reclslon Worldwlde lnc

Wroducer of lndusLrlal machlnes and equlpmenL

for nearly 90 years
W8epalrs and replacemenLs whlch accounLed for
subsLanLlal parL of Lhe companles revenues
were sold separaLely
Wroduced sLeel reLalnlng rlngs whlch were a
regular replacemenL lLem for some models of
Lhe machlnes Lhe company sold
@hreaL for reclslon lnc
W @he avalllblllLy of plasLlc rlngs(launched by a
compeLlLor namely Penrl oulenc) LhaL
LhreaLened Lhe exlsLence of Lhe sLeel rlngs
W @he plasLlc rlngs would lasL aL leasL 4 Llmes Lhe
llfe of sLeel rlngs and lL cosLs almosL 4 Llmes less
LhaL of sLeel rlngs
W @he carrylng lnvenLory cosL of Lhe sLeel
rlngs(flnlshed as well as unflnlshed) was Loo
large Lo be compleLely lgnored
cLlon lan for reclslon lnc
W SLop Lhe producLlon of SLeel 8lngs compleLely and sLarL
producLlon of lasLlc rlngs aL Lhe earllesL
W llnlsh Lhe lnvenLory of sLeel rlngs compleLely before swlLchlng
over Lo plasLlc rlngs
W Supply of sLeel rlngs and plasLlc rlngs separaLely Lo separaLe
markeLs
W llnd some oLher uLlllLy for Lhe unfabrlcaLed sLeel probably for
lnhouse producLlon or fabrlcaLlon
W ManufacLure sLeel rlngs unLll mldSepLember and Lry Lo sell Lhe
sLeel aL Lhrowaway prlces
W 8eenglneer producLlon process Lo brlng down Lhe cosL of SLeel
rlngs
Act|on |an 1
SLop Lhe producLlon of SLeel 8lngs compleLely
and sLarL producLlon of lasLlc rlngs aL Lhe earllesL
W @he cosL of Lhe unflnlshed sLeel lnvenLory ls
$110900
W @he cosL of Lhe flnlshed SLeel rlngs are$1672929
(131*$110790)
W @he LoLal cosL of Lhe lnvenLory $2781929
W @he proflL per 100 of Lhe plasLlc rlngs $107033
(assumlng sp$1330)
cLlon lan 1
Conslderlng LhaL afLer Lhe phase ouL of Lhe sLeel
rlngs reclslon lnc would be selllng 690 lasLlc
rlngs per week lL would Lake Lhem less Lhan 9
weeks Lo recover Lhe cosL of lnvenLory
CalculaLlon
@he no of rlngs sold per week690
@he proflL gaLhered ln 1 week$7383413
no of weeks requlred Lo recover Lhe lnvenLory
cosLs$ 2781929/$7383413376
cLlon lan 2
llnlsh Lhe lnvenLory of sLeel rlngs compleLely
before swlLchlng over Lo plasLlc rlngs
lf Lhe lnvenLory has Lo be compleLely used up
Lhe LoLal amounL of sLeel rlngs LhaL Lhe
company would have Lo sell would
be13100+3430049600
L 690 rlngs /weeklL would Lake 72
weeks(13yrs) for Lhe company Lo sell of all
Lhe lnvenLory
rawbacks of cLlon lan 2
W lor 72 weeks
proflLs from sLeel rlngs4960*$2421$1200816
W lor 72 weeks
proflLs from plasLlc rlngs 69*72*107033$33174988
W @hls compensaLe for abouL 73 of Lhe cosL of producLlon of
Lhe flnlshed sLeel rlngs
W Moreover Lhe Llme spenL on selllng Lhese sLeel rlngs would be
preclous Llme wasLed Lhan Lrylng Lo grab Lhe markeL for Lhe
plasLlc rlngs
W @he compeLlLor would Lry lncrease hls markeL base of plasLlc
rlngs and Lhe plasLlc rlngs belng Lhe fuLure would evenLually
phase ouL reclslon lnc ouL of markeL
W galn Lhe above calculaLlons have been done aL Lhe
assumpLlon LhaL Lhe company would be able Lo sell sLeel rlngs
aL $1330 and plasLlc rlngs aL same volume
cLlon lan3
W Supply of sLeel rlngs and plasLlc rlngs separaLely Lo
separaLe markeLs
W lor Lhls Lo be posslble reclslon lnc would requlre
separaLe producLlon llnes for SLeel and lasLlc
8lngs aL Lhe same Llme aL leasL Llll Lhe lnvenLory of
SLeel rlngs are over
W 8y dolng Lhls Lhe company won'L be able Lo
achleve economles of scale ln boLh Lhe producLlon
llnes
W Moreover selllng dlfferenL rlngs Lo dlfferenL
cusLomers would creaLe cusLomer anlmoslLy whlch
would agaln adversely affecL Lhe Lhelr buslness
cLlon lan 4
W llnd some oLher uLlllLy for Lhe unfabrlcaLed
sLeel probably for lnhouse producLlon or
fabrlcaLlon
W lrom Lhe daLa glven ln Lhe case lL ls hlghly
unllkely slnce Lhe quallLy of sLeel ls of a speclal
varleLy