Reichard Maschinen Gmbh
Colin Drury, Management and Cost Accounting – Reichard Maschinen GmbH
Reichard Maschinen, GmbH
Professor John Shank, The Amos Tuck School of Business Administration Dartmouth College
This case is reprinted from Cases in Cost Management, Shank, J.K., 1996, South Western Publishing Company. The case was adapted by Professor John Shank, from an earlier case published by IMEDE (now IMD in Lausanne, Switzerland) and revised by Professor M. Edgar Barrett of the American International Graduate Business School. This case was originally set in Western Europe in 1974, just after the Arab oil shocks of 1972 and 1973. National borders were still very important business barriers. But, the concept of open trade borders (EC-1992) was beginning to grow. In June of 2000, Mr. Kurtz, managing director of the Grinding Machines Division (GMD) of Reichard Machines, was considering how he should handle a meeting that afternoon that would involve his sales manager, his controller, and his product engineering manager. The meeting concerned the introduction by a Belgian competitor, Bruggeman Grinders, SA, of plastic rings to take the place of steel rings which were a standard component in many grinding machines, including many of the machines made and sold by GMD. The new plastic rings, which had only been introduced in April, not only appeared to have a much longer life than the steel rings, but also apparently were much less expensive to manufacture. Mr. Kurtz' problem in responding to the new ring was complicated by the fact that he had 25,000 steel rings in inventory and 26 tons of special alloy steel purchased recently for the sole purpose of making more rings. He knew that this raw steel could not even be sold as scrap because of the special alloys in it. He had been required to buy a full year's supply in order to convince a steel mill to make the special product. Overall, he was holding about $93,000 worth of inventory related to steel rings (see Exhibit 1). For almost 100
Reichard Maschinen, GmbH
Professor John Shank, The Amos Tuck School of Business Administration Dartmouth College
This case is reprinted from Cases in Cost Management, Shank, J.K., 1996, South Western Publishing Company. The case was adapted by Professor John Shank, from an earlier case published by IMEDE (now IMD in Lausanne, Switzerland) and revised by Professor M. Edgar Barrett of the American International Graduate Business School. This case was originally set in Western Europe in 1974, just after the Arab oil shocks of 1972 and 1973. National borders were still very important business barriers. But, the concept of open trade borders (EC-1992) was beginning to grow. In June of 2000, Mr. Kurtz, managing director of the Grinding Machines Division (GMD) of Reichard Machines, was considering how he should handle a meeting that afternoon that would involve his sales manager, his controller, and his product engineering manager. The meeting concerned the introduction by a Belgian competitor, Bruggeman Grinders, SA, of plastic rings to take the place of steel rings which were a standard component in many grinding machines, including many of the machines made and sold by GMD. The new plastic rings, which had only been introduced in April, not only appeared to have a much longer life than the steel rings, but also apparently were much less expensive to manufacture. Mr. Kurtz' problem in responding to the new ring was complicated by the fact that he had 25,000 steel rings in inventory and 26 tons of special alloy steel purchased recently for the sole purpose of making more rings. He knew that this raw steel could not even be sold as scrap because of the special alloys in it. He had been required to buy a full year's supply in order to convince a steel mill to make the special product. Overall, he was holding about $93,000 worth of inventory related to steel rings (see Exhibit 1). For almost 100