1,070. 35$232. 10 Life of Ring 8 Months 2 Months Steel profit x4 (plastic lifespan) $928. 40 Profit Difference $141. 95($141. 95) Total gross Item Plastic RingsSteel Rings Profit per 100$1,350. 00 $1,350. 00 Cost per 100 $279. 65 $1,107. 90 Total $1070. 35$232. 10