Husky Injection Molding Systems Strategic Analysis

Running Head: HUSKY INJECTION MOLDING SYSTEMS
Husky Injection Molding Systems

Name of Student
Name of Course
Course Instructor
Date
“I did not consult any other student or person nor any research sources in preparing this exam
paper.”
This study source was downloaded by 100000838821534 from CourseHero.com on 02-15-2022 09:17:34 GMT -06:00
https://www.coursehero.com/file/72954964/Husky-Injection-Molding-Systemsdocx/
TABLE OF CONTENTS
Problem Diagnosis...........................................................................................................................2
Analysis...........................................................................................................................................2
Current Strategy of Husky...........................................................................................................2
Changes in Strategy.....................................................................................................................3
Reasonableness of Husky’s Price Premium.................................................................................4
Analysis of Alternative Options...................................................................................................5
Option 1: Broadening the Product Line...................................................................................6
Option 2: Cutting the Costs......................................................................................................6
Option 3: Changing the Sales Price of Existing Products (Major Move)................................6
Recommendations............................................................................................................................7
Husky Injection Molding Systems
Problem Diagnosis
Husky is the Canadian maker of the injection molding systems and it has established the
enviable position within the market for the plastic processing equipment. A hefty premium is
charged by the company for the performance plastics that are built by the company and these are
considered as the highest performance systems. Explosive profitability and growth had been
experienced by Husky in the early 1990s.
At the end of the year 1996, the company is enjoying record profits and robust growth
while, the competitors have started to attack the core markets of the company. The revenue for
the company had grown from $ 250 million to $ 600 million between 1992 to 1995. The
financial results for the company have started to deteriorate and the CEO and founder of Husky,
Robert Schad has to decide now about how the defend the position of Husky in its own
traditional markets and to also consider the option of expanding to the other markets.
Analysis
We begin our analysis by first discussing the current strategy employed by Husky.
Current Strategy of Husky
The management of Husky has targeted the Preform Niche market as a leading firm
within the plastic industry. Vertical integration has been perfected by the management of the
company by designing and assembling the machines and the molds however, they have always
relied on the outside vendors for building their products. The products produced by the company
are high quality and therefore, they charged premium prices. Husky has followed a
differentiation strategy and its strategy was designed around the core values of the company.
Some of the key strategies employed by the company include competing within the area
of reliability, technology, quality for charging the premium prices, focusing on the production
and the sales of the medium tonnage machines and specialization within the narrow sector of the
plastic industry that has been dedicated to the thin wall and PET preform applications. The
positioning of the company is such that customers consider its solutions as comprehensive and
complete and so they are willing to pay a premium price. Part of the strategy of Husky is also to
provide environmentally friendly products along with enhancing the product reliability and
credibility of their services.
The offering of the high quality integrated solutions for molding and machine making
equipment both has provided Husky with a competitive advantage over the other competitors in
the market as each of the operations are usually carried out by different companies. The above
reasons are the factors due to which Husky has been growing faster as compared to its
competitors. The company has always focused on selling premium quality products at premium
prices within a niche market and it has fully capitalized its technological base for producing the
PET systems and become the forerunner within this niche market.
Changes in Strategy
By the start of the year 1996, Husky has begun to face a number of internal and external
strategic issues. The external issues or challenges are related to the increased competition arising
from the new entrants and existing firms within the market. Comparable companies such as
Mannesmann have started to produce the same quality products and they have started to sell
them for cheaper prices. As a result, the bargaining power of the customers has increased and the
injection molding machines were now being considered as a commodity.
Another challenge that requires a change in the strategy is that the shortage of the resin
which is needed for producing PET resins has damaged the processor sector of the industry quite
severely. This is more severe for Husky as its major profitability is driven by production
accounts of PET. The prices of the resins have also increased as a result of the shortage; thus the
profits of Husky had started to deteriorate. Other internal factors also caused troubles for the
company. These included the narrow range of the products of the company as 70% revenues
were generated only from PET systems. There is no growth strategy that is embedded in their
culture, the production volume is low and the one step processing model is becoming more
popular while Husky makes use of two step injection molding model.
Lastly, the makers of the PET resin had added too little capacity for the PET resins
because they had estimated the demand to be too low and by a much wider margin. However,
now the prices of the resins have soared. In some of the cases, the processors were not able to
obtain the resins. The expansions were as a result halted by the processors and they are now
expanding the capacity. By the end of 1996, it was clear with the management team of Husky,
that a change in the strategy needed to be done and some of them proposed for dropping the cost
per unit by around 10% to 20% with the help of the cost savings. The sales personnel also
recommended this however, the manufacturing personnel did not support this option.
Reasonableness of Husky’s Price Premium
If we want to analyze the price of the PET preform systems and determine the
reasonableness of the hefty and the premium price charged by the management of the company,
then we need to conduct the numerical analysis for determining the price of the indifference
based on the efficiency premium multiplier for Husky and its competitor company. We have
performed the numerical analysis in the excel spreadsheet. The data for the product in each cycle,
cycle times and the production per second has been taken from the case from exhibit 6 in the
case. The quantitative analysis for determining the reasonableness of the premium price of PET
preform systems is shown in the table below:
ANALYSIS OF PREMIUM PRICING

Husky Competitors
Production per each Cycle 48 48
Total Cycle Time in Sec 10.4 11.8
Production per each second 4.615 4.068
Total Annual Production 145550769.231 128282033.898
Premium Multiplier for Efficiency 1.13 1.00
Weight of Final Product in Grams 24.39 24.42
Cost per each container at $ 0.70 per Kg 0.017073 0.017094
Input Utilization Premium Multiplier 1.001 1.000
Pricing of the Machine $ 1,200,000 $ 1,000,000
Difference in the Prices $ 200,000
Price of the Indifference $ 1,361,538
If we look at the numerical analysis in the table above, then we can see that the actual
price of the indifference between Husky and its major competitors based on the efficiency
premium multiplier is $ 1.361 million whereas, the premium price charged by Husky for its
preform systems for operations that produce in excess of 400 million preforms per year is $ 1.2
million. Therefore, there is still a room of $ 0.161 million between the price of the indifference
and the price that is charged by the company. This provides us with enough quantitative evidence
for the reasonable of the premium price of the company.
On the other hand, in qualitative terms, the premium of $ 200k is justified because the
company yields savings of around $ 11.1 million from electricity savings, resin reduction and
also the savings from the space. The savings of the company are also expected to grow over the
future years. Therefore, we can conclude that the 20% price premium for the PET equipment
produced by Husky is justified and reasonable. However, still the impact on the market share
projections and the sensitivity of the customers need to be evaluated for a price decrease for the
company.
Analysis of Alternative Options
There are three key alternative options for the company that seem to be reasonable at this
point of time. The analysis for each option is performed as follows:
Option 1: Broadening the Product Line
The first option for the company is to broaden its product line and diversity the products
of the company. This is because, the current range of the products is highly narrow for Husky
and the company has been generating 70% of its revenues from the PET systems. Only 10% of
the market for the medium tonnage machines is focused by the company. Since, the company
does not have any developed growth strategy therefore, relying on only one product category for
surviving in the plastic industry is not a good move and therefore, the company can have
generated huge losses and face surprises as a result of the resin shortage and not exercising the
economies of scale. Therefore, Husky should expand its product range and diversify the business
by concentrating on robotics and hot runner business.
Option 2: Cutting the Costs
A low cost product range should be developed by the company so that the overall costs of
the company are reduced. Standalone systems should be offered such as the robotics and the hot
runner systems so that the sales force of the company can leverage their expertise and the costs
are cut. The overall savings of the company of around $ 11.1 million from electricity savings,
resin reduction and also the savings from the space should be capitalized. Since, these savings
are expected to grow undoubtedly therefore, costs should be cut now by introducing more
sophisticated machines and hiring expert personnel for capitalizing over economies of scale to
reduce costs.
Option 3: Changing the Sales Price of Existing Products (Major Move)
Finally, the last option for the company is to chance the sales price that is reduce the sales
price of the existing products such as the PET systems and match the prices of the competitor
products or even lower the prices. This would increase the demand for the products. New blood
should be then instilled within the sales force of the company to propose value for money when
selling the PET systems to the large operations. Another way is to increase the price of the PET
systems to the price of indifference so that the differentiator status is eliminated. This would
increase the profits overall however; it would impact upon the market share as the demand would
decrease.
Recommendations
Based upon the analysis of the alternative options, the current strategy and the need for a
new strategy for Husky, the recommended option for Robert Schad is to broaden the product
range and diversify the products that are made by the company. This would reduce the
dependence of Husky on PET systems only and decrease the risks of huge losses in the market.
Husky should expand its product range and diversify the business by concentrating on robotics
and hot runner business. Since, the prices for the robots ranged from $ 60,000 to $ 250,000, the
company would be able to find a mass market for this product category. Along with this, other
recommendations for Husky to remain competitive and grow in future is that they should start
developing single stage machines to grab smaller clients and the sales force should be trained for
performing technical assistance.
Powered by TCPDF (www.tcpdf.org)

Husky Injection Molding Systems Strategic Analysis

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Husky Injection Molding Systems Strategic Analysis

Uploaded by

Copyright:

Available Formats

Running Head: HUSKY INJECTION MOLDING SYSTEMS

Husky Injection Molding Systems

Current Strategy of Husky...........................................................................................................2

Reasonableness of Husky’s Price Premium.................................................................................4

Analysis of Alternative Options...................................................................................................5

Option 1: Broadening the Product Line...................................................................................6

Option 2: Cutting the Costs......................................................................................................6

Option 3: Changing the Sales Price of Existing Products (Major Move)................................6

Current Strategy of Husky

Reasonableness of Husky’s Price Premium

ANALYSIS OF PREMIUM PRICING

Analysis of Alternative Options

Option 1: Broadening the Product Line

Option 2: Cutting the Costs

Option 3: Changing the Sales Price of Existing Products (Major Move)

You might also like