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Case Boise Automation Essay

On September 9, 2011, Rob Allison stared out the window of his Sudbury, Ontario, office. He was disappointed with the news that he had just lost a $1.2 million opportunity with Northern Paper Inc. (Northern), a paper mill in Rocky Falls, Ontario. The opportunity had been to design, supply and install an automated control system for Northern’s wood-chip handling system. Allison, the senior account manager in northern Ontario for Boise Automation Canada Ltd. (Boise), had more than 20 years experience selling automation systems in heavy industry. If Allison had won the order, it would have easily put him over his target quota for 2011 and would have significantly boosted his incentive payout. Now, with less than three months before the end of the year, he was unlikely to meet his target for the year. Allison felt like someone had just stolen the money for his family’s summer vacation, which may actually have been the case since he would likely not receive the bonus he had been counting on this year. Although greatly disappointed, Allison wanted to understand what had gone wrong and to learn from the experience, to avoid repeating it. What should he have done differently? He started by reviewing his notes. THE AUTOMATION EQUIPMENT AND SYSTEM MARKET Automation Systems

Automated control systems were widely used in many manufacturing processes. An automation system was an integrated system that usually included a series of sensors, actuators and controllers with programmed logic to automatically control the equipment in the manufacturing process. A simple example of an automation control system was a household heating system. The furnace in a home could be simply turned on when heat was needed and turned off when the house felt warm. A thermostat automatically controlled the furnace by sensing the temperature in the house and then taking the appropriate action, to automatically turn the furnace either on or off. A programmable thermostat added

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input variables beyond the temperature in the house, including the time of day and the day of the week. The programmable thermostat was the system controller with the programmed logic. Industrial automated control systems often controlled the operation of batch, or continuous manufacturing, processes. Industrial process control systems could control the temperature of a liquid, the speed of a production line, the volume of fluid being pumped and many other manufacturing variables. Industrial automated control systems commonly had hundreds, and sometimes thousands, of measurement sensors and a similar number of process control actuators. The design of automation systems required two broad skill sets. First, a designer needed in-depth knowledge of the technically complex and ever-changing components of industrial control systems. Second, a designer needed a comprehensive understanding of the process to be automated. AUTOMATION SYSTEM COMPETITORS

The automation market comprised several types of competitors: manufacturer solution providers, independent system integrators and hardware suppliers. Automated control systems were normally purchased as a complete package. Rarely did end-users buy hardware and design their own system. The system supplier usually designed the new automation system, installed or supervised the installation of the system, programmed the controllers and provided any training necessary for the customer. Manufacturer solution providers were automation hardware manufacturers, which also provided turnkey automation solutions. Canada had approximately five to 10 large manufacturer solution providers, including large global competitors such as Honeywell, Siemens and Rockwell. Independent system integrators were engineering firms that were independent of any manufacturers. Canada has approximately 20 large multinational engineering firms, in addition to several dozen mid-size independent integrators and hundreds of small independent integrators. Mid-size integrators tended to focus on a short list of specific industries, where they had expertise in client processes. Smaller firms usually built their business on in-depth knowledge of specific customers, strong customer relationships and strong customer service. The advantage of independent integrators was their ability to employ the equipment that best suited the application, regardless of the manufacturer. The advantage of a manufacturer solution provider was their deep technical knowledge of their products and, usually, their worldwide resources with client industry experience and expertise. Hardware suppliers manufactured sensors, communication devices, actuators and controllers. Normally, hardware was purchased as part of a system, except when a part was required to repair an existing system. PAPER MAKING INDUSTRY

The paper making industry had a long and storied history in Canada. Today, making paper was a hightech, capital-intensive, energy-intensive automated process in a competitive global market. An integrated paper mill first converted logs to wood chips, then converted the wood chips to wood pulp, which was then processed into finished paper. Canadian paper makers competed against low-cost suppliers around the world with a sharp focus on cost control and production efficiency. Consequently, Canadian paper mills
operated tightly controlled 24-hour continuous processes with minimal production outages. Most of the operations in a paper mill were automated. Normally, any additions, updates or modifications to any portion of an automation system, in any part of a paper mill, required the approval of a number of people in the company’s organization. The initial need for a change could be identified by a machine

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operator in the mill or by the mill’s engineering staff. Next, the engineering staff usually defined the specific details of the required changes to the automation system. Ultimately, the mill’s chief engineer was responsible for the final decision on any alterations or additions to any process in the mill. Once the required modifications were defined, the engineering department investigated the projected cost and completed a cost-benefit analysis. Automation systems suppliers were sometimes asked for budget proposals and pricing to help improve the accuracy of the engineer’s cost-benefit analysis. If the suggested control system improvements were economically feasible, the engineering manager forwarded a request for funding to the finance department. The funding request was weighed against capital hurdle rates and the priority of other funding requests, to determine whether to allocate funds to the project, thus completing the funding request process. Prior to funding approval, the director of operations or the mill manager was required to also approve any changes to any equipment in the mill since he or she was responsible for production output. Any changes to the mill’s equipment or the processes could dramatically affect the production levels and scheduling. Once the funding for the project was approved, the engineering department worked jointly with the purchasing department to finalize a specification for the project and to identify a list of qualified suppliers. Each qualified supplier was sent a request for quotation (RFQ), which included a detailed specification and the due date for the proposal. In addition to a firm-price proposal to the requested specification, suppliers sometimes submitted alternative proposals that included suggested improvements to the project. Once submitted, each proposal was evaluated to determine the best supplier for the project. Everyone on the mill management team, by in large, took a general management perspective on all their activities and felt responsible for the management of the mill’s profitability.

Normally, staff in the purchasing department reviewed the commercial terms of the proposal, while staff in the engineering department evaluated the technical aspects of each proposal. In addition to price, suppliers were also evaluated on technical expertise, project management capabilities, experience and subjective judgments, such as the likelihood that the project would progress smoothly and be completed on time with minimal problems. If a supplier submitted an alternative suggested improvement, which had not been requested in the specification, the suggested improvement was evaluated to determine whether it had merit and would fit within the approved funding of the project. If an alternative to the specification met those criteria, the engineering department would next seek approval from operations to understand any unforeseen impacts of the new suggestion. Ultimately, all proposals were evaluated on price after their technical merits had been approved. Once a supplier was selected, staff in the purchasing department finalized a contract between the supplier and the paper mill, after which both companies appointed a project manager to manage the implementation and communications during the life of the project. BOISE AUTOMATION CANADA

Boise was the Canadian arm of Boise Corporation Inc., a multinational manufacturer of electrical and electronic equipment, including automation equipment, which conducted business in a wide variety of industries around the world. In Canada, Boise specialized in turnkey automation solutions that included the custom design of the automation systems, the supply of all the equipment and components in the system, and complete turnkey installation and start-up services to make the system fully functional for the customer. This work required considerable process knowledge of client systems; consequently, Boise had

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focused on several specific industries to ensure its staff had the requisite in-depth design knowledge and client process expertise. One of its target industries was the paper making industry. Boise had a state-of-the-art product line, which included features that Boise considered a competitive advantage in the market:    

New high-resolution graphics on the system monitors, making it easier for operators to graphically see the status of fluid levels, temperatures and flow rates. The higher-resolution monitors made it possible to display more on-screen data than any other system on the market. Unique on-screen help functions assist customers in making adjustments to the program settings. Latest technology sensors equipped with − improved accuracy for optimum control, − improved reliability in harsh industrial environments, such as paper mills and − embedded high-speed communication technology that was ready for the next generation of highspeed controllers, which were beginning to emerge on the market.

Although the complexity of the system and the new on-screen features had been criticized because of the considerable time required for customers to learn, the product line was recognized in the industry as the most capable system on the market. The design of automation systems required an understanding of the customer’s needs so that an appropriate solution could be proposed to suit those needs. Consequently, some of the basic conceptual design work needed to take place at the earliest discussion stages so that the proposed system would meet the complicated needs of the situation. Boise had an excellent reputation in the market for high customer satisfaction, largely attributed to the effort that Boise engineers put into understanding its customers’ needs. The Boise sales organization was very aggressive and followed a structured sales process to maximize the win rate and,
consequently, the company’s growth rate. Because many approaches could be used to design an automation system, it was important for the proposed design to match the customer’s requirements as closely as possible. Once the customer’s needs and preferences were understood, the design team could conduct a preliminary design that would be presented as part of the company’s proposal. The proposal was forwarded to the customer in a document, but, most times the proposal was also presented in a formal face-to-face presentation, which allowed the customer to ask questions (see Exhibit 1 for an overview of the Boise sales process). NORTHERN PAPER INC.

Northern Paper (Northern) was an integrated paper mill located in Rocky Falls, Ontario, approximately a three-hour drive from Sudbury. For more than four decades, Northern had been manufacturing paper at the mill beside the falls, for which the town had been named. THE OPPORTUNITY

In February, Rob Allison received a call from Dan Reynolds at Northern Paper, in Rocky Falls, Ontario. Reynolds asked Allison whether Boise would be interested in bidding on a new automation system for Northern’s wood-chip handling system. Over the course of the following months, Allison met with

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Reynolds and others at Northern to discuss Boise’s proposal (see Exhibit 2 for excerpts from Allison’s sales call log). THE DISAPPOINTING NEWS

Seven months later, Allison had just read the email from Dan Reynolds at Northern, indicating that Boise had lost the order. Only minutes earlier, Allison had felt satisfied that Boise had submitted a proposal that included superior products at an extremely competitive price. As Allison sat disappointed, he looked out his office window and wondered why Boise had lost the order. What should he have done differently? He was eager to learn
from this experience and not repeat it.

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Opportunity Assessment

Pursue Opportunity Y/N? Yes Investigate and Develop Action Plan No

Update CRM (Close Opportunity)

Submit Proposal Y/N? Yes Develop and Present Proposal. Implement Win-Actions No

Update CRM
(Close Opportunity)

Win Contract Y/N? Yes No

Update CRM (Complete Loss ‐ Review Report)

Develop Implementation Plan With Customer

Note: CRM = customer relationship management

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Exhibit 1 (continued)

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Page 8 Exhibit 1 (continued)


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Note: RFQ = request for quotation; DMU = decision-making unit

9B12A008 Exhibit 1 (continued)

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Source: Authors notes.

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Exhibit 2 EXCERPTS FOR ROB ALLISON’S SALES CALL LOG February 7  Received a call from Dan Reynolds in the Northern Paper purchasing department. Asking if we want to bid on the new automation system for their wood-chip handling system. He offered to mail out the specification but I offered to pick it up, hoping to make some inquiries about the origins of the request. February 8  Dan was fairly busy and only had a moment to talk. I picked up the bid package. I was expecting a request for proposal, which asked for different suggested design approaches, but the package was a bid specification and an RFQ (request for quotation). The Northern engineers had already decided their approach and written a specification.  The quotation was due April 4.  Confirmed with Dan that Boise did not have to submit re-qualification documents as a qualified automation system supplier for Northern. The
process to become a qualified supplier took over six months when we did it three years ago.  After reviewing the documents in the office, I forwarded the bid package to Jenny DeBour in the Boise engineering group in Toronto to start developing a proposal. February 17  Received a call from Mr. Jennings, at Northern’s corporate-standards office in Montreal.

He wanted to make sure we were planning to submit a bid. Jennings was familiar with the Boise system and had a very positive assessment of our product compared to others in the industry. He emphasized that we needed to be price competitive, but he was hopeful that we would win the bid at the mill in Rocky Falls. February 23  Received a call from Jenny DeBour, the Boise engineering manager in Toronto with some concerns about the RFQ from Northern. Jenny explained: “Northern’s RFQ specified the industry-standard requirements. Our equipment can easily surpass the requirements, but since we can do so much more, we will likely be 25% to 50% higher on price compared to Honeywell, Siemens or JTB. In addition, Northern is missing the opportunity to prepare for the new generation of high-speed controllers. They are missing an opportunity to do it right. The right price for this job is between $1.3M and $1.4M, but with standard technology this could go for much less.”  I called Jason Li, the engineering manager at Northern to explain the opportunity to incorporate the newer technology. Jason was rather terse on the phone. “Just meet the spec. The firm with the lowest price will get the contract. All the bidders have been prequalified and are bidding to the same specification. I am tired of people trying to convince me to buy the latest technology on the market. Last year, I spent months trying to get the Director of Finance to approve my request for funding in this year’s budget. I evaluated the various technologies and we wrote the spec based on what we need.” Since we had not made our final pricing decision, I didn’t mention any number to Jason.  Made arrangements with Dan Reynolds to visit the mill next week. February 28  Mill visit to investigate wood-chip automation system. Boise attendees: Jenny DeBour and myself.  Met with Dan Reynolds and asked how the system proposals will be evaluated. He said there would be a review committee but the committee members had not been determined. The committee would look at the technical merit of each proposal, which means “did you meet the specs” and on price.  When asked who we were bidding against, Dan did not answer, and changed the

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Met with engineering manager Jason Li. He is much friendlier in person. He introduced us to his control systems engineer, Derrick Rogers, who had worked at the mill for over 10 years. Derrick answered all of Jenny’s questions without hesitation and gave us a tour of the wood handling area of the mill. It seems like Northern has concluded that the existing control system is uneconomical to maintain. It seems to be a standalone system not connected to the main systems in the mill. JTB has supplied most of the major systems to the mill over the past 10 years or more. Jenny indicated that she has all the information her team needs to complete the preliminary design and to cost and price the project.

March 2  Telephone call: Spoke with Mr. Jennings in Montreal and explained the opportunity to incorporate the newer technology. He agreed and said that he would be attending a meeting with the decision committee after the bids are submitted. Mr. Jennings suggested that we submit a proposal with two alternatives: an alternative with the old technology and one with the new technology. I told him that we have discontinued the old technology product line because it weakened the merit of the new technology, which is clearly superior. He then suggested that we meet the requirements of the specification and point out where we surpassed the specification. He did not know who would be on the Rocky Falls decision committee besides himself and Jason Li. March 7  Conference call: Jenny DeBour, Boise Eastern-Canada regional sales manager Dieter Haase, myself. Jenny and I described the situation and the importance of the pricing decision. Dieter suggested: “Let’s go in at $1.4M and sell the value of our superior technology. It is
clearly worth at least a 20% to 25% premium.”

March 31  Email from Jenny DeBour. Her team has completed the Northern proposal. We need to finalize the price.  Boise internal conference call: Jenny DeBour, Dieter Haase, myself. We finalized on a price of $1.35M. April 4  I delivered the quotation to Dan Reynolds today. It was an impressive professional proposal with the detailed 100-page explanation of our design concept to meet their specifications, a description of our capabilities, résumés of Boise’s key people in the project, and our project implementation plan. The proposal described the specific system we had designed to meet the exact requirements of the Rocky Falls mill.  When I asked, Dan indicated the decision committee will include engineering manager, Jason Li; control system engineer, Derrick Rogers; the mill operations manager, Bob Muma; someone from the wood-chip operations department; someone from the corporate finance group; Mr. Jennings from corporate-standards and himself. The finance person and the wood-chip representative have not been selected yet. April 5  Today, I booked individual meetings with each person on the decision committee to answer any questions they might have about our proposal. Mr. Jennings is first. He was going to be in Rocky Falls for two days — April 6 and 7. April 6  Met with Mr. Jennings who indicated that he favoured our proposal as the strongest technical solution. He had some minor questions about Internet connectivity, but there were no concerns.

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April 7  Met with Dan Reynolds today who indicated that from a commercial point of view we had satisfied all the requirements, but so had the other bidders. He would not tell me how many other bidders there were, but presumably one of them is JTB. He did say we are not the lowest price by a significant margin. It sounds like the detailed assessment of the proposals may take a while. Dan said their plans are to issue a contract by the beginning of the summer so they can get the job done before the cold weather in the fall. He also indicated that the decision committee had met and there was a lot of heated discussion about how to proceed. He would not elaborate. April 11  Scheduled meeting with Jason Li. Jason had to cancel at the last minute. Rescheduled for April 18. April 15  Jason Li called to reschedule our appointment on the 18. He will be out of town on business for a week. He wants to rebook an appointment when he gets back. We spoke briefly on the phone. He said our proposal was interesting — he liked some of the new features that he had not seen before — but we need to rethink our price if we want to be a serious contender. Jason indicated that we were “over 30% high.” I’m not sure if he is negotiating or just trying to discourage me from distracting him if he has eliminated us from the race. May 9  Finally got a 5-minute meeting with the plant manager, Bob Muma. He had no questions and seemed a little uninterested.

I framed our higher price as an investment in future flexibility. His response was interesting “We invest in technology to help us make paper products. I have some of the best engineers in the business in our company. They make technology decisions that are best for the business — besides the operators prefer uncomplicated systems that they are familiar with.” Bob had to take an urgent phone call before I had a chance to explain any more.  In the interest of finding an ally, I called Mr. Jennings in Montreal and asked for the committee’s assessment of our proposal. He said: “Technically, your solution is very strong; however, the price is beyond the budget. If you can be competitive with the mainstream market, then you have a real chance of winning this. It is difficult for me to support you if your price is so high.” May 10  Boise internal conference call: Jenny DeBour, Dieter Haase, myself. After a long discussion, it was agreed to lower our proposal price to $1.25M.  I communicated this in an email to Dan Reynolds immediately. May 11  I informed Mr. Jennings of the new lower price. He said that we were “still a ways from being the lowest bidder, but it is easier to justify the premium price at this level.” He was going to convene a conference call of the decision committee. May 25  Jason Li and I finally got a chance to have our long-awaited meeting. I was expecting a warm reception after we dropped our price, but I was greeted with “Why are you getting the corporate guys in Montreal involved in this? That doesn’t make you any friends around here.” The meeting was brief and
ended with Jason’s comment: “If your package is within our budget, and is the best value, then we will buy it. However, at $1.25M the committee won’t accept it. You should also know that there is a delay in our project and a chance that it may be cancelled. Nevertheless the committee is meeting at the beginning of the month to make the final decision.”

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June 2  I received a call today from Dan Reynolds indicating that the decision committee is meeting next week to make their final evaluation. If we want to submit a more competitive price, we should make sure he has it by Monday, June 6. June 3  Emergency conference call: Jenny DeBour, Dieter Haase, Boise Automation Global Product-Line manager Victor Korman, and myself. Victor Korman kicked off the meeting: “I have read your call reports. From a marketing perspective, this is new superior product, which we should not be giving away. If we are going to compete on price with older generations of technology we would not have invested in developing this newer technology.” After a very long debate and weighing the need for superior-price-positioning against the need for booked orders this year, it was decided to submit a price of $1.2M to be certain we win the order. We could use it as a showcase of our new technology. June 6  I emailed Dan Reynolds to inform him of the new price. He confirmed that he received the message and said they will be in contact if they have any questions. June 14  I contacted Dan Reynolds today to see if there was any news. He indicated it was a bad time to push this project forward, but wouldn’t say any more. Everyone was very busy with little time for special projects. He indicated that he would be in touch with us if there was any news.  I contacted Mr. Jennings but he is on vacation until mid-July. His assistant indicated that he books this time period off every year. August 8  Separate emails to Dan Reynolds and Mr. Jennings with “Hope you are enjoying your summer” and a general inquiry “Is there any news or progress on your automation project?”
August 15  No response to the August 8 emails. August 29  No response to the August 8 emails . . . hesitant to pester Reynolds . . . set a reminder-to-self to contact him again if we don’t hear anything in a week. September 9  Received an email from Dan Reynolds. Northern Paper signed a deal with a competitor to design, supply and install the automation system, but the email did not indicate who.

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