Attachment # 00006825 - Woody_Case_Study.docx
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BackgroundThe Custom Woodworking Company is a small-to-medium sized custom furniture and cabinet makingcompany, with head-office and a spacious plant site at Industrial Estates, Someplace, BC. ItsChairman and Chief Executive Officer is Ron Carpenter now in his late-sixties. His wife Mrs. EmeliaCarpenter, being an aggressive business woman and somewhat younger than her husband, noweffectively runs the company.Ron Carpenter is affectionately known to all as "Woody" and so the company is generally known as"Woody's". Woody, after an apprenticeship as a cabinet maker, started his small furnituremanufacturing business back in 1954 and he and his wife moved to their present location in 1959.The company quickly gained a reputation for attractively designed and well constructed furniture,using imported hardwoods and indigenous softwoods for its products. Woody's now produces customfurniture to order, several lines of furniture for wholesaler/retailers, and a number of variationsof standard kitchen and bathroom cabinets, including units made to order.Over the years the Carpenters continued to prosper and built up a loyal staff and work force. Morerecently their son, John Carpenter, has joined the company's management after having obtained acommerce degree at the local university. At John Carpenter's insistence, lured by longer productionruns and higher and more consistent mark-ups, the company has moved into subcontract work supplyingand installing counter-tops, cabinets and similar fixtures for new commercial construction. Todate, Woody's has established a well-founded reputation for supplying millwork to the constructionindustry.Woody's Corporate ProfileHead Office:Someplace, BCBusiness:ÝFurniture manufacturing, custom millwork, and hardwood importer; federal charter 1960; privatelyheld; number of employees approx. 850. Major Shareholder: Emelia Holdings Ltd. At December 31,199X, total assets were $181,000,000. In fiscal 199X, sales were $93,250,000 with net earnings of$6,540,000.Directors:Chairman & CEOÝRon CarpenterPresidentMrs. Emelia CarpenterExecutive Vice PresidentKim QualeyDirectorJohn CarpenterKey Personnel:VP ProductionMiles FasterVP Finance and AdministrationSpencer MoneysworthVP PersonnelMolly BussellVP Sales and EstimatingBruce SharpeControllerKim CashmanOther Key Players in this Case Study:I. Leadbetter (Ian)Woody's Project ManagerR. Schemers (Randy)Principal, Schemers and Plotters (S&P), industrial design consultantsA. Fowler (Alfred)Director, Expert Industrial Developers (EID), industrial property developers and contractorsI. Kontrak (Ivar)EID's Project ManagerD. Rivett (Dave)I. Beam Construction Ltd., steel fabricators and installersB. Leakey (Bert)Classic Cladding Co., cladding and roofing contractorsC. Droppe (Charlie)I. C. Rain Ltd., water-proofing contractorsA. Dent (Amos)Tinknockers Associates, mechanical contractorsO. Volta (Olaf)Zapp Electric Co., electrical contractorsE. Forgot (Eddie)Piecemeal Corporation, equipment suppliersW. Easley (Win)Project management consultantsThe OpportunityIn 1989 there was a mini-boom in commercial construction in south-western BC. With the possibilityof a major airport expansion, and free-trade opportunities south of the border, Bruce Sharpepersuaded Woody's directors that they were well placed to expand their manufacturing business.Miles Faster, regularly complaining that the company's production efficiency was being thwarted bylack of manufacturing space, made a pitch to John Carpenter for moving to completely new and moremodern facilities. John Carpenter, with a vision of growth based on computer controlled automation,talked over the idea with his father. Woody discussed it with his wife who in turn brought KimCashman and Spencer Moneysworth into the debate.Cashman and Moneysworth felt strongly that they should remain where they were, since there wasspare land on their property, even though not the most convenient for plant expansion. They arguedthat not only would this avoid the costs of buying and selling property, but more importantly avoidthe interruption to production while relocating their existing equipment. Besides, the nearestpotential location at an attractive price was at least fifteen miles further out from theresidential area where most of them lived. Polarization of opinions rapidly became evident and so,in the spring of 1989, Woody called a meeting of the directors and key personnel to resolve theissue. After a visit to the factory floor and a prolonged and sometimes bitter argument lastinginto the early hours, it was agreed that the company would stay put on its existing property.The Project ConceptIt was agreed at the meeting that additional production capacity would be added equivalent to 25%of the existing floor area. The opportunity would also be taken to install air-conditioning and adust-free paint and finishing shop complete with additional compressor capacity. Equipment wouldinclude a semi-automatic woodworking production train, requiring the development and installationof software and hardware to run it. The President and Executive Vice Presidents' offices would alsobe renovated.At the meeting, the total cost of the work, not including office renovation, was roughly estimatedat $17 million. Woody agreed to commit the company to a budget of $17 million as an absolutemaximum for all proposed work and the target date for production would be eighteen months from now.To give Woody's personnel a feeling of ownership, Molly Bussell proposed that the project should becalled Woody 2000. Spencer Moneysworth would take responsibility for Project Woody 2000.PlanningMoneysworth was keen to show his administrative abilities. He decided not to involve the productionpeople as they were always too busy and, anyway, that would only delay progress. So, not one forwasting time (on planning) Moneysworth immediately invited Expert Industrial Developers (EID) toquote on the planned expansion. He reasoned that this contractor's prominence on the industrialestate and their knowledge of industrial work would result in a lower total project cost.Meanwhile, Kim Cashman developed a monthly cash flow chart as follows. First he set aside onemillion for contingencies. Then he assumed that expenditure would be one million in each of thefirst and last months, with an intervening ten months at $1.4 million. He carefully locked thechart away in his drawer for future reference. All actual costs associated with the project wouldbe recorded as part of the company's normal book-keeping.Upon Moneysworth's insistence, EID submitted a fixed-price quotation. It amounted to $20 millionand an eighteen month schedule. After Moneysworth recovered from the shock, he persuaded Woody'smanagement that the price and schedule were excessive. (For their part, EID believed that Woody'swould need considerable help with their project planning and allowed for a number ofuncertainties). Further negotiations followed in which EID offered to undertake the work based on afully reimbursable contract.Moneysworth started inquiries elsewhere but EID countered with an offer to do their own work oncost plus but solicit fixed price quotations for all sub-trade work. Under this arrangement EIDwould be paid an hourly rate covering direct wages or salaries, payroll burden, head-officeoverhead and profit. This rate would extend to all engineering, procurement, construction andcommissioning for which EID would employ Schemers and Plotters (S&P) for the building andindustrial design work. Moneysworth felt that the proposed hourly rate was reasonable and that thehours could be monitored effectively. He persuaded Woody's directors to proceed accordingly.The DesignA couple of months later as S&P commenced their preliminary designs and raised questions and issuesfor decision, Moneysworth found he needed assistance to cope with the paper work. John Carpentersuggested he use Ian Leadbetter, a bright young mechanical engineer who had specialized inprogramming semi-automatic manufacturing machinery. Moneysworth realized that this knowledge wouldbe an asset to the project and gave Leadbetter responsibility for running the project. Ian was keento demonstrate his software skills to his friend John Carpenter. So, while he lacked projectmanagement training and experience (especially any understanding of "project life-cycle" and"control concepts") he readily accepted the responsibility.During the initial phases of the mechanical design, Ian Leadbetter made good progress on developingthe necessary production line control software program. However, early in design EID suggested thatWoody's should take over the procurement of the production train directly, since they were moreknowledgeable of their requirements. Miles Faster jumped at the opportunity to get involved anddecided to change the production train specification to increase capacity. Because of this, thesoftware program had to be mostly rewritten, severely limiting Leadbetter's time for managing theproject. It also resulted in errors requiring increased debugging at startup.Neither Moneysworth nor Leadbetter was conscious of the need for any review and approval proceduresfor specifications and shop drawings submitted directly by either S&P or by Eddie Forgot ofPiecemeal Corporation, the suppliers of the production train. In one two-week period, during whichboth Faster and Leadbetter were on vacation, the manufacturing drawings for this critical long-leadequipment sat in a junior clerk's in-tray awaiting approval. For this reason alone, the deliveryschedule slipped two weeks, contributing to a later construction schedule conflict in tying-in thenew services.ConstructionSite clearing was tackled early on with little difficulty. However, as the main construction gotinto full swing some eight months later, more significant problems began to appear. The change inproduction train specification made it necessary to add another five feet to the length of the newbuilding. This was only discovered when holding-down bolts for the new train were laid out on site,long after the perimeter foundations had been poured. The catalogue descriptions and specificationsfor other equipment selected were similarly not received and reviewed until after the foundationshad been poured.Leadbetter was not entirely satisfied with the installation of the mechanical equipment for thedust-free paint shop. As a registered mechanical engineer, he knew that the specifications governedthe quality of equipment, workmanship and performance. However, since these documents had still notbeen formally approved, he was loath to discuss the matter with Ivar Kontrak. Instead, he dealtdirectly with Amos Dent of Tinknockers Associates, the mechanical sub-contractor. This led tostrained relations on the site.Another difficulty arose with the paint shop because the local inspection authority insisted thatthe surplus paint disposal arrangements be upgraded to meet the latest environmental standards.StartupTwo years after the project was first launched, the time to get the plant into production rapidlyapproached. However, neither Moneysworth nor Leadbetter had prepared any meaningful planning forcompletion such as owner's inspection and acceptance of the building, or testing, dry-running andproduction start-up of the production train. They also failed to insist that EID obtain thebuilding occupation certificate. Moreover, due to late delivery of the production train, the"tie-in" of power and other utility connections scheduled for the annual two-week maintenanceshut-down could not in fact take place until two weeks later.These factors together resulted in a loss of several weeks of production. Customer delivery dateswere missed and some general contractors cancelled their contracts and placed their orders formillwork elsewhere. Finished goods inventories were depleted to the point that other salesopportunities were also lost in the special products areas on which Woodyís reputation was based.ControlCosts arising from these and other changes, including the costs of delays in completion, werecharged to Woody's account. Project overrun finally became reality when actual expendituresexceeded the budget and it was apparent to everyone that the project was at best only 85% complete.Cashman was forced to scramble for an additional line of credit in project financing at prime plus2-1/2%, an excessive premium given Woody's credit rating. From then on, Woody's were in a firefighting mode and their ability to control the project diminished rapidly. They found themselvesthrowing money at every problem in an effort to get the plant operational.During Woodyís period of plant upgrading, construction activity in the region fell dramaticallywith general demand for Woodyís products falling similarly. Even though Sharpe launched anexpensive marketing effort to try to regain customer loyalty, it had only a marginal effect.Post Project AppraisalThe net result was that when the new equipment eventually did come on stream, it was seriouslyunder utilized. Production morale ebbed. Some staff publicly voiced their view that the over-supplyof commercial space could have been foreseen even before the project started, especially theoversupply of retail and hotel space, the prime source of Woody's contracts. John Carpenter, not afavorite with the older staff, was blamed for introducing these "new fangled and unnecessarilycomplicated ideas".Because of this experience, Woody's President Emelia Carpenter retained project managementconsultant Win Easley of W. Easley Associates to conduct a post project appraisal. Easley had somedifficulty in extracting solid information because relevant data was scattered amongst variousstaff, who were not keen to reveal their short-comings. Only a few formal notes of early projectmeetings could be traced. Most of the communication was on hand-written Speedy memos, many of whichwere undated. However, interviews with the key players elicited considerable information, as hasbeen outlined above.Case Study ExerciseThe incidents described in this case study are typical of the types of things that happen inreal-life projects. They are a reflection of peoples' attitudes and the way they do things. Perhapsthey do not all happen on the same project. Yet the reality is that if project sponsors do notstart out with an understanding of project management and its processes, the probability of thesekinds of happenings are quite high! One of the best ways of learning is from mistakes ó preferablyfrom those of other people.The focus of this case study centers on construction. However, the project has served to bring tolight many of Woody's management short-comings and the need for change. Can you spot the realsource of the problems and what needs to be done to fix them?Your task is to show how you would run this project properly from the beginning.Project Appraisal QuestionnaireThe purpose of project management is to achieve a successful project and all that this implies. So,if you were Win Easley, the project management consultant, what would you report? Specific issuesfor your consideration follow. You will not find all the answers written into the case study. Mostof the answers are matters of opinion and you will need to search the text book for ways toapproach many of them.
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