Dominion Motors & Controls, Ltd

By Saloni Kapil (PGP 15300)

Major Issues:
Change in Power Companies Policies
- Shift in schedule of power rates from flat
rate to a graduated schedule based on hp
- Stop overmotoring and improve power
factors

Hamiltons
Test
Result
Impending
Announcement
- Maximum starting torque identified as
most important criteria
- Implies that DMC will become 3 rd rank
supplier

Analysis of Alternatives:
Alternative 1 - Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor
Total Cost = $907.80
Selling Price = $1200
Sales & Transportation Cost = $120.00
Profit Margin = $172.20
(Reduced by ~68%)
Pros
Cons
- Torque is higher than other 7.5-hp motors
- Margins per unit take a bad hit
- Companies care less about energy savings in - Overmotoring penalties remain a threat
- Monthly base charge of power higher
short run
- Not a long term solution
- Sales volume likely to increase due to
competitve price
- No additional investment or implementation
lag time
Alternative 2 Reengineer DMCs 7.5-hp motor to make its starting torque at least
that of Spartan
Type Mfg Cost (No overheads)
Sales & Transportation Cost
Sellling Price Profit Margin
A
$790
$120
$1200
$290
B
$867
$120
$1200
$213
Pros
Cons
- Product can now compete on torque (105 lb-ft)
- NEMA standards not met, may have low
- No additional investment required
acceptance
- Relatively more long term
- 3 months to roll-out
- Risk a torque-war; may not be sustainable
Alternative 3 Start producing definite-purpose motor (5-hp motor with starting
torque of 10-hp unit)
Total Manufacturing Cost (no overheads) = $665
(i) Selling Price = $1045
Sales & Transportation Cost = $104.50
Profit Margin = $275.5
(ii) Selling Price = $1200
Sales & Transportation Cost = $120
Profit Margin = $415
Break-even point: ~180 units (at selling price of $1200)
Pros
Cons
- Profit margins highest, even after overhead
- 4-5 months before production can begin
costs
- Initial investment of $75,000 required
- Market share likely to increase to ~60%
- Current customer trend is to purchase
- Confers more customer-centric product general-purpose motors
sustainable tactical advantage over
competitors

Alternative 4 Discuss with Bridges about undue emphasis on maximum starting

torque
Bridges is proud of his result and is unlikely to change stance. It may not even be
ethical to approach Hamilton regarding such a discussion, and in fact may hamper
our current business with them.
Recommendations:
Long term In the next 4-5 months, work on developing alternative 3s offering.
They provide the best profit margins and have potential to increase the market
share up to 60%. Higher margins may also allow us to spend some resources in
advertising as well, which may improve our sales.

Short term Go ahead with alternative 1, as the next few months (April
September) is the peak season and our offering will allow us to retain business.
Although the per unit margins are lower, the sales volume is expected to
increase.