By 2005, Clark and Company had grown into the third largest supplier of bathroom fittings for both commercial and home use. Competition was fierce. Consumers would evaluate bathroom fittings on artistic design and quality. Each fitting had to be available in at least twenty-five different colours. Commercial buyers seemed more interested in the cost than the average consumer, who viewed the fitting as an object of art, irrespective of price.
Clark and Company did not spend a great deal of money advertising on the radio or on television. Some money was allocated for ads in professional journals. Most of Clark’s advertising and marketing funds were allocated to the two Semi annual home and garden trade shows and the annual builder’s trade show. One large builder could purchase more than 5,000 components for the furnishing of one newly constructed hotel or one apartment complex. Missing an opportunity to display the new products at these trade shows could easily result in a six to twelve-month window of lost revenue.
Clark Fitting had a non cooperative culture. Marketing and engineering would never talk to one another. Engineering wanted the freedom to design new products, whereas marketing wanted final approval to make sure that what was designed could be sold.
The conflict between marketing and engineering became so fierce that early attempts to implement project management failed. Nobody wanted to be the project manager. Functional team members refused to attend team meetings and spent most of their time working on their own pet projects rather than the required work. Their line managers also showed little interest in supporting project management.
Project management became so disliked that the procurement manager refused to assign any of his employees to project teams. Instead, he mandated that all project work come through him. He eventually built up a large brick wall around his employees. He claimed that this would protect them from the continuous conflicts between engineering and marketing.
THE EXECUTIVE DECISION
The executive council mandated that another attempt to implement good project management practices must occur quickly. Project management would be needed not only for new product development but also for specialty products and enhancements. The vice presidents for marketing and engineering reluctantly agreed to try and patch up their differences, but did not appear confident that any changes would take place. Strange as it may seem, nobody could identify the initial cause of the conflicts or how the trouble actually began. Senior management hired an external consultant to identify the problems, provide recommendations and alternatives, and act as a mediator. The consultant?s process would have to begin with interviews.
The following comments were made during engineering interviews:
? ?We are loaded down with work. If marketing would stay out of engineering,
we could get our job done.?
? ?Marketing doesn’t understand that there’s more work for us to do other
than just new product development.?
? ?Marketing personnel should spend their time at the country club and in bar rooms. This will allow us in engineering to finish our work uninterrupted!
? ?Marketing expects everyone in engineering to stop what they are doing in order to put out marketing fires. I believe that most of the time the problem is that marketing doesn’t know what they want up front. This leads to change after change. Why can’t we get a good definition at the beginning of each project?
? ?Our livelihood rests on income generated from trade shows. Since new product development is four to six months in duration, we have to beat up on engineering to make sure that our marketing schedules are met. Why can?t engineering understand the importance of these trade shows?
? ?Because of the time required to develop new products [4-6 months], we sometimes have to rush into projects without having a good definition of what is required. When a customer at a trade show gives us an idea for a new product, we rush to get the project underway for introduction at the next trade show. We then go back to the customer and ask for more clarification and/or specifications. Sometimes we must work with the customer for months to get the information we need. I know that this is a problem for engineering, but it cannot be helped.
The consultant wrestled with the comments but was still somewhat perplexed.
?Why doesn’t engineering understand marketing’s problems? pondered the consultant. In a follow-up interview with an engineering manager, the following comment was made:
?We are currently working on 375 different projects in engineering, and that includes those which marketing requested. Why can’t marketing understand our problems?
Part A 60%
1. What are the critical issues? (40 marks)
2. What obstacles exist in getting marketing and engineering to agree to a singular methodology for project management?
3. How would good Project Management improve Clarks operational methods and what steps would you recommend?
Part B 40%
As part of their deliberations Clarks have concluded that their packaging system is out of date and costly to run and maintain. They have identified a machine which will pack and palletize their products. The machine will cost 230,000 including installation and setting to work. This will result in saving of two operators, whose employee costs are ?27,000 each. Annual maintenance is estimated at 7500, rising by 5% per year. The machine is expected to have 10 years useful life, after which it would have a residual value of 35000. The company’s cost of capital is 8%.
i) Calculate the NPV and payback period of the proposed investment and decide if the firm should proceed with the purchase of the machine
ii) The Company has always relied on the Payback method when deciding upon investments you must therefore explain what the differences are between the methods and why NPV is a more reliable method for a project such as this.
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