Morgan Components IESE MBA Case Report

3440 Words Feb 28th, 2006 14 Pages
Executive Summary:

The Director of the European Interior Components Product Line Team of Morgan Components Company, Sean O'Fearna is facing a difficult decision. He needs to respond to the price reduction request on a door panel project, which would take-off in six months. The initial contract was signed at a price of 90 euros between Asiacar and Plasticom. Morgan Components took ownership of the contract, as it acquired the Clondalkin plant of Plasticom.

The project was seen infeasible by Morgan Components executives, even before the price reduction. Therefore, first a unit based cost breakdown analysis was applied. It was observed that with the current production processes, the minimum price that Morgan Components could afford was 80
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Moreover, he may need to choose a way to modify his production processes to reduce his costs. Afterwards, if he decides to carry on with the contract, he will need to decide on a minimum price that he may afford and come up with a price range, mutually acceptable for both Asiacar (AC) and Morgan Components (MC).

Since Sean himself is not in a position in the organizational structure of MC to decide on such a critical issue all by himself, he will need to discuss the upcomings with his own superiors, before starting a negotiation with AC. In this context, he has to identify the strengths of his arguments that he should draw on during his dialogues with both MC executives and AC representatives.

Criteria:

All the decisions Sean needs to take are constrained in five main criteria, all of which will be taken into consideration to provide a framework for the analysis.

First of all is the risk of canceling the contract right away. Since some investments has already been made and considering the Clondalkin Plant running with 60% capacity currently, quitting the contract will require firing some workers and in total incurring a non-recoverable loss of 3 million euros.

Second important aspect is the profitability of the AC contract. Taking into account the potential risks contained within the structure of the contract, the cost structure of the door panel production should be re-analyzed to determine the maximum potential profit and

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