In January 2003, Michael Pogonowski, the chief financial officer of Aurora Textile Company, was questioning whether...
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In January 2003, Michael Pogonowski, the chief financial officer of Aurora Textile Company, was questioning whether the company should install a new ring-spinning machine, the Zinser' 351, in the Hunter production facility. A primary advantage of the new ring spinner was its ability to produce a finer-quality yarn that would be used for higher-quality and higher-margin products. The finer-quality yarn would be sold in a niche market that would command a 10% increase in the selling price of yarn, which was currently $1.0235 a pound. In addition, the Zinser would provide increased efficiency as well as greater reliability, which Aurora's operations management had been requesting for many years. The Zinser's efficiency would reduce operating costs, with lower power consumption and maintenance expenses. Sales volume, however, would be 5% lower than the current market, and the cost of customer returns would be higher, which, when combined with the $8.25 million installed cost, made the Zinser decision a difficult one. Pogonowski believed that the decision to invest in the new technology was complicated by Aurora's lackluster financial performance as well as the difficult circumstances facing the U.S. textile industry. Aurora, however, was competing in a few select markets that were likely to continue to survive foreign competition, albeit at lower margins over the long run. He also recognized that there was unlikely to be a better time to upgrade to the Zinser as its price had been increas- ing 5% annually. Not every member of the management team, however, agreed with Pogonowski's logic. Some managers were arguing that it would be cheaper to continue with the current maintenance schedule, which should keep the current In January 2003, Michael Pogonowski, the chief financial officer of Aurora Textile Company, was questioning whether the company should install a new ring-spinning machine, the Zinser' 351, in the Hunter production facility. A primary advantage of the new ring spinner was its ability to produce a finer-quality yarn that would be used for higher-quality and higher-margin products. The finer-quality yarn would be sold in a niche market that would command a 10% increase in the selling price of yarn, which was currently $1.0235 a pound. In addition, the Zinser would provide increased efficiency as well as greater reliability, which Aurora's operations management had been requesting for many years. The Zinser's efficiency would reduce operating costs, with lower power consumption and maintenance expenses. Sales volume, however, would be 5% lower than the current market, and the cost of customer returns would be higher, which, when combined with the $8.25 million installed cost, made the Zinser decision a difficult one. Pogonowski believed that the decision to invest in the new technology was complicated by Aurora's lackluster financial performance as well as the difficult circumstances facing the U.S. textile industry. Aurora, however, was competing in a few select markets that were likely to continue to survive foreign competition, albeit at lower margins over the long run. He also recognized that there was unlikely to be a better time to upgrade to the Zinser as its price had been increas- ing 5% annually. Not every member of the management team, however, agreed with Pogonowski's logic. Some managers were arguing that it would be cheaper to continue with the current maintenance schedule, which should keep the current
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