Husky Injection Molding Systems

Using the data from the case and completing the comparison form (Exhibit 1), the differential willingness to pay is $0.74 / 1K performs in savings for $200K pre tax expense or $43.7K after tax expense per year for $0.74 / 1K performs in savings. The savings are a result of the husky machine being more efficient in floor space usage, electricity usage, resin usage, and capital expense/output.

In analyzing the spreadsheet, one issue arose; it was evident that the cost savings using the Husky machines were output based. The spreadsheet assumes each machine is used at its capacity for the year. This is not a bad assumption, since the operators would want to use the machines to their capability, but in order for the user to save the $0.74/1K output, they would have to utilize the husky machine to its fullest. This raised some questions as to weather or not the machine was really more efficient and if it was, where would manufacturers benefit from owning a Husky over a Nestal. Also it appeared that the savings was on a sliding scale, maximizing at $0.74

Since the husky machine could produce ~135M units/year and the Nestal machine can only produce ~101M units/year, it is obvious that the Husky machine has an advantage relative to capacity. But if you limit the output to equal the Nestal machine (exhibit 2), the Husky machine is at a cost disadvantage. In fact, you would have to produce ~110.75M units in order to equal the cost of the Nestal machine (Exhibit 3). If the manufacturer wanted to limit production to ~101M units, they would demand the cheaper of the 2 models, the Nestal. However, producing 1 more unit would be impossible with the Nestal machine. If that output is desired, they would have to spend another $1M for the additional Nestal machine, bringing their total machine expenses to $2M, or simply purchase a Husky for $1.2M. So it became obvious that the Husky machine only presented a cost advantage if annual production was to be between ~101M and ~136M - per machine. Though there was no preform production data in the case, we assumed the manufactures that would fit in this window would be rather small.

Assuming the managers of the preform manufacturing plants are rational individuals, with fiduciary relationships to their firms, and a very small number of them produce only 101M - 136M/machine, there would have to be some other reason for purchasing the Husky machines. This would tend to imply that the market for injection molding systems is vertically differentiated. If they were horizontally differentiated, Husky could not have maintained a higher price relative to its competitors and sold any units. The case touched on this, but I think the analysis showed clearer the quality of the husky machines. At all output points, the Husky machines will produce using less resin and electricity. This may be especially important