Introduction When a competitor develops and introduces a superior product that is less costly to manufacture and even many times usable and durable, the key to people at Precision Worldwide must decide whether to match the competitor's product, when to do so, how to price or what sustainable competitive advantage it needs to adopt during the next strategic period, given that it holds a large inventory of its now inferior product. This issue concerns the steel and plastic rings which the company, Precision Worldwide, Inc. (PWI) is opting to produce as a matter of competing intensively with a French company, Henri Poulenc, which was at the same time posing a big threat to the viability of the steel rings PWI is producing. . PWI is confronted not only with a substitute product which is both cheap and durable. Compared to PWI’s steel rings, the plastic rings being produced by Henri Poulenc is both cheaper and lasts longer. PWI is also facing the risk of earning the ire of its customers if it manufactures but selectively introduces the cheaper plastic rings in areas where it is faced with the ‘plastic’ competition. As a result, PWI is now confronted with a dilemma of differences in strategic measures to undertake given the differing opinions of its key people.
Questions Posted for this Note: 1. You have to analyze the existing data, the conflicting views of the sales manager and the Development engineer. And make a decision as to whether PWI should begin the manufacture of a plastic ring. Answer: From the standpoint of the qualitative aspect of competition, PWI is encouraged to start manufacturing of the plastic ring if it is to avert a more serious consequence of being eased out of the market due to a cheaper, more durable plastic ring. Regardless of the fact that PWI still has an inventory of the special steel material and the completed steel rings, yet PWI should approach the problem with a resolve in
terms of the qualitative factor of competition. The cost of the existing inventory will have to be matched with the opportunity cost of being eased out of the competition – that is, pitting the income from the substitute with the potential loss of the opportunity income due to a prompt entry into the plastics market. For PWI, the signs of change are showing: the presence of a cheaper and better substitute which should not be ignored totally. Hence, this needs to be seriously considered as a threat. The presence of alternatives as exemplified by Henri Poulenc should encourage PWI to explore this option.
2. In addition, a plan needs to be designed as to the pricing policy to follow for both the steel and the plastic rings. Answer: A plan for the pricing policy is similarly considered urgent to explore the opportunities of lower cost or such cost being at par with the competition, both for the steel and plastic rings. Any form of pricing policy will have to be dependent on the cost of production and operations of PWI. Opportunities for cost reductions through outsourcing, reengineering and redundancy layoffs should be seriously considered. Among the avenues that can be explored include outsourcing of the manufacturing of the steel and plastic rings, either with Henri Poulenc or with other equally cost-effective firms. A number of plastic or steel rings manufacturer may offer a cheaper cost structure for PWI. An additional strategy to a pricing policy for the steel and plastic ring is to reengineer the manufacturing operations for the rings to explore ways of reducing production cost to lower the selling price for the part. Part of this operations restructuring measure include: evaluation of the sources of raw materials as means of looking for cheaper suppliers. (Kaplan & Norton, 2004) Comparatively, indeed, the costs of raw
materials for both plastic and steel rings are too big to be ignored. PWI has to take the initiative to explore the use of alternatives like plastic which has been...