Eprecision Manufacturing Company Essay

In a recent staff meet, John Winkleman, president of ePrecision Manufacturing Company, address his managers with this problem Intense competitive pressure is beginning to erode our market sh atomic number 18 in handhelds. I necessitate documented 11 large orders that incur been lost to Beckman and Wiston within the past three months. On an annual basis this amounts to nearly 10,000 units and $1.5 trillion in lost opportunities. Within the last 18 months, at least 16 serious competitors have entered the market. Two thirds of these DMMs have pertinacity indicators. The trend is the same for European and Japanese markets as well. Our sales of handheld DMMs in fiscal year 20_1 is forecast to grow only 1.7 percent.According to Dataquest projections, the handheld DMM market leave grow 20.9 percent for the next five years. I gestate that figure is conservative. Our competitors are gaining attention and sales with added features, particularly at the present time with continuity ind icators. Since a new elrecision general-purpose, low-cost handheld is devil years from introduction, it is important that something be done to retain the profitable position of market leader in our traditional direct and distributor channels. Next meeting I want s?me ideas.The ePrecision Manufacturing Company is a major electronics manufacturer in the Northwest of USA, producing many varied products. The three products that most concern Mr. Winkleman are the series A handheld digital multi meters (DMMs). As an innovator in the field of handheld DMMS, Mr. Winkleman saw his business flourish over the last deuce years. But now, with his three most successful products in late stages of maturity and a recession in _ full swing, times are not smell as rosy. The three multimeters of concern are model numbers 1010, 1020, and 1030. These three models form a complementary family origin.The 1010 is a low-cost unit containing all hackneyed measurement functions and having a basic measureme nt accuracy of .5 percent. The 1020 offers identical measurement functions but has an improved basic measurement accuracy of .1 percent. The top of the line is the 1030. In addition to a basic accuracy of .1 percent, the 1030 offers several additional features, one being an audible continuity indicator. (See Exhibit 1 for sales and projected sales of these three models.) EXHIBIT 1 Selected sales and projections Model 1020 1010 1030 Total FY 20 0 actual 67,534 37,455 25,602 130,591 (number of units)What we need is a face-lift of our existing product line to hold us over the next two years. Changes in color, a new decal, some minor case modifications, and most important an audible continuity indicator in the 1010 and 1020 should give us two more years of product life to tide us over. We can call this Series B to retain continuity in switching from the old to the new. As my analysis guides, ePrecisions decline in 101011020 sales could be reversed and show a modest increase in market s hare over the next two years with the inclusion of the Series B features see Exhibit 2. Discussions with large-order customers indicate that ePrecision could have won 40-60 percent of the lost large orders that were mentioned at our last meeting if our entire handheld family featured audible continuity.As you well know, the popularity of continuity feature has been confirmed in several other studies conducted over the past two years. An estimate of sales of Series B has been generated from inputs from field sales, distribution managers, and discussions with customers. Conservative estimates indicate that sales of Series B will increase 6.9 percent above current Series A levels, with a marginal revenue increase of $1.5 million at Us. list, and assuming the same list prices as the current Series A models.* DollarsDuring this current period of tight economic conditions, the market is becoming more and more price sensitive. I am aware that our normal policy dictates multiplying the fa ctory cost by three for pricing purposes and that the added factory cost of an audible continuity indicator is $5.00,. but for income purposes we should not tack this on to the current prices. My analysis indicates that an increase of $5.00 would cringe incremental sales by 20 percent, and an increase of $10.00 would reduce incremental sales by 80 percent.JR1024EXHIBIT 3 Engineering Costs and Schedule The objectives for Series B, Models 1010, 1020, and 1030, are All case parts moulded in medium grey New decal for all units Pulse-stretched beeper for 1010 and 1020 Rubber foot on battery access Positionable bail Manuals updated as required For these objectives, NRE costs will be Manual (updated schematics for 1010, 1020, along with instructions for operation of beeper model number and front panel changes for all units) Battery door mould (add three units) Battery door foot die Decal Bail improvement Photo lab PCB fab (prototypes) Engineering labour (25 person-weeks) alike rem ember that we must pay for some nonrecurring engineering costs (NRE) see Exhibit 3. These must come out of our contribution margin-which at elrecision is calculated by taking the total dollar sales less the 28 percent discount to distributors less factory cost for those units. I believe that increasing these prices will reduce our margins significantly, hindering our ability to cover the NRE, let alone make a profit. Therefore I propose we go ahead with Series B and hold the line on prices. Dennis Cambelot, a longtime ePrecision employee, spoke up with a comment on Daves proposal Dave, I think this Series B idea shows a lot of potential, but pricewise you are way out of line.We have always added the standard markup to our products. We make quality products, and people are willing to pay for quality. The only thing your fancy MB.A. degree taught you was to be impractical. If you had gotten your experience in the trenches like me, your pricing theories would not be so conservative, an d this follow could make more money. At the close of the meeting, Mr. Winkleman asked that each manager consider the Series B proposal. He directed that this consideration include (1) whether or not to adopt the B series (2) if yes, at what price level (3) alternative suggestions.