Global Holdings Ltd commenced a project 2 years ago to re-engineer the production process on a production line in a factory in Vietnam manufacturing generic pharmaceuticals. The project has, to date, not achieved its objectives and is significantly above budget. The case data explains the project plan and achievements to date. Being extremely pleased with the advice you provided to them previously (Assessments 1 and 2), Global Holdings has engaged you again to review the project and prepare a report to the company directors to identify the reasons for the failure to achieve project objectives to date and recommend corrective action.

Part 1

1. Create a value chain analysis identifying where opportunities exist for cost reductions and revenue enhancements. Identify if the project that was initiated was focussed on capturing these identified value benefits. In your submission refer to resources covered in Week 1 on the Value Chain Analysis and in Week 5 on the process of selecting value enhancing objectives. (equivalent to 300 words).
2. Quantify the revenues, product costs, working capital requirements and capital employed prior to the commencement of the project, that is expected on successful completion of the project. In your submission, use the analytical tools covered in Week 3 to analyse the data provided and incorporate your findings in your report in a style that allows the reader to reach valid conclusions. (equivalent to 800 words)
3. Identify a number of targeted outcomes that would be expected to be achieved by the described project. Propose and justify a list of relevant KPIs for the project team leader that will enable the team leader to re-focus the project on achieving its original stated objective. In your submission, consider both internal and external sources of information, consider a mix of KPIs that are relevant for the short term, and also for the long term (drawing on resources covered in Week 2). Also explain why you selected these specific KPIs with regard to resources covered in Week 5. (equivalent to 500 words)
4. Assess any deficiencies in the project management process. Propose amendments to the process that will resolve the identified deficiencies. In your submission, consider resources on project management (covered in Week 5) and the behavioural issues and other soft skills required of the team (covered in Week 6). (equivalent to 150 words)

Part 1 Case Data

One of the manufacturing plants of GP is in Vietnam. This plant is tooled up to manufacture tablets and capsules. The plant is also tooled up to package the product either in Blister Packs, which are then packed into consumer packs or in glass or plastic bottles. This product is then packed into corrugated boxes. The boxes of finished product are stored in the warehouse until orders are received from the sales units, at which point they are shipped out, usually by air freight to the purchasing country. The plant is able to manufacture a range of products ranging from over the counter generic drugs such as vitamin tablets to patented prescription drugs targeted to cure or provide relief against specific medical conditions. The plant in Vietnam is quite old, has a number of inefficiencies, and as a result is now perceived by senior management to be cost inefficient compared to the competition.

A summary of the production cost of the plant in Vietnam for the year ended December 2017 is provided below:

Profit Statement for the year ended 31st December 2017
Item	Note	$ (Millions)
Sales		400
Less: costs
Raw materials cost of sales		100
Packing materials cost of sales		20
Salaries and wages	Note 1	40
Other expenses	Note 2	200
Interest	Note 3	15
Profit before tax		25
Extract from the Balance Sheet as at 31st December 2017
Raw materials inventory		30
Packing materials inventory		10
Finished goods inventory		30

Note 1 Salaries and wages cost is made up as follows:

• 20 employees involved in purchasing materials, logistics, production planning, production scheduling, warehousing and despatch at a cost of $100,000 per person per year
• 250 employees employed on the shop floor in the manufacture and packaging of the products at a cost of $100,000 each per year
• 30 employees were involved in repair and maintenance work at a cost of $100,000 each per year
• Administration and Laboratory employees were paid $10 million for the year

Note 2 Other Expenses include

• Depreciation expenses of $30 million
• Maintenance expenses of $40 million

Note 3 Interest is paid on bank borrowings at the rate of 5% per year

In late 2017, the directors of GP approved an investment of $300 million in a major upgrade to the operations of this manufacturing plant in Vietnam.

Of this amount, $50 million was approved for investment in IT hardware and software and consulting services to automate the production planning and scheduling process based on inputs of demand forecasts from the sales locations. A further $250 million was to be invested to move the manufacturing process from an old style batch manufacture to a continuous process uninterrupted semi- automated manufacturing and packaging process.

The directors envisaged the following benefits from this investment:

1. The capacity and output from the factory will increase by 20%.
2. A reduction in manufacturing inefficiencies will result in raw material costs reducing by 2%.
3. A reduction in packaging inefficiencies will result in both raw material costs and packing material costs reducing by 3%.
4. 10 employees in the Logistics area will become excessive to the business and will be made redundant. 150 employees employed on the shop floor will become excessive to the business and will be made redundant. 20 persons on the repairs and maintenance section will also become excessive to the business needs and be made redundant (ignore redundancy costs in your analysis).
5. The new investment of $50 million in IT will have a life of 5 years while the new investment of $250 million in the manufacturing plant will have a life of 10 years.
6. Repair and maintenance costs incurred on the factory equipment (included in Other Expenses) which amounted to $30 million in the year 2017 will reduce by 50% each year in the future.
7. Because of the continuous process and shorter production runs the number of mould changes will increase by 30%. In the year 2017 there were 500 mould changes. The management accountant has computed that the cost of a mould change is $3,000.
8. Improving manufacturing to sales forecasts is expected to reduce inventory by 20% and free up cash which will be used to reduce the bank loans.
9. The transition project was expected to take 18 months and by 1^st July 2019, the project will be completed. The directors of GP appointed a project team to implement this project. The team consisted of the factory manager, the IT manager, the management accountant, the HR manager, and the R&D Manager. The IT manager was also appointed to lead the project team. MKGP Consulting, a leading international consulting firm was appointed to lead the project.

The project commenced as scheduled in January 2018. However, the project did not evolve as envisaged, with many things going wrong. The employees were not happy with the high level of redundancies and commenced industrial work stoppages throughout 2018. The implementation of the production planning and scheduling of the IT project did not achieve expectations due to programming errors, staff not being properly trained to use the new software, and unreliability and lack of accountability of the sales forecasts coming in from the sales locations as inputs to the production planning process. The change over from the old manually performed batch manufacturing to the new automated continuous process manufacturing also did not flow through smoothly. Unavailability of the required raw materials caused regular stoppage of the new production line because a software programming issue did not check raw material availability before scheduling production. The number of changeovers increased much more than the envisaged 150 extra mould changes. There were also issues with the automated packaging and put away in warehouse processes, where newly manufactured product were being directed into slots in the warehouse that were already occupied, causing the automated process to shut down on a regular basis disrupting the warehousing process and involving a large increase in manual intervention.

The IT manager who was a member of the project implementation team resigned from his job in mid-2018, as he was not happy with the choice of the software chosen. At that time, the HR manager was made the new head of the project team as the workplace relations issues arising from the impending redundancies was becoming a major inconvenience to the day-to-day operations of the plant. The new IT manager joined the project management team. The R&D manager rarely attended any project meetings because she was of the view that she had very little to contribute to the team. The project team used to meet twice a month, once on their own to review progress and once with the consultants MKGP to get an update from them on the project progress. None of the team members had any prior experience in project management.

The circumstances at this manufacturing facility in the year ended December 2019 were as detailed below:

1. The capital expenditure has been substantially completed and the $300 million was invested during 2018 and 2019.
2. Sales volumes had fallen 20% from the level of sales achieved in 2017.
3. Continuous stock shortages in the year resulted in emergency purchases having to be made frequently. This caused the cost of raw materials to have increased by 5%.
4. Manufacturing issues at the bottle filling line resulted in 10% of the bottles packed in the year 2019 to be rejected as not fit for sale. This resulted in packing material costs going up by 7%.
5. Poor sales forecast inputs into the scheduling resulted in the manufacture of some items for which there was no consumer demand. As a result, the value of the finished goods inventory had increased by 20% compared to the end 2017 level.
6. None of the maintenance staff reductions has happened so far. Similarly, none of the logistics staff reductions has happened.
7. Due to the defective forecasting and production scheduling process, the number of mould changeovers had increased from 500 in 2017 to 1,300 in 2019.
8. Staff morale continues to be very low.

In early January 2020, the Directors of BG made the following three decisions:

1. They employed Mr John Fixit as the project leader. The HR manager, who was the previous project leader, reverted back to her role as a member of the project team.
2. Originally, they approved an investment of a further $50 million to correct the many failure points in the project implementation.
3. They engaged your consulting firm to review the project and report on the matters they have asked you to address.