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Caroline Zhou Dr. Craig Kauffman ACTG 360 16 August 2017 Case Study Background Precision Worldwide, Inc. (PWI) manufactures and sell steel rings, which has an average normal life of about 2 months, in numerous countries. The competitor Henri Poulenc is going to sell plastic ring substitute for the steel ring. The plastic ring is cheaper and has a longer life. However, PWI has inventories about $390,000. So Hans Thorborg should decide how to deal with the inventories and if manufactory and sell the new plastic ring. Alternatives From my perspective, five possible alternatives could be considered: 1) Only sell steel rings and do not manufactory and sell plastic rings. From table 1, we can know the profit for selling 100 steel rings is $242.1 while the profit selling 100 plastic rings is $1070.35. Selling plastic rings is way more profitable. If PWI only sells the steel ring and its competitor sells the plastic rings, PWI will lose their customers after they discover that the plastic ring is better. 2) Sell steel rings only until plastic rings are ready to sell. And then, only sell plastic rings and scrap all left steel rings and raw materials for steel rings. From the table 2, the manufacturing cost of a plastic ring ($1.36) is lower than a steel ring ($6.76) and from the table 1selling plastic rings is more profitable. Two problems with this alternative. First, the remaining steel rings will be wasted after selling plastic rings only. Another problem is that there may be demand for steel rings even the plastic ring come out. If PWI only sell plastic rings after September, it may lose some customers. 3) Sell only steel rings until plastic rings are ready for the market. And then, sell the plastic rings where competitors sell them, and in other markets manufacture and sell the steel rings first until inventories gone then start to sell plastic rings. No waste in this alternative. However, in the markets where competitors sell plastic rings, if the PWI no longer provides steel rings it may lose some customers who have demand for steel rings. In other markets, if PWI only sell steel rings until all gone, customers may find out that there are cheaper and longer life substitutes for steel rings; they may but plastic rings from PWI or its competitors. Under this circumstance, PWI may not get rid of its inventories and lose sales. 4) Sell steel rings only until plastic rings are ready to sell. And then, sell both steel rings and plastic rings, but manufacture and sell steel rings at a reduced price until inventories run out. Then, sell plastic rings only. Refer to table 3, the unit cost of the steel ring ($3.54) is not so high especially when manufacture the steel rings during slack periods ($2.48). This is a good way to get rid of inventories and still earn a small profit from inventories. 5) Sell steel rings only until plastic rings are ready to sell. And then, sell both steel rings and plastic rings, but manufacture and sell a small amount of steel rings. Refer to table 6, the profit of steel rings ($87.12) is high because of their shorter life and higher price. Selling steel rings is still profitable even less profitable than plastic rings. Conclusion After PWI start to sell plastic ring, it should do a survey about the demand of the steel rings.