The Best Action Hans Should Take?

The best action Hans should take?

In this situation, I would focus on the accounts receivable and the relationship built with the consumers in each market. It is obvious indication for the demand of plastic rings and the case indicates a history between the producer and the consumer.  That is what is at risk.

Obviously, majority of the customers have steel rings and will want the plastic ones since they are significantly cheaper and better. The demand is there and Hans should meet the demands, transition immediately and shutdown steel completely.

The steel material and surplus is sunk cost. The cost per unit for plastic rings is 2.79, whereas the cost per steel rings is 11.07, manufacturing anymore steel rings would be a waste of money since it could cost no less than $381,915.00 to expend all the material on top of material. It would be less expensive and more advantageous to transition since it would only cost and additional $7,500.00. Any already completed steel rings need to drastically reduced and sold in bulk (to reduce shipping cost, packaging etc.)

The only disadvantage of discontinuing steel rings is the opportunity cost (revenue) that will be lost if PWI stop distributing steel rings to focus on plastic rings. Another alternative would be to increase overhead in an effort to produce the current steel inventory and allocate some of the overhead to focus on producing plastic rings. Although there is a “buzz” for plastic rings, consumers are still purchasing steel rings, which is why Henk opposes selling steel and plastic rings in different markets.  PWI can produce the remaining steel ring inventory and capitalize on the plastic ring market as well. PWI will be receiving profit from selling the remainder of the steel rings and the profit can be used to market and produce plastic rings, which is less expensive than the cost to produce steel rings. While the remaining steel ring inventory is coming in, PWI can use the profit to produce plastic rings and focus on a marketing strategy that will make them a competitor in the industry.  

One of the key aspects that Precision Worldwide has going for itself, is the fact that it has been providing its products for 90 years.  With such an expansive timeframe, customer loyalty gets built along the way.  This detail could be very important if PWI strives to maintain its presumably high-ranked position in the production of specialized equipment and parts.  Of the various plans mentioned by their team, it is probably in their best interest to sell the plastic rings as soon as possible; and not prohibit the sales to just certain markets.  Although it is expected that no other competitor, beside Henri Poulenc, will produce the plastics rings for some time; there is no guarantee.  Other parts suppliers will get wind of this money-making opportunity, and begin to enter the plastic ring business.  PWI should do all it can to take advantage of their early development while possible.  Eventually, a long-run equilibrium will be reached, and they will no longer garner a major chunk of that specific industry.