Corwin Corporation Case Study

CASE STUDY:

Corwin Corporation

Background on the corporation

By June 2003, Corwin Corporation had grown into a $950 million-per-year corporation with an international reputation for manufacturing low-cost, high-quality rubber components. Corwin maintained more than a dozen different product lines, all of which were sold as off-the-shelf items in department stores, hardware stores, and automotive parts distributors. The name “Corwin” was now synonymous with “quality.” This provided management with the luxury of having products that had extremely long-life cycles.

Organizationally, Corwin had maintained the same structure for more than 15 years. (see Figure I.) The top management of Corwin Corporation was highly conservative and believed in using a marketing approach to find new markets for existing product lines rather than exploring for new products. Under this philosophy, Corwin maintained a small R&D group whose mission was simply to evaluate stateof-the-art technology and its application to existing product lines.

Corwin’s reputation was so good that it continually received inquiries about the manufacturing of specialty products. Unfortunately, the conservative nature of Corwin’s management created a “don’t rock the boat” atmosphere opposed to taking any type of risks. A management policy was established to evaluate all specialty- product requests. The policy required answering yes to the following questions:

  • Will the specialty product provide the same profit margin (20 percent) as existing product lines?
  • Is there a chance for follow-on contracts?
  • Can the specialty product be developed into a product line?
  • Can the specialty product be produced with minimum disruption to existing product lines and manufacturing operations?

These stringent requirements forced Corwin not to bid on more than 90 percent of all specialty-product inquiries.

Corwin Corporation was a marketing-driven organization, although manufacturing often had different ideas. Almost all decisions were made by marketing with the exception of product pricing and estimating, which was a joint undertaking between manufacturing and marketing. Engineering was considered as merely a support group to marketing and manufacturing.

For specialty products, the project managers would always come out of marketing, even during the R&D phase of development. The company’s approach was that if the specialty product should mature into a full product line, then there should be a product line manager assigned right at the onset.

Project collaborated with the Peters company

In 2000, Corwin accepted a specialty-product assignment from Peters Company because of the potential for follow-on work. In 2001, 2002, and again in 2003, profitable follow-on contracts were received, and a good working relationship developed, despite Peters’ reputation for being a difficult customer to work with. 

Phone call from Peters Company

On December 7, 2002, Gene Frimel, the vice president of marketing at Corwin, received a rather unusual phone call from Dr. Frank Delia, the marketing vicepresident at Peters Company.

Frank Delia: “Gene, I have a rather strange problem on my hands. Our R&D group has $250,000 committed for research toward development of a new rubber product material, and we simply do not have the available personnel or talent to undertake the project. We have to go outside. We’d like your company to do the work. Our testing and R&D facilities are already overburdened.”

Gene Frimel: “Well, as you know, Frank, we are not a research group, even though we’ve done this once before for you. And furthermore, I would never be able to sell our management on such an undertaking. Let some other company do the R&D work and then we’ll take over on the production end.”

Delia: “Let me explain our position on this. We’ve been burned several times in the past. Projects like this generate several patents, and the R&D company almost always requires that our contracts give it royalties or first refusal for manufacturing rights.”

Frimel: “I understand your problem, but it’s not within our capabilities. This project, if undertaken, could disrupt parts of our organization. We’re already operating lean in engineering.”

Delia: “Look, Gene! The bottom line is this: We have complete confidence in your manufacturing ability to such a point that we’re willing to commit to a fiveyear production contract if the product can be developed. That makes it extremely profitable for you.”

Frimel: “You’ve just gotten me interested. What additional details can you give me?”

Delia: “All I can give you is a rough set of performance specifications that we’d like to meet. Obviously, some trade-offs are possible.”

Frimel: “When can you get the specification sheet to me?”

Delia: “You’ll have it tomorrow morning. I’ll ship it overnight express.”

Frimel: “Good! 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. As you know, our plant is closed down for the last two weeks in December, and most of our people have already left for extended vacations.”

Delia: “That’s not acceptable! My management wants a signed, sealed, and delivered contract by the end of this month. If this is not done, corporate will reduce our budget for 2003 by $250,000, thinking that we’ve bitten off more than we can chew. Actually, I need your answer within 48 hours so that I’ll have some time to find another source.”

Frimel: “You know, Frank, today is December 7, Pearl Harbor Day. Why do I feel as though the sky is about to fall in?”

Delia: “Don’t worry, Gene! I’m not going to drop any bombs on you. Just remember, all that we have available is $250,000, and the contract must be a firmfixed-price effort. We anticipate a six-month project with $125,000 paid on contract signing and the balance at project termination.”

Frimel: “I still have that ominous feeling, but I’ll talk to my people. You’ll hear from us with a go or no-go decision within 48 hours. I’m scheduled to go on a Caribbean cruise, and my wife and I are leaving this evening. One of my people will get back to you on this matter.”

Talking between marketing and engineering vice presidents

Gene Frimel had a problem. All bid and no-bid decisions were made by a fourman committee composed of the president and the three vice presidents. The president and the vice president for manufacturing were on vacation. Frimel met with Dr. Royce, the vice president of engineering, and explained the situation.

Royce: “You know, Gene, I totally support projects like this because it would help our technical people grow intellectually. Unfortunately, my vote never appears to carry any weight.”

Frimel: “The profitability potential as well as the development of good customer relations makes this attractive, but I’m not sure we want to accept such a risk. A failure could easily destroy our good working relationship with Peters Company.”

Royce: “I’d have to look at the specification sheets before assessing the risks, but

I would like to give it a shot.”

Frimel: “I’ll try to reach our president by phone.”

Got approval from the president

By late afternoon, Frimel was fortunate enough to be able to contact the president and received a reluctant authorization to proceed. The problem now was how to prepare a proposal within the next two or three days and be ready to make an oral presentation to Peters Company.

Frimel: “The boss gave his blessing, Royce, and the ball is in your hands. I’m leaving for vacation, and you’ll have total responsibility for the proposal and presentation. Delia wants the presentation this weekend. You should have his specification sheets tomorrow morning.”

Royce: “Our R&D director, Dr. Reddy, left for vacation this morning. I wish he were here to help me price out the work and select the project manager. I assume that, in this case, the project manager will come out of engineering rather than marketing.”

Frimel: “Yes, I agree. Marketing should not have any role in this effort. It’s your baby all the way. And as for the pricing effort, you know our bid will be for $250,000. Just work backward to justify the numbers. I’ll assign one of our contracting people to assist you in the pricing. I hope I can find someone who has experience in this type of effort. I’ll call Delia and tell him we’ll bid it with an unsolicited proposal.”

Proposal preparing

Royce selected Dan West, one of the R&D scientists, to act as the project leader. Royce had severe reservations about doing this without the R&D director, Dr. Reddy, being actively involved. But with Reddy on vacation, Royce had to make an immediate decision.

On the following morning, the specification sheets arrived and Royce, Dan West, and Dick Potts, a contracts man, began preparing the proposal. West prepared the direct labor man-hours, and Royce provided the costing data and pricing rates. Potts, being completely unfamiliar with this type of effort, simply acted as an observer and provided legal advice when necessary. Potts allowed Royce to make all decisions even though the contracts man was considered the president’s official representative.

Finally completed two days later, the proposal was actually a 10-page letter that simply contained the cost summaries (see Table I) and the engineering intent. West estimated that 30 tests would be required. The test matrix described the test conditions only for the first five tests. The remaining 25 test conditions would be determined at a later date, jointly by Peters and Corwin personnel.

 

Table I Proposal cost summaries

                        Direct labor and support                                             $ 30,000

                         Testing (30 tests at $2,000 each)                                   60,000

                        Overhead at 100%                                                          90,000

                        Materials                                                                        30,000

                        General and administrative (G&A), 10%                      21,000

$ 231,000

19,000

$ 250,000

Agreements achieved

On Sunday morning, a meeting was held at Peters Company, and the proposal was accepted. Delia gave Royce a letter of intent authorizing Corwin Corporation to begin working on the project immediately. The final contract would not be available for signing until late January, and the letter of intent simply stated that Peters Company would assume all costs until such time that the contract was signed or the effort terminated.

West was truly excited about being selected as the project manager and being able to interface with the customer, a luxury that was usually given only to marketing personnel. Although Corwin Corporation was closed for two weeks over Christmas, West still went into the office to prepare the project schedules and to identify the support he would need in the other areas, thinking 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.

The project begins

On the first working day in January 2003, a meeting was held with the three vice presidents and Dr. Reddy to discuss the support needed for the project.

(West was not in attendance at this meeting, although all participants had a copy of his memo.)

Reddy: “I think we’re heading for trouble in accepting this project. I’ve worked with Peters Company previously on R&D efforts, and they’re tough to get along with. West is a good man, but I would never have assigned him as the project leader. His expertise is in managing internal rather than external projects. But, no matter what happens, I’ll support West the best I can.”

Royce: “You’re too pessimistic. You have good people in your group and I’m sure you’ll be able to give him the support he needs. I’ll try to look in on the project every so often. West will still be reporting to you for this project. Try not to burden him too much with other work. This project is important to the company.”

West spent the first few days after vacation soliciting the support that he needed from the other line groups. Many of the other groups were upset that they had not been informed earlier and were unsure as to what support they could provide. West met with Reddy to discuss the final schedules. Reddy said:

“Your schedules look pretty good, Dan. I think you have a good grasp on the problem. You won’t need very much help from me. I have a lot of work to do on other activities, so I’m just going to be in the background on this project. Just drop me a note every once in a while telling me what’s going on. I don’t need anything formal. Just a paragraph or two will suffice.

By the end of the third week, all of the raw materials had been purchased, and initial formulations and testing were ready to begin. In addition, the contract was ready for signature. The contract contained a clause specifying that Peters Company had the right to send an in-house representative into Corwin Corporation for the duration of the project. Peters Company informed Corwin that Pat Ray would be the in-house representative, reporting to Delia, and would assume his responsibilities on or about February 15.

By the time Pat Ray appeared at Corwin Corporation, West had completed the first three tests. The results were not what was expected but indicated that Corwin was heading in the right direction. Pat Ray’s interpretation of the tests was completely opposite to that of West. Ray thought that Corwin was “way off base” and that redirection was needed.

Pat Ray: “Look, Dan! We have only six months to do this effort, and we shouldn’t waste our time on marginally acceptable data. These are the next five tests I’d like to see performed.”

Dan West: “Let me look over your request and review it with my people. That will take a couple of days, and, in the meanwhile, I’m going to run the other two tests as planned.”

Ray’s arrogant attitude bothered West. However, West decided that the project was too important to “knock heads” with Ray and simply decided to cater to Ray the best he could. This was not exactly the working relationship that West expected to have with the in-house representative.

West reviewed the test data and the new test matrix with engineering personnel, who felt that the test data was inconclusive as yet and preferred to withhold their opinion until the results of the fourth and fifth tests were made available. Although this displeased Ray, he agreed to wait a few more days if it meant getting Corwin Corporation on the right track.

The fourth and fifth tests appeared to be marginally acceptable, just as the first three had been. Corwin’s engineering people analyzed the data and made their recommendations.

Dan West: “Pat, my people feel that we’re going in the right direction and that our path has greater promise than your test matrix.”

Pat Ray: “As long as we’re paying the bills, we’re going to have a say in what tests are conducted. Your proposal stated that we would work together in developing the other test conditions. Let’s go with my test matrix. I’ve already reported back to my boss that the first five tests were failures and that we’re changing the direction of the project.”

West: “I’ve already purchased $30,000 worth of raw materials. Your matrix uses other materials and will require additional expenditures of $12,000.”

Ray: “That’s your problem. Perhaps you shouldn’t have purchased all of the raw materials until we agreed on the complete test matrix.”

During the month of February, West conducted 15 tests, all under Ray’s direction. The tests were scattered over such a wide range that no valid conclusions could be drawn. Ray continued sending reports back to Delia confirming that Corwin was not producing beneficial results and that there was no indication that the situation would reverse itself. Delia ordered Ray to take any steps necessary to ensure a successful completion of the project.

Ray and West met again as they had done for each of the past 45 days to discuss the status and direction of the project.

Pat Ray: “Dan, my boss is putting tremendous pressure on me for results, and thus far I’ve given him nothing. I’m up for promotion in a couple of months and I can’t let this project stand in my way. It’s time to completely redirect the project.”

 Dan West: “Your redirection of the activities is playing havoc with my scheduling. I have people in other departments who just cannot commit to this continual rescheduling. They blame me for not communicating with them when, in fact, I’m embarrassed to.”

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 some good results immediately, or my neck will be stuck out for the next four months. I don’t want that. Just have your lab personnel start on these tests, and we’ll get along fine. Also, I’m planning on spending a great deal of time in your lab area. I want to observe the testing personally and talk to your lab personnel.”

West: “We’ve already conducted 20 tests, and you’re scheduling another 15 tests. I priced out only 30 tests in the proposal. We’re heading for a cost overrun condition.”

Ray: “Our contract is a firm-fixed-price effort. Therefore, the cost overrun is your problem.”

West met with Dr. Reddy to discuss the new direction of the project and potential cost overruns. West brought along a memo projecting the costs through the end of the third month of the project. (see Table II)

 

Table II Projected cost summary at the end of the third month

 

Original proposal cost summary for six-month project

Total project costs

projected at end of third

month

Direct labor/support

$30,000

$15,000

Testing

60,000 (30 tests)

70,000 (35 tests)

Overhead

900,000 (100%)

92,000 (120%)*

Materials

30,000

50,000

G&A

21,000 (10%)

22,700 (10%)

Totals

$231,000

$249,700

* Total engineering overhead was estimated at 100 percent, whereas the R&D overhead was 120 percent.

Reddy told West: “I’m already overburdened on other projects and won’t be able to help you out. Royce picked you to be the project manager because he felt that you could do the job. Now, don’t let him down. send me a brief memo next month explaining the situation, and I’ll see what I can do. Perhaps the situation will correct itself.”

During March, the third month of the project, West received almost daily phone calls from the people in the lab stating that Pat Ray was interfering with their job. In fact, one phone call stated that Ray had changed the test conditions from what was agreed on in the latest test matrix. When West confronted Ray on his meddling, Ray asserted that Corwin personnel were very unprofessional in their attitude and that he thought this was being carried down to the testing as well. Furthermore, Ray demanded that one of the functional employees be removed immediately from the project because of incompetence. West stated that he would talk to the employee’s department manager. Ray, however, felt that this would be useless and said, “Remove him or else!” The functional employee was removed from the project.

By the end of the third month, most Corwin employees were disenchanted with the project and were looking for other assignments. West attributed this to Ray’s harassment of the employees. To aggravate the situation even further, Ray met with Royce and Reddy and demanded that West be removed and a new project manager be assigned.

Royce refused to remove West as project manager and ordered Reddy to take charge and help West get the project back on track. Reddy said: “You’ve kept me in the dark concerning this project, West. If you want me to help you, as Royce requested, I’ll need all the information tomorrow, especially the cost data. I’ll expect you in my office tomorrow morning at 8:00 a.m. I’ll bail you out of this mess.”

West prepared the projected cost data for the remainder of the work and presented the results to Dr. Reddy. (see Table III) Both West and Reddy agreed that the project was now out of control and severe measures would be required to correct the situation, in addition to more than $250,000 in corporate funding.

 

Table III Estimate of total project completion costs

                        Direct labor and support                                             $ 47,000*

                        Testing (60 tests)                                                          120,000

                        Overhead at 120%                                                        200,000

                        Materials                                                                      103,000

                         General and administrative (G&A)                               47,000

                         Total                                                                          $ 517,000

250,000

$ 267,000

* Includes Dr. Reddy

Reddy: “Dan, I’ve called a meeting for 10:00 a.m. with several of our R&D people to completely construct a new test matrix. This is what we should have done right from the start.”

West: “shouldn’t we invite Ray to attend this meeting? I’m sure he’d want to be involved in designing the new test matrix.”

Reddy: “I’m running this show now, not Ray! Tell Ray that I’m instituting new policies and procedures for in-house representatives. He’s no longer authorized to visit the labs at his own discretion. He must be accompanied by either you or me. If he doesn’t like these rules, he can get out. I’m not going to allow that guy to disrupt our organization. We’re spending our money now, not his.”

West met with Ray and informed him of the new test matrix as well as the new policies and procedures for in-house representatives. Ray was furious over the new turn of events and stated that he was returning to Peters Company for a meeting with Delia.

On the following Monday, Frimel received a letter from Delia stating that Peters Company was officially canceling the contract. The reasons given by Delia were as follows:

  1. Corwin had produced absolutely no data that looked promising.
  2. Corwin continually changed the direction of the project and did not appear to have a systematic plan of attack.
  3. Corwin did not provide a project manager capable of handling such a project.
  4. Corwin did not provide sufficient support for the in-house representative.
  5. Corwin’s top management did not appear to be sincerely interested in the project and did not provide sufficient executive-level support.

Royce and Frimel met to decide on a course of action in order to sustain good working relations with Peters Company. Frimel wrote a strong letter refuting all of the accusations in the Peters letter, but to no avail. Even the fact that Corwin was willing to spend $250,000 of its own funds had no bearing on Delia’s decision. The damage was done. Frimel was now thoroughly convinced that a contract should not be signed on Pearl Harbor Day.

 

Here are some questions for your consideration, which would provide you hints to do the task. You DO NOT have to answer them but just consider some of them.

QUESTIONS

  1. What were the major mistakes made by Corwin?
  2. should Corwin have accepted the assignment?
  3. should companies risk bidding on projects based on rough-draft specifications?
  4. should the shortness of the proposal preparation time have required more active top management involvement before the proposal went out of house?
  5. Are there any risks in not having the vice president for manufacturing available during the go or no-go bidding decision?
  6. Explain the attitude of Dick Potts during the proposal activities.
  7. None of the executives expressed concern when Dr. Reddy said, “I would never have assigned him [West] as the project leader.” How do you account for the executives’ lack of concern?
  8. How important is it to inform line managers of proposal activities even if the line managers are not required to provide proposal support?
  9. Explain Dr. Reddy’s attitude after go-ahead.
  10. 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?
  11. How should West have reacted to Ray’s informing Delia that the first five tests were failures?
  12. Is immediate procurement of all materials a mistake?
  13. should Pat Ray have been given the freedom to visit laboratory personnel at any time?
  14. should an in-house representative have the right to remove a functional employee from the project?
  15. Financially, how should the extra tests have been handled?Explain Dr. Reddy’s attitude when told to assume control of the project.
  16. Delia’s letter, stating the five reasons for canceling the project, was refuted by Frimel, but with no success. Could Frimel’s early involvement as a project sponsor have prevented this?
  17. In retrospect, would it have been better to assign a marketing person as project manager?
  18. Your company has a single methodology for project management. A powerful customer offers you a special project that does not fit into your methodology. should a project be refused simply because it is not a good fit with your methodology?
  19. should a customer be informed that only projects that fit your methodology would be accepted?

Additional information at the end of third month

West calculated the actual costs for the project at the end of third month, which was somehow similar to what he has estimated before (in Table II) with some changes. The project cost was shown in Table IV. 

Table IV Actual costs at the end of third month

 

Actual costs at the end of third month

Direct labor/support

$15,000

Testing

65,000 (35 tests)

Overhead

92,000

Materials

45,000

G&A

21,700 (10%)

Totals

$238,700

At the same time, West realized that the tests they have done were scattered over such a wide range that they needed more tests than they had planned for this project, i.e. 60 tests in total were estimated to be needed for the project. But up to now, only 15 tests were valid for the project. The progress of the project largely depended on the testing progress. 

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