SEMESTER MAC-JULY 2013
CASE STUDY: SHORT TERM DECISION MAKING
Ricoh Machine Sdn Bhd (RMSB) is a sole producer of steel rings which were standard components in many grinding machine in ASEAN countries. In early January 2013, Singaporean competitor, GrinderPte Ltd introduced a plastic rings to take the place of steel rings. Mr. Sayed, a managing director of RMSB was considering handling a meeting on 151h January 2013 that would involve his sales manager, controller, and product engineering manager to discuss this matter. The outcomes of the meeting are as follows:
* According to product engineer manager, the new plastic rings, which had only been introduced not only appeared to have a much longer life than the steel rings but also apparently much less expensive to manufacture. RMSB's problem in responding to the new ring was complicated by the fact that the company had 25,000 steel rings in inventory and 3 tons of special alloy steel purchased recently for the purpose of making more rings. Mr. Sayed knew that this raw steel could not even be sold as scrap because of the special alloys in it. RMSB had been required to buy a full year's supply in order to convince a steel mill to make the special product. Overall, RMSB was holding approximately RM96,000 worth of inventory related to steel rings. The figures as presented in Table 1 below: Table 1: Total inventory as at 15th January 2013
Finished Ring Inventory
Raw Steel Inventory
* Replacement parts in aggregate accounted for more than half of RMSB's turnover. As is common for industrial machinery, margins on machine sales are often reduced in anticipation of higher margins on replacement parts over the life of the machine. This creates an opportunity for price discounting by parts suppliers on those replacement parts which are interchangeable across models and across manufacturers. The steel rings were one of the...
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