Corwin Corporation – Million Dollar Corporation Essay Example

Manufact. R;D Dr. Reddy
Engnrng Support Dick Potts Dan West
These stringent requirements resulted in Corwin Corporation having to reject over 90 percent of all specialty-product inquiries. While manufacturing occasionally had differing opinions, Corwin Corporation was primarily driven by marketing. Most decision-making fell under the responsibility of the marketing department, except for product pricing and estimating, which required input from both manufacturing and marketing. Engineering primarily served as a support group for both marketing and manufacturing.

During the R;D phase of development, project managers from the marketing department would always be involved with specialty products. The company's approach was that if a specialty product had the potential to become a full product line, a product line manager would be assigned from the beginning. In 1980, Corwin accepted a specialty-product assignment from Peters Company because there was potential for additional work. From 1981 to 1983, profitable follow-on contracts were received, and despite Peters' reputation for being a difficult customer, a good working relationship developed.

On December 7, 1982, Gene Frimel, the vice president of marketing at Corwin, was contacted by Dr. Frank Delia, the marketing vice president at Peters Company. Delia informed Frimel about a peculiar issue they were facing regarding their R&D group having $250,000 dedicated to researching and developing a new rubber product material. However, they lacked the necessary personnel and expertise to take on the project internally. Therefore, they wanted to outsource the work to Frimel's company. Delia mentioned that their testing and R;D facilities were already overwhelmed with other tasks.

Gene Frimel expresses his hesitation to engage in research and development (R) work, stating that their company is not a research group. He

also mentions that they have previously done such work for Frank. Additionally, he believes that selling the idea of undertaking R work to their management would be difficult. Instead, he suggests letting another company perform the R work and then taking over on the production end.

Delia explains the company's position, stating that they have had negative experiences in the past. She mentions that projects like this often result in multiple patents, and the R&D company typically demands royalties or first refusal for manufacturing rights in their contracts.

Frimel acknowledges the problem but states that it is beyond their capabilities.

This project has the potential to disrupt certain parts of our organization as we are already operating with limited resources in our engineering department. Delia expresses her confidence in Gene's manufacturing capabilities and offers a five-year production contract if the product can be developed, which would greatly benefit him. Intrigued, Frimel requests more information, to which Delia responds by providing a rough set of performance specifications that they hope to achieve.

Some trade-offs are possible," Frimel said. Delia asked, "When can you get the specification sheet to me?". Frimel replied, "You'll have it tomorrow morning. I'll ship it overnight express.". Frimel then added, "I'll have my people look at it, but we won't be able to get you an answer until after the first of the year. Our plant is closed down for the last two weeks in December, and most of our people have already left for extended vacations.". Delia responded, "That's not acceptable! My management wants a signed, sealed, and delivered contract by the end of this month."

If corporate does not receive

a response within 48 hours, they will reduce our budget by $250,000, assuming we have taken on more than we can handle. I need your answer within this timeframe so that I can look for another source. "Frimel: "You know Frank, today is December 7, Pearl Harbor Day. It feels like something terrible is about to happen. " Delia: "Don't worry, Gene! I won't surprise you with any negative news. Just remember, we only have $250,000 available and the contract must be a firm-fixed-price effort.

We expect a six-month project, with $125,000 paid upon contract signing and the remaining amount to be paid upon project termination. Frimel expressed concern but mentioned that he would discuss the matter with his team. He assured that a decision to proceed or not will be communicated within 48 hours. Frimel mentioned his upcoming Caribbean cruise with his wife and informed that one of his team members will contact the other party regarding this issue. However, Gene Frimel faced a problem as all bid and no-bid decisions were normally made by a committee consisting of the president and the three vice presidents. Since the president and the vice president for manufacturing were on vacation, Frimel had a meeting with Dr. Royce, the vice president of engineering, to discuss the situation.

Royce expresses his support for projects that help the intellectual growth of their technical people, but laments that his vote lacks significance. Frimel acknowledges the appeal of the project in terms of profitability and customer relations, but raises concerns about the potential risk and its impact on their working relationship with Peters Company. Royce indicates that he would like

to evaluate the risks by examining the specification sheets before making a decision. Frimel plans to contact their president for further discussion.

Frimel managed to contact the president in the late afternoon and received reluctant permission to proceed. The challenge was now to create a proposal in the next two or three days and be ready for an oral presentation to the Peters Company. Frimel said, "The Boss approved it, Royce, and now it's up to you. I'm going on vacation, so you have complete responsibility for the proposal and presentation. Delia wants the presentation by this weekend. You should have the specification sheets from him tomorrow morning." Royce replied, "Our R&D director, Dr. Reddy, left for vacation this morning."

I desire his presence to help me calculate the cost of the work and choose the project manager. I presume that, in this situation, the project manager will be chosen from the engineering department rather than marketing. Frimel responds, saying "Yes, I agree. Marketing should play no part in this endeavor. It is entirely your responsibility. And as for the pricing, we will bid $250,000. Just justify the numbers backwards. I will assign one of our contracting personnel to assist you with pricing. I hope I can find someone experienced in this type of work. I will inform Delia that we will bid it with an unsolicited proposal".

Royce selected Dan West, one of the R&D scientists, as the project leader despite concerns about the absence of R&D director Dr. Reddy. With Reddy on vacation, Royce had to make a quick decision. The next morning, the specification sheets arrived and Royce, West, and Dick Potts,

a contracts man, collaborated on preparing the proposal. West handled the direct labor man-hours, Royce provided costing data and pricing rates, and Potts offered legal advice as an observer unfamiliar with this type of effort.

Potts gave Royce full decision-making power, despite the fact that the contracts man was considered the president's official representative. The completion of the proposal took two days, resulting in a ten-page letter that included cost summaries (refer to Exhibit II) and the engineering intent. West estimated that 30 tests would be necessary, but only the test conditions for the first five tests were described in the test matrix. The remaining 25 test conditions would be determined at a later date, with input from both Peters and Corwin personnel. On Sunday morning, a meeting took place at Peters Company, where the proposal was accepted.

Delia issued a letter to Royce, granting permission for Corwin Corporation to commence immediate work on the project. The final contract is expected for signing in late January. The letter of intent confirms that Peters Company will bear all costs until the contract is signed or the project is terminated.

Exhibit II details the cost breakdown of the proposal:

• Direct labor and support: $30,000
• Testing (30 tests at $2,000 each): $60,000
• Overheat at 100%: $90,000
• Materials: $30,000
• G;A (general and admin, 10%): $21,000

The total profit sums up to $19,000, making the overall total cost $250,000.

West was highly thrilled about being chosen as the project manager and having the opportunity to interact with the customer, which was normally reserved for the marketing personnel. Despite Corwin Corporation being closed during the Christmas break, West decided to go to the office in

order to prepare the project schedules and determine the support required in other areas. He believed that if he presented this information to management on the first day back to work, they would be convinced that he had everything under control. On the initial working day in January 1983, a meeting was held with the three vice presidents and Dr. Reddy to discuss the necessary support for the project. (West did not attend this meeting, although all participants had a copy of his memo).

According to Reddy, accepting this project could lead to trouble. Reddy has previously worked with Peters Company on R;D efforts and finds them difficult to work with. Although West is a good man, Reddy does not believe he is the right choice for the project leader as his expertise lies in managing internal projects rather than external ones.

No matter the circumstances, I will provide my utmost support to West. Royce states that my outlook is too negative, and assures me that there are competent individuals in our group who will be able to assist West when needed. Royce promises to monitor the project intermittently, and emphasizes that West will still be under my supervision for this specific project. I am encouraged to avoid overwhelming West with additional tasks, as this project holds great importance for the company. Upon returning from vacation, West dedicates his initial days to seeking support from other line groups. Many of these groups express frustration at being notified late and are uncertain about how they can contribute.

Dan and Reddy had a meeting to discuss the final schedules. Reddy expressed confidence in Dan's grasp of the

problem and mentioned that he would not be heavily involved in the project, as he had other tasks to focus on. He requested that Dan provide periodic updates on the project's progress by sending informal notes, preferably a paragraph or two. By the end of the third week, all necessary raw materials had been purchased, and initial formulations and testing were prepared for commencement.

Furthermore, the contract was prepared for signing, with a clause stating that Peters Company had the privilege to send an internal representative to Corwin Corporation during the project period. Peters Company notified Corwin that Patrick Ray would be the designated representative, reporting to Delia, and would commence his duties around February 15. When Pat Ray arrived at Corwin Corporation, West had already finished the initial three tests. The outcomes differed from expectations, but showed potential that Corwin was making progress.

Regarding the interpretation of the tests, Pat Ray held a completely opposite viewpoint compared to West. According to Ray, Corwin was significantly mistaken and suggested that redirection was necessary. Ray emphasized the urgency of the task, stating that they only had six months and could not afford to waste time on data that was only marginally acceptable. In light of this, Ray proposed a set of five additional tests that should be conducted. In response, West expressed willingness to review Ray's request with his team, which would require a couple of days. Meanwhile, West planned to proceed with the other two tests as originally scheduled. It is worth noting that Ray's arrogant attitude displeased West.

Despite the unexpected working relationship with the in-house representative, West decided to prioritize the project's importance

and accommodate Ray as best as possible. West discussed the test data and new test matrix with engineering personnel, who felt that the current test data was inconclusive and preferred to wait for the results of the fourth and fifth tests before forming an opinion. Although Ray was not pleased with this decision, he agreed to wait a few more days in order to ensure that Corwin Corporation was heading in the right direction.

The fourth and fifth tests seemed somewhat acceptable, similar to the first three. The data was analyzed by Corwin's engineering team who provided their recommendations. West expressed, "Pat, my team believes we are heading in the right direction and that our approach holds more potential than your test matrix." Ray responded, "Since we are funding the project, we should have a say in the tests conducted. Our agreement stated that we would collaborate on developing the remaining test conditions. Let's proceed with my test matrix."

After conducting the first five tests, I informed my boss that they were unsuccessful and we need to change the project's direction. In response, West revealed that they had already spent $30,000 on raw materials. However, the matrix I proposed requires different materials, which would result in an additional expense of $12,000. Ray argued that West should not have purchased all the raw materials before reaching an agreement on the complete test matrix. Throughout February, under Ray's supervision, West conducted 15 tests. Unfortunately, these tests were conducted across a broad range and did not yield any valid conclusions.

Ray continued providing reports to Delia, confirming that Corwin was not yielding positive outcomes and that there were

no signs of improvement. In response, Delia instructed Ray to take any necessary actions to ensure the successful completion of the project. As they had done for the previous 45 days, Ray and West convened to discuss the project's progress and future course. Ray expressed his concerns to West regarding the intense pressure he was facing from his boss to deliver results. With his promotion due in a few months, Ray was determined not to let this project impede his advancement.

It is time to completely redirect the project. "West: "Your redirection of the activities is causing chaos with my scheduling. I have people in other departments who are unable to commit to this constant rescheduling. They blame me for not communicating with them when, in reality, I am embarrassed to do so." Exhibit III. Projected cost summary at the end of the third month Original Proposal Cost Summary for Six-Month Project Direct Labor/support Testing (30 tests/35 tests) Overhead (100%/120%) Materials G;A (10%) Totals $30,000 60,000 90,000 30,000 21,000 $231,000.

Total Project Costs Projected at End of Third Month $15,000 70,000 92,000 50,000 22,700 $249,700
Total engineering overhead was estimated at 100%, whereas in R;D overhead was 120%
Ray: "Everybody has their problems. We'll get this problem solved. I spent this morning working with some of your lab people in designing the next 15 tests. Here are the test conditions. "
West: "I certainly would have liked to be involved with this. After all, I thought I was the project manager. Shouldn't I have been at the meeting? "
Ray: "Look, Dan! I really like you, but I'm not sure that you can handle this project.

We need immediate

good results to avoid putting my neck on the line for the next four months. I don't want that. Just instruct your lab personnel to start on these tests, and we will be fine. Additionally, I am planning on spending a considerable amount of time in your lab area. I want to personally observe the testing and converse with your lab personnel. " West: "We have already conducted 20 tests, and you are scheduling another 15 tests. The proposal only budgeted for 30 tests. We are heading towards a cost overrun situation." Ray: "Our contract is a firm-fixed-price project."

The cost overrun is your responsibility, so West discussed it with Dr. Reddy. During the discussion, West presented a memo containing the projected costs up until the third month of the project (refer to Exhibit III). Dr. Reddy mentioned being occupied with other projects and unable to assist. However, Royce selected West as the project manager based on their capability to handle the job, so Dr. Reddy advised not to disappoint Royce. Dr. Reddy requested a brief memo in the following month to clarify the situation, promising to consider potential solutions as the situation may resolve itself.

In March, the third month of the project, West received frequent phone calls from lab personnel complaining about Pat Ray's interference in their work. One call even mentioned that Ray had altered the test conditions, deviating from what was agreed upon in the latest test matrix. When West confronted Ray about his meddling, Ray responded by criticizing the unprofessional attitude of Corwin personnel and implying that it was affecting the testing process. Additionally, Ray demanded the immediate removal of

one of the functional employees from the project due to incompetence.

West mentioned that he would speak with the department manager regarding the employee. However, Ray believed it would be futile and insisted, "Remove him or face consequences!" Consequently, the competent employee was taken off the project. Towards the end of the third month, numerous Corwin employees started feeling disillusioned with the project and began searching for alternate tasks. West attributed this dissatisfaction to Ray's constant mistreatment of the employees. Adding fuel to fire, Ray met with Royce and Reddy and demanded that West be replaced by a new project manager.

Royce refused to dismiss West as project manager, instructing Reddy to assist and support West in recovering the project. Reddy expressed his dissatisfaction with being left unaware of the project's details and demanded West provide all the necessary information, specifically the cost data, by the following day. He scheduled a meeting for the next morning at 8:00 A.M in his office and assured West of his help in resolving the situation. West complied and presented the projected cost data for the rest of the work to Dr. Reddy.

Both West and Reddy agreed that the project was now out of control and would require severe measures to correct the situation. Additionally, they would need more than $230,000 in corporate funding. Reddy stated that he had scheduled a meeting for 10:00 A. M. with several R;D people to create a completely new test matrix, which should have been done from the beginning. West suggested inviting Ray to the meeting, as he believed Ray would want to be involved in designing the new test matrix.

However, Reddy asserted his authority by stating that he was now in charge and not Ray. He also mentioned that he would be implementing new policies and procedures for in-house representatives.

He is no longer authorized to independently visit the labs. It is required for either you or me to accompany him. If he disagrees with these regulations, he has the option to leave. I will not allow that individual to disrupt our organization as we are currently investing our own money, not his. Exhibit IV. Estimate of total project completion costs Direct labor/support Testing (60 tests) Overhead (120%) Materials G;A Peters Contract Overrun $ 47,000 120,000 200,000 103,000 47,000 $517,000 250,000 $267,000 West discussed the new test matrix and updated policies and procedures for in-house representatives with Ray.

Ray's anger grew when he learned about the new developments, prompting him to announce his intention to go back to Peters Company for a meeting with Delia. The next Monday, Frimel received a cancellation letter from Delia, wherein she explained the reasons behind Peters Company's decision. Delia stated that Corwin had failed to produce any promising data and had continuously changed the project's direction without a clear plan. Additionally, Corwin had not assigned a capable project manager and had not provided adequate support for the in-house representative.

Corwin's top management lacked genuine interest in the project and failed to provide adequate executive-level support. In an effort to maintain positive working relations with Peters Company, Royce and Frimel discussed potential actions. Frimel drafted a strong letter countering all allegations made in the Peters letter, but it proved ineffective. Even Corwin's willingness to invest $250,000 of their own

funds did not sway Delia's decision. The harm was already done. Frimel became entirely convinced that accepting a contract on "Pearl Harbor Day" was not advisable.

Questions:

1. Should companies risk bidding on projects based upon rough draft specifications? Explain your answer in detail.
2. How should West have handled the situation where Pat Ray’s opinion of the test data was contrary to that of Corwin’s engineering personnel?
3. Should Pat Ray have been given the freedom to visit laboratory personnel at any time? Should he have had the right to remove a functional employee from the project? Discuss your answer with rationale.
4. What risks exist when the vice president for manufacturing (or any other “significant” individual) is not available during the go or no-go bidding decision?