Case Study – National Corporation

HISTORY AND BACKGROUND

Jeff Pankoff, a registered professional engineer, came to work for National Corporation after receiving a
mechanical engineering degree. After he arrived at National, he was assigned to the engineering
department. Soon thereafter, Jeff realized that he needed to know more about statistics, and he enrolled in
the graduate school of a local university. When he was near completion of his master of science degree,
National transferred Jeff to one of its subsidiaries in Ireland to set up an engineering department. After a
successful three years, Jeff returned to National’s home office and was promoted to chief engineer. Jeff’s
department increased to eighty engineers and technicians. Spending a considerable time in administration,
Jeff decided an MBA would be useful, so he enrolled in a program at a nearby university. At the time when
this project began, Jeff was near the end of the MBA program.

National Corporation, a large international corporation with annual sales of about $600 million, employs
8,000 people worldwide and is a specialty machine, component, and tool producer catering to automotive
and aircraft manufacturers. The company is over a hundred years old and has a successful and profitable
record.

National is organized in divisions according to machine, component, and tool production facilities. Each
division is operated as a profit center (see Exhibit I). Jeff was assigned to the Tool Division.

National’s Tool Division produces a broad line of regular tools as well as specials. Specials amounted to
only about 10 percent of the regular business, but over the last five years had increased from 5 percent to
the current 10 percent. Only specials that were similar to the regular tools were accepted as orders.

National sells all its products through about 3,000 industrial distributors located throughout the United
States. In addition, National employs 200 sales representatives who work with the various distributors to
provide product seminars.

The traditional approach to project assignments is used. The engineering department, headed by Jeff, is
basically responsible for the purchase of capital equipment and the selection of production methods used
in the manufacture of the product. Project assignments to evaluate and purchase a new machine tool or to
determine the production routing for a new product are assigned to the engineering department. Jeff
assigns the project to the appropriate section, and, under the direction of a project engineer, the project is
completed.

The project engineer works with all the departments reporting to the vice president, including production,
personnel, plant engineering, product design (the project engineer’s link to sales), and time study. As an
example of the working relationship, the project engineer selects the location of the new machine and
devises instructions for its operation with production. With personnel the engineer establishes the job
descriptions for the new jobs as well as for the selection of people to work on the new machine. The project
engineer works with plant engineering on the moving of the machine to the proper location and instructs
plant engineering on the installation and services required (air, water, electricity, gas, etc.). It is very
important that the project engineer work very closely with the product design department, which develops
the design of the product to be sold. Many times the product designed is too ambitious an undertaking or
cannot be economically produced. Interaction between departments is essential in working out such
problems.

After the new machine is installed, an operator is selected and the machine is ready for production. Time
study, with the project engineer’s help, then establishes the incentive system for the job.

Often a customer requests certain tolerances that cannot be adhered to by manufacturing. In such a case,
the project engineer contacts the product design department, which contacts the sales department, which
in turn contacts the customer. The communication process is then reversed, and the project engineer gets
an answer. Based on the number of questions, the total process may take four to five weeks.

As the company is set up, the engineering department has no authority over time study, production, product
design, or other areas. The only way that the project engineer can get these departments to make
commitments is through persuasion or through the chief engineer, who could go to the vice president of
manufacturing and engineering. If the engineer is convincing, the vice president will dictate to the
appropriate manager what must be done.

Salaries in all departments of the company are a closely guarded secret. Only the vice president, the
appropriate department manager, and the individual know the exact salary. Don Wolinski, the vice president
of manufacturing and engineering, pointed out that this approach was the “professional way” and an
essential aspect of smooth business operations.

THE ILL-FATED PROJECT

Jeff Pankoff, the chief engineer for National, flew to Southern California to one of National’s (tool) plants.
Ben Ehlke, manager of the Southern California plant, wanted to purchase a computer numerical controlled
(CNC) machining center for $250,000. When the request came to Jeff for approval, he had many questions
and wanted some face-to-face communication.

The Southern California plant supplied the aircraft industry, and one airplane company provided 90 percent
of the Southern California plant’s sales. Jeff was mainly concerned about the sales projections used by
Ehlke in justifying the machining center. Ehkle pointed out that his projections were based on what the
airplane company had told him they expected to buy out the next five years. Since this estimate was crucial
to the justification, Jeff suggested that a meeting be arranged with the appropriate people at the airplane
company to explore these projections. Since the local National sales representative was ill, the distributor
salesman, Jack White, accompanied Jeff and Ben. While at the airplane company (APC), the chief tool
buyer of APC, Tom Kelly, was informed that Jeff was there. Jeff received a message from the receptionist
that Tom Kelly wanted to see him before he left the building. After the sales projections were reviewed and
Jeff was convinced that they were as accurate and as reliable as they possibly could be, he asked the
receptionist to set up an appointment with Tom Kelly.

When Jeff walked into Kelly’s office the fireworks began. He was greeted with, “What’s wrong with National?
They refused to quote on this special part. We sent them a print and asked National for their price and
delivery, indicating it could turn into a sizable order. They turned me down flat saying that they were not
tooled up for this business. Now I know that National is tops in the field and that National can provide this
part. What’s wrong with your sales department?”

All this came as a complete surprise to Jeff. The distributor salesman knew about it but never thought to
mention it to him. Jeff looked at the part print and asked, “What kind of business are you talking about?”
Kelly said, without batting an eye, “$40 million per year.”

Jeff realized that National had the expertise to produce the part and would require only one added machine
(a special press costing $20,000) to have the total manufacturing capability. Jeff also realized he was in an
awkward situation. The National sales representative was not there, and he certainly could not speak for
sales. However, a $40 million order could not be passed over lightly. Kelly indicated that he would like to
see National get 90 percent of the order if they would only quote on the job. Jeff told Kelly that he would
take the information back and discuss it with the vice presidents of sales, manufacturing, and engineering
and that most likely the sales vice president would contact him next.

On the return flight, Jeff reviewed in his mind his meeting with Kelly. Why did Bob Jones, National’s sales
vice president, refuse to quote? Did he know about the possible $40 million order? Although Jeff wasn’t in
sales, he decided that he would do whatever possible to land this order for National. That evening Jack
White called from California. Jack said he had talked to Kelly after Jeff left and told Kelly that if anybody
could make this project work, it would be Jeff Pankoff. Jeff suggested that Jack White call Bob Jones with
future reports concerning this project.

The next morning, before Jeff had a chance to review his mail, Bob Jones came storming into his office.
“Who do you think you are committing National to accept an order on your own without even a sales
representative present? You know that all communication with a customer is through sales.”

Jeff replied, “Let me explain what happened.”

After Jeff’s explanation, Jones said, “Jeff, I hear what you’re saying, but no matter what the circumstances,
all communications with any customer must go through proper channels.”

Following the meeting with Jones, Jeff went to see Wolinski, his boss. He filled Wolinski in on what had
happened. Then he said, “Don, I’ve given this project considerable thought. Jones is agreeable to quoting
this job. However, if we follow our normal channels, we will experience too many time delays and problems.
Through the various stages of this project, the customer will have many questions and changes and will
require continuous updating. Our current system will not allow this to happen. It will take work from all
departments to implement this project, and unless all departments work under the same priority system,
we won’t have a chance. What we need, Don, is project management. Without this approach where one
man heads the project with authority from the top, we just can’t make it work.”

Wolinski looked out the window and said, “We have been successful for many years using our conventional
approach to project work. I grant you that we have not had an order of this magnitude to worry about, but I
see no reason why we should change even if the order were for $100 million.”

“Don, project management is the only way to handle this type of project. With $40 million at stake we can’t
afford not to use this approach.”

“Listen Jeff, your problem is you take seminars given by these ivory tower professors and you think you’re
an expert. I’ve been in this business for forty years and I know how to handle this job—and it isn’t through
project management. I’ll call a meeting of all concerned department managers so we can get started on
quoting this job.”

That afternoon, Jeff and the other five department managers were summoned to a meeting in Wolinski’s
office. Wolinski summarized the situation and informed the assembled group that Jeff would be responsible
for the determination of the methods of manufacture and the associated manufacturing costs that would be
used in the quotation. The method of manufacture, of course, would be based on the design of the part
provided by product design. Wolinski appointed Jeff and Waldo Novak, manager of product design, as
coheads of the project. He further advised that the normal channels of communication with sales through
the product design manager would continue as usual on this project.

The project began. Jeff spent considerable time requesting clarification of the drawings submitted by the
customer. All these communications went through Waldo. Before the manufacturing routing could be
established for quotation purposes, questions concerning the drawings had to be answered. The customer
was getting anxious to receive the quotation because its management had to select a supplier within eight
weeks. One week was already lost owing to communication delay. Wolinski decided that to speed up the
quoting process he would send Jeff and Waldo along with Jones, the sales vice president, to see the
customer. This meeting at APC helped clarify many questions. After Jeff returned, he began laying out the
alternative routing for the parts. He assigned two of his most creative technicians and an engineer to run
isolated tests on the various methods of manufacturing. From the results he would then finalize the routing
that would be used for quoting. Two weeks of the eight were gone, but Jeff was generally pleased until the
phone rang. It was Waldo.

“Say, Jeff, I think if we change the design on the back side of the part, it will add to its strength. In fact, I’ve
assigned one of my men to review this and make this change, and it looks good.”
While this conversation was going on, Wolinski popped into Jeff’s office and said that sales had promised
that National would ship APC a test order of 100 pieces in two weeks. Jeff was irate. Product design was
changing the product. Sales was promising delivery of a test order that no one could even describe yet.

Needless to say, the next few days were long and difficult. It took three days for Jeff and Waldo to resolve
the design routing problem. Wolinski stayed in the background and would not make any position statement
except that he wanted everything “yesterday.” By the end of the third week the design problem was
resolved, and the quotation was prepared and sent out to the customer. The quotation was acceptable to
APC pending the performance of the 100 test parts.

At the start of the fourth week, Jeff, with the routing in hand, went to Charlie Henry, the production manager,
and said he needed 100 parts by Friday. Charlie looked at the routing and said, “The best I can do is a two-
week delivery.”

After discussing the subject for an hour, the two men agreed to see Wolinski. Wolinski said he’d check with
sales and attempt to get an extension of one week. Sales asked the distributor salesman to request an
extension. Jack White was sure it would be okay so he replied to Bob Jones without checking that the
added week was in fact acceptable.

The 100 pieces went out in three weeks rather than two. That meant the project was at the end of the sixth
week and only two remained. Inspection received the test pieces on Monday of the seventh week and
immediately reported them not to be in specification. Kelly was upset. He was counting heavily on National
to provide these parts. Kelly had received four other quotations and test orders from National’s competitors.
The prices were similar, and the test parts were to specification. However, National’s parts, although out of
specification, looked better than their competitors’. Kelly reminded Jones that the customer now had only
nine days left before the contract would be let. That meant the 100 test parts had to be made in nine days.
Jones immediately called Wolinski, who agreed to talk to his people to try to accomplish this.

The tools were shipped in eleven days, two days after the customer had awarded orders to three of
National’s competitors. Kelly was disappointed in National’s performance but told Jones that National would
be considered for next year’s contract, at least a part of it.

Jeff, hearing from Waldo that National lost the order, returned to his office, shut the door, and thought of
the hours, nearly round the clock, that were spent on this job. Hours were wasted because of poor
communications, nonuniform priorities, and the fact that there was no project manager. “I wonder if Wolinski
learned his lesson; probably not. This one cost the company at least $6 million in profits, all because project
management was not used.” Jeff concluded that his work was really cut out for him. He decided that he
must convince Wolinski and others of the advantages of using project management. Although Wolinski had
attended a one-day seminar on project management two years ago, Jeff decided that one of his objectives
during the coming year would be to get Wolinski to the point where he would, on his own, suggest becoming
more knowledgeable concerning project management. Jeff’s thought was that if the company was to
continue to be profitable it must use project management.

The phone rang, it was Wolinski. He said, “Jeff, do you have a moment to come down to my office? I’d like
to talk about the possibility of using, on a trial basis, this project management concept you mentioned to
me a few months ago.”
Exhibit I: The Tools Division of National Corporation