Case Study 2 - Moren Corporation

Moren Corporation was building three additional generation stations to serve its rapidly expanding energy market. To link these stations with a total area grid, a new method of carrying the power lines using ornamental tubular poles instead of towers had been adopted. Moren. Had had no previous operating experience with poles and decided to subcontract thedesign engineering, fabrication an erection of new line.

For the first phase of engineering design, Mr. John Carter the vice president of supply, face the responsibility of deciding with which supplier the business was to be placed after his staff had developed the information needed. He was aware of that Moren had only three years in which to complete the entire project and yet he had to ensure high quality work.

Company Background

Moren Corporation,established in 1895, was one of the largest power utilities in the eastern United States. It's serviced a highly industrialized area of 10 fossil fuel plants. With assets of over $19 billion and German doubling every decade, it had already earmarked funds to increase its kilowatt capacity from 8.4 million to 13,000,000 over a 4 year.

The company was well known for its advanced technology and it's good public relations. Both purchasing and engineering department's were centralized and located in the head office in the area's largest city. The new construction program was a heavy strain on both the professional an financial resource is of the company, placing increased emphasis on the use of qualified people and suppliers outside the corporation.

Transmission Line Background

Although Moren was stepping up its older lines to 230 kilovolts, by management decision and in accordance with the technological trend, 345K Volt was adopted for the new line. It was to link the new generating stations in Addison, Smithfield and Mesa Valley with the area grid. Some 140 miles in total.

Until now, Moren had used structural steel towers exclusively for caring for its power line. These were strong but visually prominent and attracted adverse comments from the public daily growing more aesthetically sophisticated. A relatively new development in the transmission field was the introduction of an ornamental tubular power pole. approximately 2000 miles of line using these poles had been installed with good success in various parts of the country. Most of the installations were relatively short sections in densely populated areas. Align using poles cost twice as much as the conventional towers but it is still substantially cheaper then underground installation. Conscious of the great strides made in powerful design and use, Moren management decided to specify poles for the new lines.

Because of the volume of conversion and projected expansion work, Mr. Carter and the project and engineers new that the tower manufacturers an erection companies with whom they had dealt in the past would not have the capacity to handle all the elements of the new pool concept. Furthermore, with no experience in 345 kilovolts or pole suspension, Moren had to rely on the know how of others for the new line And needed the services and guidance of competent subcontractors.

The Total Job Involves Three Major Phases.

1. Engineering design called for layout as well as functional pole specification and project guidance.
2. Pole manufacturer involved a manufacturing proposal consisting of specific design to meet the functional specifications as well as manufacturing volume an schedule deadline capabilities.
3. Pole installation involved excavation, foundation setting, pole erection inline string. Preliminary cost estimates for the total project were as follows:
   1. Phase 1 - Engineering: $1.5 million to $1.8 million
   2. Phase 2 - Pole manufacturer: $90 million
   3. Phase 3 - Installation: $78 million

Mr. Carter and the chief engineer were not satisfied that any individual supplier could handle the total contract well. They decided, therefore to subcontract each phase to reliable source of high expertise within that phase, so the optimum overall benefits would accure to Moren. the first sourcing decision dealt with engineering phase.

Design Engineering Selection

All through the spring and half of the summer, Oliver Dunn, the buyer, work with transmission engineering section of the system engineering department of the company to establish parameters an locate a suitable design source. By late July, he was able to make his recommendation to the director of purchases ( Exhibit 1 ).

It was normal practice at Moren to provide a very brief summary for the director of purchases on all major contracts. A large file containing detailed information was built up by the buyers and purchasing managers involved. Normally, some preliminary discussions were held as the project progressed, so that Mr. Carter was reasonably informed by the time the official recommendation was prepared. Should he wish to see more information, he could request the file at any time.

All three of the engineering firms considered were large and engaged in a wide variety of engineering consulting services. Travers & Bolton (T&B) and Crown Engineering (CE) had both done considerable work for Moren in the past and had performed satisfactorily. Pettigrew Associates Had its head office in New York and maintain branches in 10 American cities. Pettigrew Employed over 3800 people, had a good credit rating Ann had annual sales in excess of $480 million per year. Moren had never used Pettigrew best projects. All three engineering firms had some tubular pole experience with short-line sections in other parts of the country. Aside from the design requirements, the consulting engineering firm was also expected to evaluate the bits from pull manufacturing and erection subcontractors.

Additional Information

1. The transmission section of our general engineering department is unable to perform the design work of all planned transmission work for the next three years and it is necessary to contract some portion of this work. T&B Is already assigned the conversion of 120 kilovolts to 230 kilovolts and it is recommended that this 140-mile Addison, Smithfield, Mesa Valley 345 kilovolts be contacted by some competent engineering firm.
2. We had sessions with each of the three below mentioned engineering firms to acquaint them with our needs and learn of their capabilities. The work they will perform is as follows: make routine sections; make subsurface investigations; make electrical hardware and general project designs; and furnish miscellaneous specifications, drawings and technical data required to procure the right of way, hardware, structural steel, in the awarding of contracts for construction. It is estimated this work will total 12,300 labour hours. There will also be approximately $144,000 worth of computer service and general out of pocket expenses in addition to the labour hours.
3. Bid comparison is:

Supplier	Estimated Labor-Hours	Basic Average Cost per Labor-Hour (w/o Fringes)	Approximately Fringes (assumed same for all)	Overhead and Profit	Estimated $/Hour
T & B	14,350	$60	20%	65.5%	$120.00
CE	-	$60	20%	80%	$129.60
Pettigrew	12,190	$60	20%	85%	$133.20

It is recommended that this contract be awarded to Pettigrew even though their cost per hour is higher than others. Total costs will be influenced by the capabilities and productivity of the company chosen and therefore Patrick you may not cost us anymore; it is the desire of more and management do you have Pettigrew perform such a job with Moren is our first experience with them. Both T&B and CE have done considerable work for Moren.

Questions - Case 2 - Moren Corporation 40 Marks

Answer Any 4 of the 5 of the following Questions. ( 10 Marks Each )

1. Should cost be a major factor in the selection of a design engineering firm?
2. What alternative methods might Moren consider in contracting the three phases of the transmission line project?
3. If you were in the position of Mr. Carter, what type of additional information would you like?How would such additional information change your mind?
4. What factors should be considered important in the selection of an engineering subcontractor?
5. What factors should be considered in the purchase of the total transmission line project?