Orion Controls Case
Orion Controls Case
Executive Summary
Faced with the challenge of continuing to remain the leader in industrial valve systems, Orion Controls is required to decide whether or not to carry out product improvement redesigns. A successful redesign will secure the company an initial level of sales of 50 or 90 units to two new customers followed by the benefits of enjoying an innovator’s reputation.
An expected profit of $262,900 resulting from a product redesign given the information available with Orion and current commitments, the company is advised to carry out the redesign and sell to Avion Chemicals and Kemikal. Orion can make a profit of up to $655,000 if successful in achieving dramatic changes in its existing model SV44A-10 given successful software upgrade adopting the short-cut approach. With hitches through the software upgrade and product redesign, Orion might achieve lower profits or even incur losses, the worst scenario being a loss to the tune of $440,000 should the software update as well as product redesign both fail.
There is a 72% chance that Orion will make a profit; however, a 28% chance it will incur losses. The benefits clearly outweigh the losses, making this a favorable project for the company. Another advantage is that the company might be able to recover all of its redesign expenses thereby making upcoming production and sales more profitable in the future. The premium of being the innovating company is high.
Companies must invest in Research & Development. Orion is a $600 million company and a R&D cost of $440,000 (the maximum cost to produce the valve) is a relatively minor cost.
Body
This report presents profitability possibilities, risks and detailed analyses to assist Orion Controls to decide whether or not it should invest in improving its existing smart valve systems SV44A-10. Orion has contracted with Avion to redesign its current valve system whereby Avion will purchase 50 units of the redesigned valve
Executive Summary
Faced with the challenge of continuing to remain the leader in industrial valve systems, Orion Controls is required to decide whether or not to carry out product improvement redesigns. A successful redesign will secure the company an initial level of sales of 50 or 90 units to two new customers followed by the benefits of enjoying an innovator’s reputation.
An expected profit of $262,900 resulting from a product redesign given the information available with Orion and current commitments, the company is advised to carry out the redesign and sell to Avion Chemicals and Kemikal. Orion can make a profit of up to $655,000 if successful in achieving dramatic changes in its existing model SV44A-10 given successful software upgrade adopting the short-cut approach. With hitches through the software upgrade and product redesign, Orion might achieve lower profits or even incur losses, the worst scenario being a loss to the tune of $440,000 should the software update as well as product redesign both fail.
There is a 72% chance that Orion will make a profit; however, a 28% chance it will incur losses. The benefits clearly outweigh the losses, making this a favorable project for the company. Another advantage is that the company might be able to recover all of its redesign expenses thereby making upcoming production and sales more profitable in the future. The premium of being the innovating company is high.
Companies must invest in Research & Development. Orion is a $600 million company and a R&D cost of $440,000 (the maximum cost to produce the valve) is a relatively minor cost.
Body
This report presents profitability possibilities, risks and detailed analyses to assist Orion Controls to decide whether or not it should invest in improving its existing smart valve systems SV44A-10. Orion has contracted with Avion to redesign its current valve system whereby Avion will purchase 50 units of the redesigned valve