Would it be possible to outsource some of the project elements, and would it be

Question

Would it be possible to outsource some of the project elements, and would it be ethical as this is already a subcontracted project? What other options are available that you could consider?

Shell Case Fabricators

BACKGROUND

Shell Case Fabricators (SCF) designs and builds shell casings that enclose

electronic products such as calculators, cell phones, modems. Typically the cases

are plastic or plastic compounds. SCF has six different production lines that cover

different types of product. For example, the largest high volume production line

for modems can produce three different colors and two models (vertical and flat).

Air Connection Links (ACL) is the biggest customer that buys product from this

line. This high output line now runs at full capacity on an eight-hour shift. The

other five lines run smaller quantities and tend to meet the needs of other specialty

products manufactured by different smaller firms.

Ninety-five percent of SCF’s product casings line is designed by the original

hardware manufacturer. Getting a casing to the production stage requires a great

deal of collaboration and interaction between the original hardware and case design

manufacturer (e.g., ACL) and SCF’s shell design engineers and production

department. The latest new product of ACL is a modem designed to be used for

monitoring water activity in bays, e.g., ship traffic, pollution, floating debris. Because

of the product’s high functionality and low cost, potential demand for the

new product is out of sight. It seems every country with small bays used for shipping

wants enough underwater modems to cover their respective bays.

THE UNDERWATER MODEM PROJECT

At SCF each new product is assigned a project manager to coordinate and manage

the shell design, budgets, and manufacturing startup. Songsee is SCF’s star project

manager and is the project manager of the shell for the new short-range,

underwater acoustical modem. The shell casing for the underwater modem

required special design, materials, custom equipment, and a seal to withstand

pressure to 50 meters. Air Connection Links, the product owner, needs sixty

thousand modems in 91 days (next January 15) for the Estuary Control Institute

meeting in Hong Kong.

CLIENT CHANGE REQUEST

Songsee has felt the project was moving along smoothly, with the exception of

being two weeks behind schedule. She feels she can “lean on” the design department

to put the project on top priority and make up the two weeks. Yesterday,

ACL’s project manager, Sabin, came in with a “simple change.” Change the outer

shell shape from rectangular to dome shape; it will improve performance 2 percent.

Songsee couldn’t believe Sabin. He knows better. He knows the engineering

implications, and it is NOT simple! Yet Sabin tells Songsee, “It shouldn’t cost

much.” Songsee imagined a sharp retort, but she counted to five and aborted. At

this late stage of the game, changes and schedule compression cost big money!

Songsee said she would get together with her team and start on a new time and

cost estimate today. She told Sabin he would have to give her a written change request

of the new requirements by tomorrow. Sabin appeared disappointed. “Why

don’t we just add €100,000 to the price and get on with it? We have been doing

business with SCF for six years. With expected demand out of sight, SCF will

break even quickly and have a great profit on the production side.” Songsee

sighed. “Let’s proceed with the change order process. I will bring your request to

the change order governance committee.”

Songsee’s meeting with her team about the change went about as expected.

Every department moaned about changing at this late date. The guesstimate cost

and time estimates were over triple Sabin’s idea of €100,000. For example,

designing a new seal for a dome style modem will require a new custom water

sealing approach, possibly an untested different sealant, and new molds. Has ACL

frozen the design of the new style modem? Songsee asked the team to come in

with a more detailed estimate by tomorrow afternoon, before her meeting with the

change order governance committee.

THE NEXT DAY (FRIDAY)

Sabin called from ACL at midmorning the next day. “Our senior management is

upset that we have to be so formal for such a small change. They just want to get

on with the project and meet the time to market launch date. €100,000 seems

like a fair price. They believe you need to talk to your management. They want a

response by Monday.”

The team estimates came close to yesterday’s guesstimate (€391,000). Not good

news. Songsee knew the answer of the change committee would be to hold for the

full amount. She was right. The change committee believed the costs are there and

need to be covered to meet the launch date. The committee was also concerned

that priorities and resource scheduling would have to change for SCF’s design and

production departments. In three hours she would meet with senior management

to decide to accept the client’s request at their price or come up with an alternate

plan. Songsee realized she should have several options for senior management to

consider, along with a recommendation.

Explanation / Answer

Since the company already has subcontracted the project, it would be unfair and unethical to outsource some of its services. In the standard contracts, the two parties have their obligations to fulfill regarding the accomplishment of the project. Hence, SCF can only outsource other services by discussing and agreeing with ACL. At this point, it is clear that the events surrounding their business need a particular attention to maintaining mutual respect and business etiquette. If the contract signed initially was open, then SCF can use it as a reference point.

The option that can be considered is implementing some changes in phases. A full implementation would be unrealistic at the moment, but it can be taken into account in future operations. The adopting current proposal affects SCF the most and therefore, this should be considered for future decisions.   

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