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Project Business Management

SERIES ARTICLE

By Oliver F. Lehmann

Munich, Germany

 


 

“Confusion is the charlatan’s friend, noise its accessory”            
– Carole Cadwalladr



Summary

The majority of projects today are not performed solely by internal teams. Project work is handed over partially or in full to external vendors who can build complex Project supply networks (PSNs), and project managers need to massively improve their skills to manage such PSNs professionally. Creating a “Mission Success Culture” based on a “Completing over competing” approach is an essential element of these skills.

 

From “Simple” Procurement Management to Complex Project Supply Networks (PSNs)

Case Story: An Uncomfortable Surprise in a Project Supply Network

Tarantula SE. (1) is a European manufacturer of machines for logistics and transportation purposes that are cutting edge technology and convince with low Total cost of ownership (TCO) in combination with high productivity. Located in Netherlands, they share the marketplace with a direct US-American competitor, Scorpio Corp., which has similar products, and like Tarantula invests heavily in new technologies, new applications for already existing advanced technologies and also tries to expand into future markets. For the development of a new machine type, a strategic decision was made to outsource more than the traditional 15% to 20%, in order to speed up the implementation time for innovations, tap external resources and reduce the need for management attention. The percentage of outsourced development rose during the project to about 60%, and the expectation was that this approach would shorten the product’s Time to market by 25% to 40%.

One of the contractors hired was a Canadian company Lobster Ltd. that was awarded a contract to develop and later produce an intricate component made from carbon fiber reinforced polymer (CFRP). Lobster soon noticed that it would not be able to do the project, given the challenging specifications agreed with Tarantula, the customer, on the product. The number of companies that can make such products is small, and in the market, most companies know each other, so they talked with a third company, Bee Queen S.A. from France, who soon became the subcontractor for the business. Figure 1 depicts the relationships of the companies mentioned above.

Figure 1: The layout of the small Project supply network in the case story.

The tight deadline for the component development forced Lobster’s project manager to ask Bee Queen to start development work, while the two companies were still in negotiations particularly on the price for the product development and for successive manufacturing. The two companies had a year-long business relation, and trust into Lobster and the desire to win the long-term business on Bee Queen’s side were strong incentives for the subcontractor to accept the business risk.

During these negotiations, it became clear for Lobster that the business would not be attractive for them at all. Between the price they would get paid by Tarantula and the costs of outsourcing to Bee Queen, the achieved margin became very thin. To make things worse: While the development project at Bee Queen was progressing fast and the deadline set by Tarantula was coming nearer and nearer, Lobster’s negotiation position deteriorated further. At a given time, the company was no more be able to switch to another supplier, but the price with the subcontractor was still not fixed. The thin margin would not only have to cover Lobster’s costs of managing the relation between the customer and the subcontractor, Lobster was also bearing the risk of missing the Start of production (SOP) deadline or of non-compliance with the specifications on the product, which would lead to contractual penalty payments that they would not be able to pass on to the subcontractor. To make things worse, the project blocked management resources at Lobster Ltd. that would be spent more wisely in winning and performing new business that would provide better margins. Lobster therefore made a decision to get out of the business and let Tarantula work directly with Bee Queen S.A.

A meeting was set up with the project managers and other representatives of the three companies. Tarantula had already some knowledge that Lobster Ltd. had subcontracted parts of the development work, but has so far not been interested in more details of this business. They considered the development project in good hands and gave Lobster the freedom to perform the project in a way that would ensure meeting the deadline and the technical requirements. Tarantula assumed that the outsourcing to a trusted contractor allowed them to focus their management attention on other parts of the new machine. To ensure that progress was rely on a number of maturity reviews called “Quality gates” (2), to give assurance that the development is on schedule, which it was. The development approach is sometimes referred to as “Rainbow model”, because as depicted in colors as shown (see Figure 2), there is some faint resemblance to a rainbow. The rainbow model can replace classical phase-gate models, allowing for asynchronous development at high speed, but poses a major challenge on project management.

More….

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Author’s note 1: All names changed in this article.
Author’s note 2: The term “Quality gate” or “Q-gate” is a misnomer but is quite common in in Europe.

Editor’s note: This is the 4th in a series of articles by Oliver Lehmann, author of the book “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016. See author profile below.



About the Author


Oliver F. Lehmann

Munich, Germany

 



Oliver F. Lehmann
, MSc., PMP, is a project management author, consultant, speaker and teacher. He studied Linguistics, Literature and History at the University of Stuttgart and Project Management at the University of Liverpool, UK, where he holds a Master of Science Degree. Oliver has trained thousands of project managers in Europe, USA and Asia in methodological project management with a focus on certification preparation. In addition, he is a visiting lecturer at the Technical University of Munich.

He has been a member and volunteer at PMI, the Project Management Institute, since 1998, and serves currently as the President of the PMI Southern Germany Chapter. Between 2004 and 2006, he contributed to PMI’s PM Network magazine, for which he provided a monthly editorial on page 1 called “Launch”, analyzing troubled projects around the world.

Oliver believes in three driving forces for personal improvement in project management: formal learning, experience and observations. He resides in Munich, Bavaria, Germany and can be contacted at [email protected].

Oliver Lehmann is the author of the book “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016.

To view other works by Oliver Lehmann, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/oliver-f-lehmann/