Case-6

1Jindo12092275Morencorporation(A),(B)2ndMay20111.ImmediateissueofcaseAMr.Carter,vicepresidentofsupply,facestheresponsibilityofchoosingoneofthreecompaniesforthefirstphaseoftheengineeringdesign.a)Travers&Bolton(T&B):b)CrownEngineering(CE):c)PettigrewAssociate2.Basicsituationanalysisandinformationsummary:TheenergymarketisexpandingrapidlyandMorenCorporationmustexpandtheiroperationinordertograbthisdemand.BecausethenewconstructionprogramwasaheavystrainonthebothprofessionalandfinancialresourcesofMoren.Intheperspectiveoffinancialstrain,it’sbettertoregardcostasamajorfactorintheselectionofadesignengineeringfirm.AlthoughtraditionallyMorenusedstructuralsteeltowerstotransfertheenergyandOrnamentaltubularpowerpolescosttwiceasmuchastheconventionaltower,itwasmoreefficienttouseOrnamentaltubularpowerpolesMorenmanagementdecidedtospecifypowertubularpolestolinkthenew2generatingstationsinAddison,Smithfield,andMesaValleywiththeareagrid,some140milesintotal.(=225302meter)MorenCorporationdoesnothavetheexperienceinthisnewfieldofworkandmustoutsourcethecompletionoftheengineeringdesign,polemanufacturingandinstallation.Mr.Cartermustensurethattheprojectiscompletedwithina3yeartimelineandmustensurequalitywork.Theydecidedtosubcontracteachphasetoareliablesourceofhighexpertisewithinthatphaseinsteadofpickinganyindividualsuppliertohandlethetotalcontract,sothatoptimumoverallbenefitswouldaccruetoMoren.Thetotaljobinvolvedthreemajorphases,aswellaspreliminarycost:Phase1---Engineeringdesign:$1,500,000-$1,800,000Phase2---Polemanufacture:$90millionPhase3---Installation:$78million3.DesignengineeringselectionAlternativeSolutioni)Travers&Bolton:Thiscompanyhassomeexperiencewiththenewtubulartransmittinglines,andtheyhaveworkedwithMoreninthepastperformingsatisfactorily.Advantage:T&BhasdoneconsiderableworkforMorenandhadperformed3satisfactorily.Morenalreadyknowswhatkindofcompanytheyareandwhattheycando.Disadvantage:T&Barealreadydoingtheworkforconverting120kvpowerlinesinto230andMorenwouldlikeamorecompetentcompanytodothe345kVpowerlines.AnotherpointisthatT&Bestimatedtotalcostofthejobwillcomeoutto1.722million(=$120*14,350)themostexpensiveoutofthe3companiesii)CrownEngineering:InthepastMorenhasalsoworkedwiththiscompanyandtheyalsohavesomeTubularpoleexperience.TheyaresignificantlymoreexpensiveperhourthanT&Bbutifusingtheaveragetotalhourstodothejob(12,300hoursx129.60)thetotalcostcomesouttobecheaperthanTravers&Bolton.Disadvantage:theydidnotofferestimatedamountoftimeitwilltakethemtocompletethejob.AndifitislongertheMoren’sestimatedtimethecompanywillbeunreliablecompanytooutsourceto.iii)PettigrewAssociates:Advantage:Pettigrewisalargecorporationandhasoperatingofficesin10differentcities.Theyhavealargeworkforceandhaveagreatcreditratingwhichmeansthattheyareareliablecompany.Anotheradvantageisthattheyhavetheshortestestimatedtimetocompletethejobin12,190hours.Sincetheyareareliablecompanyitisindicatedthatthey4willbecloseinmeetingtheirobjectives.Disadvantage:Morenhasneverworkedwiththembeforeanddonotknowwhatcanbeobtained.Anotherdisadvantageisthattheyarethemostexpensiveperestimated/$hourwith133.20butthetotalcostofthejobcomesoutto1.624(=$133.20*12,190)millionwhichissignificantlylowerthanT&Btotalcost.PersonaldecisionIwouldliketochoosePettigrew.Moren’slargestconcernistheir3yeartimeconstraintandtheirheavystrainonbothprofessionalandfinancialresourceswithinthecompany.Intermsofthefinancialstrain,theirtotalcosttocompletethejobwillbesignificantlycheapestofthethreebidderssincetheyaretakinglesstimetocompletethejob.AnotherpointisthatwecanseethatPettigrewisreliableinbeingontimeduetotheirgreatcreditscore.Sincewedon’thavetheinformationabouttheestimatedlabor-hoursofCrownEngineering,ifwecangetit,anditislowerthantheaveragevalue,CrownEngineeringalsocanbeconsidered.ButOnthebasisoftheavailableinformation,PettigrewAssociateswillbethebestoption.4.ConstructionselectionImmediateissueofcaseBMorenshouldfindsuitablecontractortodothebothabove-andbelow-gradework.5Situationanalysis1.Severalfoundationcompanieswereaskedtoquoteonthesubgradeworktoseewhetherfoundationcontractorscouldbuildfoundationscheaperthanlinebuilders.2.Mr.Carterreservedtherighttoawardseparatecontractsforabove-andbelow-gradework.Thetwolowestlineconstructors,RapierandMcTaggart,wereevaluated,plusthepossibilityofasplitawardto(L)forfoundationsand(I)forabove-gradework.Alternativesolutiona)T.D.RapierAdvantage:1.IthaddonealmostallMoren’stransmissionworkforoverthelastfiveyears.2.Thetotalbid(=$75,479,232=lineconstruction+foundationinstallation)islowerthantheconsultingengineer’spriorestimate($78,362,800).6Disadvantage:CostoffoundationinstallationisrelativelymoreexpensivethanMcTaggartConstructionandfoundationcompany(L).b)McTaggartConstructionAdvantage:Thetotalcostwith$71,106,504isthecheapestofallbidders.Disadvantage:ThepriceoflineconstructiontheyofferedisrelativelyhigherthanT.D.Rapierand(I),thoughlowerthanconsultingengineer’spriorestimate.c)IAdvantage:priceoflineconstructionofthelowestofallbidders.Disadvantage:theydidn’tbidforfoundationinstalla