Industrial Experimental Technologies, LLC
3199 Lapeer Rd.
Auburn Hills, MI 48326
P 248 371 8000
F 248 371 9088

Scenario 2

XYZ Company plans to manufacture a specific type of rifle magazine out of aluminum. The design is for an old rifle model that is no longer in production. It is believed there is currently 800,000-1,000,000 of these rifles around world, but it is uncertain. Since these rifles are no longer in production, there are no support manufacturers making aftermarket parts for them, more specifically – magazines.

 XYZ Company plans to manufacture a magazine to support this market. They already have an order for 2,000 units based on their SLA rapid prototype design. XYZ estimates they will sell approximately 20,000-30,000 units in the first 3 years of production, but are unsure. Here is their main list of concerns:

1)    XYZ is a small company and does not possess a huge R&D budget for this project

2)    It may be slow to achieve large sales volumes in beginning due to difficulty in marketing to end-consumers, establishing distribution channels and slow international exportation process.

3)    They are supposed to deliver the 2,000 units before the end of the year because this customer promised more orders will come if successful.

Soft tooling is the only route for XYZ Company. They seem to be uncertain about their expected unit demand, especially in the early stages. They do not have the funding to spend on hard dies up front with no guarantee that their product will take off. They would prefer to spend some of this funding on their marketing efforts. Representatives of XYZ are firm believers that this magazine has a huge untapped market but the uncertainty surrounding the timing of revenue generation leads to a potentially large payback period.