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PMB 440 case study #5 Industrial Equipment Company (IEC)

The Industrial Equipment Company (IEC) has a contract to provide a substantial amount of equipment for a large paper mill project. The contract contains a penalty clause for late delivery of the paper mill equipment. The electric motors and miscellaneous electrical components required for the paper mill equipment have been procured from a major manufacturer of electrical equipment. Paula Samuels is the project manager for IEC responsible for the production of the paper mill equipment.

The initial shipment of electrical equipment from the supplier is late. Paula Samuels meets with the supplier and is told that the only way to expedite the deliveries of the needed electrical equipments is to pay the supplier an additional fee to assign a full time expediter to the order. Although Paula believed that the cost of expediting a supplier’s work should be the responsibility of the supplier, she reluctantly agrees to pay for the expediting since the delivery of the electrical components are critical to the completion of the assembly for the paper mill equipment.

After the electrical equipment is received at the facility at IEC serious quality defects are found in the casting for the motors. The supplier refuses to correct the deficiencies at IEC facilities and requests that the motors be returned to the supplier’s facility. The manufacturing group of IEC does not want to ship the motors back to the supplier since this would further delay the completion of the paper mill equipment. Paul Samuels meets with the procurement and manufacturing managers to determine what course of action to take.

Answer the following questions as if you are Paul Samuels.

1. What type of contract clause should have been within the contract between IEC and the electrical supplier that would have made the cost of expediting the completion of the electrical equipment the responsibility of the supplier?

2. What type of clause in the contract would have made the supplier responsible for paying for rework to the electrical motors at IEC facilities?

3. How would shop inspection of the electrical equipment have minimized the impact of the quality deficiencies in the electrical motors?

4. What course of actions will you take if you were Paula Samuels?

Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 14-2


I. Major Facts

(State here the major facts in bullet format, as you understand them. Make your statements clear and concise for your own understanding as well as for the understanding of the other students and the instructor.)

II. Major Problems

(State here the major problems, as you understand it. Emphasize the present major problem. You may wish to phrase your statement in the form of a question. In a few cases, there may be more than one problem. A good problem statement will be concise, usually only one sentence.)

III. Possible Solutions

(List the possible solutions to the major problem. Let your imagination come up with alternative ways to solve the problem. Do not limit yourself to only one or two possible solutions. Briefly note the advantages and disadvantages of each possible solution. Try to think outside the box.)

IV. Choice and Rationale

(State your choice from among your possible solutions and the detailed reasons for your choice. You may also wish to state why you did not choose the alternatives.)

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