APPENDIX C
Paramount’s Proposal Letter to the ABC Company
Proposal to ABC Company
February 29, 2XXX
Paramount Consulting
401 East River Run
Chicago, Illinois 606XX
February 29, 2XXX
Mr. Anil Gupta, Vice President
ABC Company
234 Raintree Road
Midwestern, Illinois
Dear Anil:
Thank you for the time you and your colleagues have spent with us to describe in detail ABC’s urgent need for additional capacity to meet anticipated market demand. We have given your situation considerable thought, which we have reflected in this proposal to develop a manufacturing strategy, the implementation of which will provide the capacity necessary to meet forecasted demand. Our proposal presents our understanding of your situation, our proposed methodology for developing the most appropriate capacity plan, our qualifications for supporting you, and the benefits we believe you will realize from our participation in this most challenging engagement. As you requested, we have submitted separately our estimated fees, the résumés of our proposed team, and references from similar projects.
The Situation at ABC
Over the past five years, household appliance shipments by ABC and your competitors have been fairly stable, and only modest growth is projected over the next five years in your mature industry (Figure 1).
Despite the relative stability of these shipments industrywide, ABC has managed to increase its share of the household appliance market primarily by producing high-quality products at competitive costs and by being responsive to customers’ needs. As a result, ABC has become a leader in the market and one of the premier divisions within Consolidated Industries.
Your consistent record of success, however, may be threatened. Although your market forecasts indicate that ABC can continue to increase market share, even the conservative forecast clearly shows that projected product demand will exceed your available manufacturing capacity in less than three years. Without adequate capacity, your competitive position will certainly suffer as a result of declining delivery performance, deteriorating product quality, and increasing operating costs.
Proposal to ABC Company
February 29, 2XXX
FIGURE 1 Industry forecasts show modest growth over the next three years.
Complicating the picture, demographic shifts and exports are moving demand farther away from your existing Midwest production facilities (Figure 2). Population and household growth in three geographic regions remote from these facilities has far exceeded that of the Midwest, as well as the nation as a whole. Undoubtedly, these geographic shifts have contributed to ABC’s increased distribution costs, a major factor in the total landed cost of household appliances. In jeopardy are not only ABC’s operating objectives but your status as a premier division within Consolidated.
Recognizing these threats, your management group has suggested several options for increasing capacity, but little agreement exists about how that capacity should be deployed, and no agreement exists about the amount of capacity required. Consensus does exist, however, in two areas: additional capacity will be needed, and the time when it will be needed is fast approaching.
Complicating the need to move quickly is the need to carefully develop a thorough, convincing, and comprehensive plan accepted by both ABC’s and Consolidated’s management. This plan should answer questions like these:
Proposal to ABC Company
February 29, 2XXX
FIGURE 2 Three geographic regions have household and population growth exceeding the national average and growth in the Midwest.
Based upon the long-term forecast, how much total factory space, equipment, and human resources are required and when?
What opportunities exist to better utilize current equipment, space, and new technology?
What manufacturing factory–configuration option or options will provide the required space? For example, how much expansion potential exists at the current facility, and what, if any, make versus buy scenarios as well as changes in factory roles and locations can provide additional space?
Even if resources can be added at the present location, does it make more economic sense to add them there or to make the investment elsewhere? For example, will service levels increase and transportation costs decrease at a new geographic location closer to your growing markets?
Which option is most appropriate considering the qualitative factors and quantitative factors identified in our methodology below?
To answer questions like these, my colleagues at Paramount Consulting and I have designed a methodology that will not only develop a manufacturing strategy to provide the capacity necessary for meeting forecasted demand but also a concrete plan for implementing that strategy to improve your position within the marketplace and solidify your position within Consolidated Industries.
Proposal to ABC Company
February 29, 2XXX
Our Proposed Methodology
We have designed our methodology as we have for three important reasons. First, because forecasted demand will soon outstrip capacity and because building new capacity will require long lead times, you need a study that produces a decision quickly. Therefore, we will involve ABC’s management to expedite the retrieval, development, and analysis of relevant information, thus reducing the time for analysis. We will also work with your management team to prepare the final report. This document will not only be a recommended expansion plan but also an actual proposal to Consolidated that justifies the cost of the expansion by articulating the compelling reasons to move forward with urgency.
Second, because of the many and varied proposed expansion alternatives, you need well-defined and agreed-upon criteria for evaluating them. Therefore, we will conduct strategy sessions with all relevant ABC managers to gain consensus on and establish the proper quantitative and qualitative criteria. Quantitative criteria worth considering include ROI; investment incentives; taxes; and costs related to labor, service levels, distribution, construction, and utilities. Qualitative criteria could include labor supply, union climate, workforce characteristics, productivity, environmental permitting and regulations, vocational training capabilities, manufacturing support services, risk, controllability, the ability to develop and promote employees, and the flexibility to react to unanticipated changes.
Finally, because this will be a cross-functional study, ABC needs a senior, multifaceted consulting team with a broad range of business capabilities, including marketing, manufacturing strategy, facilities planning, logistics, financial analysis, and human resources. These capabilities are necessary to ensure that all relevant options are surfaced and evaluated in a practical manner, that the most desirable options and their attributes are clearly identified and defined, and that ABC’s management not only has the ability to make the right decision but that Consolidated is convinced of its appropriateness.
Therefore, we will form a joint ABC/Paramount study team with ABC’s managers playing an integral role, thereby providing the additional benefit of training ABC’s management to analyze and plan for additional capacity in the future.
Proposal to ABC Company
February 29, 2XXX
FIGURE 3 In less than six months, ABC will have a detailed implementation plan as well as a capital-funding request for Consolidated.
Specifically, our methodology consists of the five major tasks shown in Figure 3 and discussed in detail in Appendix A. Please note that the five-and-one-half-month estimate for completing the study is conservative. Working with your management team, we will make every effort to accelerate the project’s completion.
Qualifications of Paramount Consulting
ABC is faced with a most formidable challenge as it begins the task of providing additional manufacturing capacity to avert the shortfall expected in the next few years. This capacity shortfall should be considered imminent as you examine the numerous tasks that must be completed effectively within the narrow available time frame.
Time will be required for sufficient interchange between ABC and Consolidated to agree on the decision to commit scarce financial, planning, managerial, and other resources needed to implement the selected option. Substantially more time will be needed to put in place additional resources and to provide the necessary training for an effective start-up.
As described in the following paragraphs, Paramount has the diverse capabilities to help you complete this challenging engagement successfully and expeditiously. Specifically, we have:
Proposal to ABC Company
February 29, 2XXX
The resources to begin this engagement immediately and to complete this project in four to five months
Substantial manufacturing, financial, and strategy-development experience within the household-appliance industry
The ability to address the wide range of issues related to this engagement
The ability to develop a sound joint ABC/Paramount team
Proven experience in planning and controlling implementation of the strategy we will develop with you
Paramount Has the Resources to Begin and Complete This Project Quickly
Of the nearly 100 consultants in our nearby Midwest office, we have already identified several individuals with the skills and experience needed to help develop a sound plan for increasing capacity. Each of these professionals has worked on similar engagements, is substantially “down the learning curve,” and will therefore be able to function effectively at the beginning of the engagement. In fact, several of them have participated in developing this proposal.
Our proposed engagement team of four consultants will be drawn from this group, and we would like to introduce this team to you so that you feel as comfortable with them as we do. We will use no subcontractors without your concurrence, and we will be able to begin the engagement immediately after your approval to proceed.
We Have Substantial Manufacturing, Financial, and Strategy-Development Experience Within Your Industry
For almost 40 years, Paramount has served clients with a high level of satisfaction. In fact, over 80 percent of our consulting engagements come from previous clients. Paramount originated with a strong manufacturing and strategy capability that has grown significantly over the years; this strength will enable us to address all the diverse issues that must be resolved during the proposed engagement.
In the past five years, we have conducted over 200 manufacturing strategy engagements, of which nearly 25 were conducted for companies within the appliance industry. Furthermore, approximately 60 of those studies specifically involved our developing a broad range of manufacturing capacity plans. Many of them were designed to answer questions similar to yours: “How can we provide additional manufacturing capacity most effectively?”
Proposal to ABC Company
February 29, 2XXX
We Are Able to Address the Wide Range of Issues Related to This Study
The team proposed for this engagement has expertise in all aspects of this study. We understand the marketing and manufacturing issues from a business perspective so that we can develop various capacity expansion options; evaluate them with your management team, considering each of the team members’ individual (and often differing) perspectives; select the most appropriate option; prepare for Consolidated a comprehensive appropriation request; and plan for its successful implementation within your tight time frame.
We Have the Ability to Build a Sound ABC/Paramount Team
Because the staff to be assigned has considerable expertise in conducting similar studies, building consensus, and transferring their knowledge, skills, and expertise, we have been able to carefully structure our approach so that ABC management will participate actively and become an integral part of the engagement team. Thus, on completion of the engagement, ABC will possess a base of residual knowledge that will be invaluable in addressing future capacity and other strategic manufacturing questions. For example, we believe that ABC members of the engagement team will be able, even more effectively than at present, to monitor sales forecasts, plant productivity, and capacity utilization to project accurately when additional capacity might be needed in the more distant future.
We Have the Ability to Plan and Control Implementation
Once the most appropriate capacity expansion option has been selected, it will be extremely important to implement that plan without delay. Although an implementation phase lies outside the scope of this proposed project, you should be aware that our significant experience in successfully implementing comprehensive plans for increasing capacity could be invaluable to ABC. Our project teams that work on such implementation projects routinely use a variety of sophisticated project-control software packages. These programs are necessary for properly allocating resources; monitoring task completions and costs, thereby assuring adherence to budget; identifying potential problems or delays; and reallocating resources to maintain schedules and achieve time and cost objectives. These control techniques will ensure that implementation of the selected option will proceed smoothly and will be completed on time and within budget.
Proposal to ABC Company
February 29, 2XXX
Even if we are not actively involved in implementation, we will have developed the new manufacturing plan considering ABC’s resources and capabilities. Our goal is not just to produce a plan for increasing capacity but to bring that capacity on line as soon as possible. That is, we are not in the business of just developing plans. We want to see those plans implemented whether or not you decide to engage us to help you do so.
Benefits
I would like to summarize for you, Anil, some of the most important points we’ve made to you and your team in our previous discussions and in this proposal. Then I will describe the benefits we believe you will receive from our developing a capacity plan for meeting ABC’s forecasted demand and from that plan’s subsequent implementation by ABC (quite possibly with our support).
The Benefits of Leveraging Our Efforts
By forming a joint ABC/Paramount team, with ABC managers playing an integral part, we will be able to leverage the substantial knowledge, expertise, and tools both ABC and Paramount will bring to this project and to develop, sell, and implement the plan as quickly as possible.
This team will hold frequent progress reviews so that various constituencies within the Division (as well as, if appropriate, within Consolidated) will be aware of preliminary conclusions and direction quickly. We plan for these reviews to include strategy sessions, during which we can gain consensus on answers to the wide variety of questions posed in this project and get agreement across various interest areas on the appropriate criteria to be used to select the most effective expansion option. Finally, the team will prepare a final report, which we plan to be a proposal and capital-expenditure request to Consolidated. This strategy will eliminate an entire and possibly time-consuming step in the approval process.
This teaming strategy will work exceptionally well because Paramount’s professionals have extensive expertise in building effective client/consultant teams, transferring knowledge, and managing and implementing change. We also understand the range of evaluation criteria important in this analysis and are adept at facilitating discussions to gain consensus on these criteria. We will commit our broad-based team quickly to begin the project immediately after your approval to proceed. Using this team’s exceptional expertise in marketing, manufacturing strategy, facilities planning, logistics, financial analysis, and human resources, we will provide ABC with the right “road map” for increasing capacity.
Proposal to ABC Company
February 29, 2XXX
Your Benefits at the End of This Project
Our final report, which we will design as your proposal to Consolidated, will be thorough, comprehensive, and well documented, providing ABC with the basis for making a sound expansion decision that considers and balances all the quantitative and qualitative factors. And because that decision will be based on agreed-to criteria, it will be well accepted by ABC management with different agendas. Just as important, the report will convince Consolidated of the expansion decision’s correctness and desirability and answer their “what-if” questions.
In addition to our recommended expansion option, the report will contain:
a confirmed market forecast and market share and product-mix projections
specified current equipment and space utilization and opportunities to better utilize current equipment and space as well as new technology
specified make-versus-buy options as well as potential factory roles and locations for increasing capacity
an implementation plan
Our jointly developed implementation plan will specify the tasks, resources, requirements, and timing necessary to bring additional capacity on line over time in a controlled yet expeditious manner.
Your Benefits Beyond This Project
We are confident that, once implemented, our jointly developed plan will significantly improve ABC’s processes; lead to more cost-effective operations, improved service levels, and product quality; and allow you to maintain, if not enhance, your market share. Your productivity should increase, your compensation levels should be protected, and you should realize greater flexibility in implementing your business and marketing strategies. Most important, after subsequent implementation, you should improve your competitive position and maintain your excellent reputation with Consolidated.
Proposal to ABC Company
February 29, 2XXX
Quite obviously, Anil, we believe that Paramount is the right consulting firm for conducting this engagement. We have a comprehensive understanding of your situation and a logical and robust methodology for capitalizing on what we consider ABC’s substantial opportunity to continue your growth in the marketplace and solidify your position within Consolidated Industries. Just as soon as possible, we would like to discuss that methodology and how we can best work together with you, President Armstrong, and others so that we can all agree on the proper magnitude of effort, the specific roles ABC and Paramount personnel should play, and the cost of the engagement. This is a critically important study for ABC, and we look forward to supporting you as you develop the manufacturing base for continued competitive success.
Sincerely yours,
Stan Gilmore, Partner
Proposal to ABC Company
February 29, 2XXX
Appendix A: Methodology
Below, we explain in more detail the five major tasks contained in the methods section.
Task 1: Confirm ABC’s Long-Term Product Forecast
Although ABC already has a forecast by product line, we believe that the engagement must be conducted with Consolidated constantly in mind. Since Consolidated must release the necessary capital funding, they must be convinced of the engagement’s rigor and robustness. For that reason, we believe that the forecast must be confirmed by an independent third party. Therefore, we propose to work with ABC’s marketing management to confirm or modify the long-term forecast by:
validating ABC’s current overall market forecast
validating ABC’s market share and your geographic and product-mix projections
The consensus market forecast developed in this task will represent the best thinking of your marketing group and the Paramount team. The forecast, used with various manufacturing data, will enable the engagement team to develop future resource requirements over time.
Task 2: Determine Total Factory Resource Requirements at Alternate Forecast Levels
An important task of the engagement team will be to use the existing base of production resources (floor space, equipment, and staffing) and modify that base so that it can accommodate the additional future production demands over time indicated by the confirmed market forecast. First, however, the team will carefully evaluate that base to identify improvements or eliminate inefficiencies that might exist today. We don’t want ABC to risk adding too much or too little capacity. This risk can be avoided by first establishing a proper base, a “current-improved” base, from which to project future resource requirements. All this will be critical, because determining future needs involves far more than simply an arithmetic extrapolation of today’s activities.
We were very much impressed during our walk-through of your main manufacturing facility. You should know, however, that in nearly every similar engagement, we have been able to recommend methods for better utilizing currently available space, thereby making space available for additional equipment to add to manufacturing capacity. To provide additional capacity and/or space without first determining such improvement opportunities could result in unnecessary capital investment.
Proposal to ABC Company
February 29, 2XXX
We will ensure that ABC is making the most effective use of existing manufacturing resources. Specifically, we will:
document current equipment and space utilization
determine opportunities to better utilize current equipment and space and to improve material flow
determine opportunities for utilizing new equipment technology
specify which products or components, if any, should be made in-house or purchased from suppliers
The modified, effective base of production resources coupled with the confirmed market forecast will enable the engagement team to develop an accurate and credible projection of future resource requirements. At this point, the joint ABC/Paramount engagement team will have a sound basis for identifying, evaluating, and selecting the most viable option or options to provide these requirements.
Task 3: Define Manufacturing Facility Options to Provide Required Resources
Once we know how much additional space and equipment are required, we will identify the possible manufacturing options that will provide these additional resources. Accordingly, we will develop and analyze various options and determine which configuration of facilities best meets your objectives. Specifically, we will:
determine expansion potential at the current facility
specify potential factory roles and locations for increasing capacity
As a result of completing this task, we will have narrowed the field from the possible to the probable, the better to be able to scrutinize the remaining options and to choose the most appropriate.
Task 4: Select the Most Appropriate Option
Using ABC’s distribution model and Paramount’s proprietary models for assessing expansion options, the joint engagement team will evaluate thoroughly each potential expansion option and then select the one most appropriate. Although the range of options will have been narrowed, those remaining will quite likely be diverse. Therefore, we will work with ABC management to develop both quantitative and qualitative criteria that will differentiate carefully among the various options, and we will obtain management’s agreement on the one most appropriate. Specifically, to select the most appropriate option, the engagement team will:
Proposal to ABC Company
February 29, 2XXX
define quantitative and qualitative criteria important to ABC and Consolidated
evaluate each option against quantitative criteria such as ROI, landed cost, quality, and customer service
evaluate each option against qualitative criteria such as manufacturing flexibility and potential risk
When this task is completed, you will know precisely how to configure your manufacturing facilities over time so that you can meet customer demand throughout the forecasted period cost-effectively and responsively.
Task 5: Develop a Plan To Implement the Selected Option
Because the additional manufacturing resources required will likely be brought onstream at various times throughout the forecast period, ABC will need a carefully prepared plan to monitor progress during implementation. To that end, we will prepare a plan to ensure that additional manufacturing resources and facilities are in place when and where they are needed to meet forecasted demand. The various steps in our implementation plan will be time-phased so that management will know precisely when additional capacity is required and when other managerial decisions and actions are needed. Specifically, we will:
define the tasks necessary to implement the selected option
define the resources and responsibilities necessary to complete those tasks
develop a critical path to estimate the time required to complete all tasks
As a result of this task, management will know all the tasks required to provide the additional manufacturing resources, when each task should be initiated and completed, and the skills required to complete each task. The implementation plan will provide you with a critical mechanism to monitor overall progress, to efficiently invest required capital and other resources when they are needed, and to take corrective actions if actual market demand differs significantly from that projected.
After completing this task and obtaining your agreement, we will work with you to immediately prepare a capital appropriations request that can be submitted directly to Consolidated for their timely consideration.