Professors Avninder Gill and Gail McKay of the School of Business and Economics at Thompson Rivers University prepared this case, with the close cooperation of Inland Glass & Aluminum Ltd. and Aluminum Curtainwall Systems Inc. and a generous grant from the British Columbia Innovation Council (BCIC). This case is intended as the basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 2008 by the authors. All rights reserved.

BCIC Case Study Library No. 0004 September 2008 Inland Glass & Aluminum Ltd. and Aluminum Curtainwall Systems Inc. The Glazier Industry and Company Profile The art and science of the original glazier trade of setting glass into window frames or the fenestration of a building with windows has evolved dramatically over the last century. Now, whole buildings may be enveloped in large panels of glass, with attendant environmental, aesthetic, and structural benefits. The traditional function of a wall, in other words, has evolved into the concept of a glass “skin” around a building, the panels being fitted together like the pieces of a jigsaw puzzle, with the result being known in the trade as a curtain wall. In contrast to the traditional stick system of the glazier trade in which aluminum frames are erected at a job site with glass installed afterwards on location, the state-of-the-art unitized method designs and manufactures fully completed panels in a factory setting. This method permits an outstandingly high standard of panel-by-panel quality control. It also allows a seamless installation process to occur after arrival of the pre-packaged panels at the job site. Like all of the construction industries, the glazier industry is economy-sensitive. While the traditional selling points of workmanship, job co-ordination skills and quality control must be maintained regardless of fluctuations in the economy, companies that have survived have developed a fresh focus on both innovation and sensitivity to customer needs and desires. Behind this distinctive pre-assembly construction technology and “old school” commitment to the tight deadlines, one discerns the wisdom of Frank Luciani’s 33 years of experience in the streamlined job coordination integral to the construction industry - a signifier of corporate integrity. Inland Glass & Aluminum Ltd. established by Frank Luciani is a glazier manufacturer and installer whose agility among the challenges of economic downturns and major technological advances epitomizes the classic strengths of the smaller company: responsiveness to change without sacrifice of the details that underlie a reputation for excellence. To enhance your understanding of the “curtain-wall” concept, please visit the company’s website at www.inlandglass.ca and choose “completed projects” to view photographs of the company’s work. After passing through wrought iron gates and winding up a spiral road not far from the Trans Canada Highway, you arrive at the combined offices of Inland Glass & Aluminum Ltd. (IGA) and Aluminum Curtain-wall Systems (ACS) Inc. High on a basalt outcrop overlooking an industrial park in Kamloops and the North Thompson River valley in the distance is a glass curtain-walled building which transitions from sea breeze green in the morning, to blue, and then to sparkling dark glass which reflects the sky and landscape in the heat of the afternoon. The 50,000 square foot building showcases the very product upon which the company has established its reputation. Frank Luciani, president and CEO of Inland Glass & Aluminum (IGA), first established the company in 1975 as a sole proprietorship, operating with four other

people and his wife, who looked after the accounts. He discovered that he and his staff enjoyed the challenge of having their workmanship subjected to the scrutiny of the “clerk of the works,” the traditional supervisor of government projects. This early penchant for attention to detail led the company to successfully seek out government and other commercial projects in the Interior region of British Columbia. Today the company employs 160 people in its Kamloops facility, besides providing employment to hundreds of journeymen and tradespersons at various project sites across Western Canada. But from the outset, Inland Glass & Aluminum made no attempt to limit the conduct of their trade to the creation of standard products. Instead, they welcomed the difficult, the unique, and the almost impossible to the point where, today, every extrusion, profile and color choice is customized for each client throughout Western Canada and the Pacific Northwest. “No two are alike,” says Luciani. Picture, for example, making a bid to contract for a 25-storey glass building, having a warped prow, similar to the prow of a ship, at the north end of an oval-shaped tower. To create for itself the engineering and technological capacity to say yes to constructing such a breath-taking building for the Surrey Central City project or other such complex new millennium projects, Inland Glass & Aluminum made the decision in the year 2000 to divide into two companies. Luciani realized, in other words, that the risks associated with IGA’s remaining small far outweighed the millions of dollars in investment in technology, expert people and an expanded facility that would be required to advance the business into the big leagues. When quizzed as to how he managed such a huge investment, Luciani explains that the demonstrated ability of a company to ride the turbulent waves of tough economic times when interest rates were 22 percent goes a long way to establishing corporate credibility and the trust factor with financial institutions. At a time when most companies were choosing mergers as a way to grow, Luciani and his partners made the shrewd restructuring decision to separate the engineering and manufacturing operations from the original company’s core competencies of installation and contract work. IGA therefore undertook the responsibility for bidding, contracting, and on-site installation of their product in the field – tasks with which it already had three decades’ worth of hands-on experience. The second company, Aluminum Curtain-wall Systems Inc., is described by Luciani as “a son of IGA.” With its highly advanced technological resources and engineering expertise, ACS undertook the design, engineering and manufacturing of unique, unitized curtain wall panels. Although the companies would share the same facility, this business model permitted them to work both collectively and independently, each having its own client base. For example, IGA can buy from ACS, but can also install other manufacturers’ products. Similarly, ACS is now at liberty to design and manufacture for IGA but also has the flexibility to design and manufacture products for other installation companies. From the mezzanine level office balcony overlooking the shop floor, Luciani points toward an example. “That flat deck truck is being loaded to go to Las Vegas to deliver glass panels for a project called Planet Hollywood. IGA is not involved in it, but ACS is.” Perhaps it is the memory of times when business was not so good that specifically informs and motivates the IGA-ACS team. During the late 1970’s, IGA’s business was reduced by 50 percent in one year, and by a further 30 percent within the next, due to a provincial political climate which, Luciani recalls, was unfriendly to business. In his experience, a vibrant economy and business-friendly political environment are prerequisites for commercial and institutional development projects. Whereas the typical answer to a declining business would be product diversification, Luciani again elected to stick to his core competencies. He chose regional and market diversification, opening several front end offices in Calgary, Edmonton, Vancouver and Arizona. His business took off.

Partnerships, Competition and Human Resource Development The company uses technology and training to support and develop the human resource base. The company provides special magnetic identification cards to employees which are swiped through a barcode reader. The employees then enter their department or work station. Besides keeping track of absenteeism, this process provides useful data on training needs for employees at different work stations, helps the accounting department to identify the true cost of a product, and helps the human resources department in completing payroll. Investment in the best people and the best equipment, according to Luciani, has allowed the two companies to ascend, literally, to new heights – creating, for example, the triangular 42-storey Shaw Tower on the Vancouver waterfront and the Living Shangri-La project, also in Vancouver. But how does IGA-ACS deal with the intense competition in the glazier industry? By staying one step ahead of the competition, and by paying attention to detail. Luciani cites as examples the bidding processes for both the Surrey Central City project and the expansion project on the Vancouver Convention Centre, the international media and broadcast headquarters for the 2010 Winter Olympic Games. The bidding process for Surrey Central City was a landmark event of entrepreneurial integration for the newly combined IGA-ACS, an opportunity for them to bring together complexities from the forefront of new technologies in engineering and computer design as well as from the glazier industry. Where other contractors wondered whether the architect’s plans could actually be realized, IGA-ACS had the combined skill set to make the seemingly impossible possible through creative thinking and attention to the minutest detail. It was for innovation and expertise in creation on this project that the president’s award for excellence for best trade contractor was granted to IGA-ACS by the Vancouver Construction Association in 2004. For the Vancouver Convention Centre expansion, another highly ambitious project, IGA-ACS partnered with Advanced Glazing Systems (AGS) to successfully win the bid, despite intense competition on an international scale. How? Luciani explains that they were one of the two finalists among dozens who had submitted proposals. They were interviewed by the Seattle architect and a panel of technical experts and consultants. The competition sought to buy time to check details they had been asked about during the interview. But the IGA-ACS team was prepared with every detail, having anticipated every question, and answering each of them with an accompanying design plan on the spot. “They could tell we are hands-on operators, that we are highly involved,” says Luciani. One challenge for the company has been the trade shortage. Finding trained trades people and journeymen has presented a challenge for the installation business, especially at project sites where IGA-ACS does not have firsthand knowledge of the prevailing labor market conditions. In the manufacturing plant in Kamloops, the problem is less significant because the company makes special efforts to train its workforce. “My biggest assets are my people,” says Luciani. “This place can be as good as its people, and they can be as good as we train them to be.” IGA-ACS employees come from different ethnic backgrounds, countries and age groups – varying from 18 to 55 years old. The company arranges seminars and workshops for employees at nearby Thompson Rivers University to address group dynamics issues and promote a team environment. With respect to hiring for technical jobs such as engineering design and drafting, IGA-ACS accesses global sources to hire skilled people.

Quality and Environmental Footprint Quality is of paramount importance from a functional perspective. Luciani explains that aluminum and glass react differently under differing weather, temperature, and climactic conditions. Glass curtain wall has an impressive record of keeping the outside environment out and the inside environment steady in extreme temperature conditions. Rigorous testing of this high performance glass in a specialized laboratory in Florida ensures the panels can withstand intense pressure and are earthquake-proof, rain-proof and wind-proof. Problems such as water infiltration in walls can manifest if these factors are ignored. A leak on the 50th storey of a building is 100 times more expensive to fix than addressing and removing the problem in the manufacturing facility. The policy of IGA-ACS is therefore the old fashioned concern for detail and for getting it right the first time. To ensure this result they use special purpose adhesives for a caulking operation – with an extra silicone bead to ensure there is no leakage. In the natural light streaming through the huge skylight on the shop floor ceiling, quality inspectors carefully check for material and assembly imperfections. This natural daylight provides the advantage of showing exactly how any imperfection would look outside if it were installed on a building. Additionally, the skylight provides savings in the cost of energy, a fact which accords with Luciani’s goal of running an environmentally friendly plant. The walls are double concrete that radiate heat, and the roof is double insulated to keep the facility warm and comfortable to work in but inexpensive to operate. Materials and Workflow As one can see from the Shop Floor Plan (Exhibit 6), the workflow structure of the shop floor is not complicated. The layout can change from two parallel assembly lines to a single assembly line depending on the project requirements. The glass panels arrive pre-cut according to specifications, but standard aluminum stock is cut, formed, and drilled at the plant using special Computer Numerically Controlled (CNC) technology. A 180-degree jib crane, which can work on two assembly lines simultaneously, aligns the matching custom glass panel with the aluminum frame. The glass and aluminum are then joined and sealed using a caulking operation. Next, the panels are dried, tested, packaged and shipped out of the facility. Aluminum and glass are the two main raw materials required, besides all of the shop supplies. The metallic raw material is shipped to IGA-ACS from aluminum suppliers in Canada, China, Indonesia, and Korea. With respect to the glass, the unique aesthetic preferences of a client require IGA-ACS to source from the suppliers prescribed by the architect. Most of these glass suppliers are situated across Canada, the United States, China and Austria. Prices for materials are usually quoted in US dollars but invoiced in the local currency at the supplier end, especially when the US dollar is falling. When the invoiced material arrives, it is normally paid for in about four weeks. It is important to appreciate that glass panels are highly customized in nature. As a result of this fact, the bill of material (BOM) structures may explode when you look at even a small portion of a job – such as, for example, the warp design on the north façade of the Surrey Central City project. To create the prow-of-a-ship effect (shown on the company website) required 1,700 shop drawings. From these, 133 custom panels were fabricated containing 485 pieces of glass, each with a unique cut, contour, color and extrusion. Such is the product proliferation in this business, which helps explain the extensive time it takes to prepare engineering and shop floor drawings.

The Project Management Process at IGA-ACS After completing his MBA from Thompson Rivers University, Steven joined IGA-ACS as an intern to gain the mandatory project management experience required for his Project Management Professional (PMP) designation. Frank Luciani suggested that he work closely with Regan Loehr, a partner at IGA-ACS, who had been instrumental in preparing many order-winning bids for IGA-ACS. Regan had substantial management experience in a complex multi-project environment – including the current IGA-ACS project – a 15-storey hotel construction project in Las Vegas, Nevada. In his first meeting with Steven, Regan gave him an important “heads up”: everything in the glazier business is schedule-driven. On his first few days as an intern shadowing Regan, Steven was introduced to the steps involved in realizing a project idea – steps that would help him, later in his internship, to organize and streamline the workflow in managing a major project on his own. Please refer to Exhibit 7 for a copy of the company’s Organizational and Communication Chart. IGA-ACS maintains close working relations with a number of architectural firms and general contractors. Gary Lawrence, a partner at IGA-ACS and the marketing manager, travels a lot in order to pursue new business opportunities. In a typical process, potential customers approach general contractors (GCs) and architects with their functional and aesthetic requirements. GCs and architectural firms then come up with a conceptual design and review their design with different sub-trades in order to provide an initial cost estimate to the customer. If the customer approves the conceptual design and the associated cost, the GC or the architect then sends out an invitation to bid to different sub-trades, IGA-ACS being one of these sub-contractors for installing aluminum curtain walls. Project management at IGA-ACS therefore usually begins upon receipt of this invitation to bid. Next, the IGA-ACS team prepares a cost estimate based on the architectural drawings and submits the project bid. Although the actual time for bid preparation and submission depends on the bid closing date, it usually takes 4 to 6 weeks. If the bid is successful, IGA-ACS generally receives a letter of intent in a further 4 to 6 weeks. At this point, IGA-ACS can start organizing its project personnel. A project team is formed. This project team typically consists of a project manager, a design team leader, drafting personnel and representation from other areas if necessary. The formation of project team takes place fairly quickly – in 7 to 11 days. A manufacturing team, consisting of fabrication, assembly and shipping personnel, and a field installation team are then put together. Again, it takes about 7 to 11 days to assemble each of these teams and the three teams can be assembled concurrently. The formal project contract usually arrives 4 to 6 weeks after the letter of intent. As soon as the contract is received and the teams are in place, the next step is to prepare the project timelines and schedule (3 to 5 weeks) which is followed by the preparation of shop drawings. Preparing engineering and shop drawings is a major step and can take anywhere from 6 to 10 months, depending on the complexity of the project and the availability of drafting personnel. These shop drawings then go through a project management approval process. The approval process consists of two parallel steps: approval of profiles, finish and glass types from the consultants – which takes 3 to 5 weeks; and approval of construction dimensions from the general contractor – which takes 2 to 4 weeks. After approvals have been granted, the creation of mockups begins. Unless the product is to be rigorously tested in the laboratory in Florida, a two-storey visual or mockup testing can be completed in about 2 to 4 weeks. Mockup creation and testing are followed by another major step: the creation of manufacturing (fabrication and assembly) drawings that may require 6 to 8 months depending on the complexity and contour of the panels. After this significant step is completed, a number of other steps are begun: material release for aluminum (1 to 3 weeks); data entry into the computer software (3 to 4 weeks); ELU soft and CNC programming

(1-3 weeks); and the ordering of glass, which takes about 2 to 6 weeks. The glass is ordered to the specifications and no further processing is needed, with the exception of final assembly. The amount of time that may be required between placing an order for materials to the time of their arrival varies from 4 to 34 weeks for glass and 4 to 40 weeks for aluminum, depending on the country and location of suppliers. The next step, aluminum fabrication, must wait until all the material is received and the programming and data entry are complete. At this point, the shop floor commences fabrication operations for aluminum which, for a 15-storey building project, would typically run for about 26 to 30 weeks. Aluminum and glass assembly can commence as soon as enough fabricated aluminum is available, which is usually 2 weeks after the start of aluminum fabrication. Therefore, assembly operation has a start-to-start precedence relationship with aluminum fabrication. The assembly also runs for about 26 to 30 weeks for a 15-storey project. The packaging and shipping to the jobsite can begin 1 week after the commencement of assembly operation and would continue for the same length of time – about 26 to 30 weeks. Transporting the panels from the Kamloops facility to a job site starts as soon as the panels are packaged. Transportation lead time from Kamloops to a jobsite in Las Vegas, Nevada is typically 4 days and continues until the last shipment has been completed – about 26 to 30 weeks. As soon as the panels are received on the job site, the installation team can begin its operations provided that the main structural trades have completed their work. The actual installation time depends on the repetitiveness of the floors – usually less for floors with repetitive features and more for floors requiring unique work. For the current project, the installation time would average 2 weeks per floor. IGA-ACS gets paid according to a pre-approved payment schedule agreed upon with the client. The customer withholds 10 percent of all invoiced amounts, which will be paid at the end. For the current project, IGA-ACS can invoice 10 percent of the total amount when the engineering design and drafting work is complete, i.e. at the end of ‘activity l’ in Table 1. The next set of payments is periodic where 85 percent of the amount is invoiced on a monthly basis during the construction installation period (i.e. during activity w). Once the installation is complete, IGA-ACS is required to do the clean-up and to fix minor imperfections, if any. This activity takes about a week and the remaining 5 percent amount is claimed at the end of clean-up. The final step requires the filing of a substantial completion application after the clean-up. Substantial completion is approved by the architect and the payment certifier. Normally, there is a 4 to 6 week holdback and the 10 percent withheld amount from all invoices is released at this stage. The major project steps, as well as their three-point completion time estimates – described as optimistic, most likely, and pessimistic times – are provided in Table 1. Table 1. Three-point Time Estimate for Different Activities _____________________________________________________________________ a. Invitation to bid (start activity) (0,0,0 weeks) b. Bid preparation and submission (4,5,6 weeks) c. Letter of intent arrives (4,5,6 weeks) d. Project management team formation (7,9,11 days) e. Manufacturing team (7,9,11 days) f. Field installation team (7,9,11 days) g. Project contract arrives (4,5,6 weeks) h. Preparation of project timelines (3,4,5 weeks) i. Engineering and shop drawings (6,8,10 months) j. Project management approval process 1. approval of profiles, finish and glass types (3,4, 5 weeks) 2. approval of construction dimensions (2,3,4 weeks)

k. Visual or mockup testing (2 to 4 weeks) l. Manufacturing fabrication and assembly drawings (6,7,8 months) m. Material release for aluminum (1,2,3 weeks) n. Data entry into the computer software (3,3.5, 4 weeks) o. ELU soft and CNC programming (1,2,3 weeks) p. Ordering of glass which takes about 2 to 6 weeks q. Arrival of glass (4 to 34 weeks but depends on supplier location) r. Arrival of aluminum (4 to 40 weeks but depends on supplier location) s. Aluminum fabrication operations (continues for 26 to 30 weeks) t. Aluminum and glass assembly (continues for 26 to 30 weeks with two weeks offset) u. Packaging and shipping (continues for 26 to 30 weeks with one week offset) v. Panels arrive on site (continues for 26 to 30 weeks with 4-days transit delay) w. On-site installation (starts when panels start arriving and continues for 30 weeks) x. Clean-up (1 week) y. Substantial completion application and holdback period (4 to 6 weeks). Withheld payments of 10 percent are released after this period. _____________________________________________________________________ Three factors which impact upon a curtain wall project are quality, scope and schedule. There can be no compromise with respect to the former two due to inspection requirements, building codes and the high profile of the project. But normally there is some schedule flexibility available to sub-trades in large scale construction projects. In the Vancouver Convention Centre project, for example, unexpected underwater debris was discovered which had to be barged away, a fact which significantly slowed down the project, thereby allowing sub-trades like ACS-IGA additional time to complete the assembly and installation of glass. Generally, a sub-trade will not bid on a project which it does not have a reasonable chance of finishing on time. Meeting deadlines is important not only for financial reasons, but also to establish credibility with customers and general contractors. With Regan Loehr's advice "Everything in this business is schedule-driven" still firmly in his mind, Steven recalled the Project Evaluation and Review Technique (PERT) tools he has learned in his MBA class. He prepared a schedule for the project management process at IGA-ACS in order to assess the chances of completing it before the scheduled deadline, still 40 months away. Just as Steven was completing this task, Regan invited him to join the project meeting which had been scheduled to discuss the supplier issues on the hotel project. Case Problem In the sunlit glass-walled boardroom of IGA-ACS, Regan and Steven are joined by Frank Luciani, Gary Lawrence, and Mark, the purchaser involved in international sourcing of aluminum and glass. After exchanging pleasantries about the previous night’s hockey game and reviewing the company’s progress reports, Regan states the genesis of the problem for this hotel project: “The job site is in Las Vegas, Nevada, the contracted glass manufacturer and installer (IGA-ACS) are located in British Columbia, and our potential suppliers are located all over the globe.” "It’s a fact that both the performance requirements of glass as well as the aesthetic requirements necessary to fulfill an individual customer’s taste reduce the number of our glass supplier options as compared to our number of aluminum suppliers. But otherwise, we source material from a really wide range of suppliers – in Canada, the US, China, Indonesia, Korea and Austria,” Regan continues. “If currency exchange rates were always favourable to our business,

we wouldn’t need to have this discussion. But we have never formally analysed the impact of exchange rates on our projects." "In what way are we affected?" Mark enquires. "Even if we are affected, we can't control the economy of our supplier countries." "If those exchange rate changes are not favourable to our business,” Frank explains, “the value of the project for IGA-ACS may get eroded to a point where it may not be possible to recover the project cost." “Variations in exchange rates over the duration of a project,” Gary points out, “may affect us both in terms of purchasing materials as well as in terms of payments receivable from international clients, especially as IGA-ACS gets involved in more cross-border and global projects." "But what is the solution?" Mark asks, rocking back in his chair. "I agree that we should do something about it. But can we stop bidding on international projects and start sourcing locally?" "Historically,” Frank says, “market diversification has worked to our advantage. In fact, it bailed us out in 1970's when business was down!" Frank leans forward, arms on the oak boardroom table. "Political environments can change dramatically in no time. And let’s face it, governments are not always business-friendly. I think we need to pursue more diverse global projects to stay immune to the political climate. That’s the only way to keep growing. It’s a challenge – no doubt about it! But since when have we started shying away from challenges?” Regan smiles and nods in agreement: "We don't want to choose unprofitable international ventures. But if we have to grow internationally, I don't think it’s wise to choose our clients or our projects based solely on exchange rate considerations." He puts down his pen diagonally across his writing pad and turns both hands palm-up. "But hey, we do seem to have the luxury of choosing our suppliers based on favourable exchange rates." Steven, who has been thoughtful and quiet throughout this discussion, sets down his coffee cup on a coaster and looks across at Gary. "Gary, it was you who mentioned examining exchange rates over the project duration, wasn’t it?" "Yes,” Gary replies. “And you’re right to note that the duration is really important. Because from the time our bid is accepted, a hypothetical value of the project for our business is established. Supplier exchange rates mainly affect us from that point onward, until we have paid our suppliers. If it’s an international project, the customer exchange rates affect us until the point when we’ve filed substantial completion.” "Correct me if I’m wrong, but what I’m seeing is that a project schedule is a very important factor here," suggests Steven, who is on a roll. "If supplier exchange rates are unfavourable, a shorter project schedule and a commitment from suppliers for a faster delivery would reduce the impact of these exchange rates, right?” Regan nods in agreement. "As I mentioned when you first arrived, Steven, everything is schedule driven in this business. But we have to keep in mind that a schedule is also driven by where our suppliers are located." Although admittedly reluctant to acknowledge the problem earlier, Mark now suddenly jumps into the discussion: "I guess it provides us with an opportunity to study the exchange

rate trends in our supplier countries and then intelligently choose our glass or aluminum suppliers based on exchange rates as well as on their delivery performance.” "Steven, will you and Mark put your heads together to look a little deeper into this analysis and give us some recommendations at our next meeting?" Regan suggests. "Mark, can you pull the data regarding past delivery schedules of our suppliers across the globe?" "Certainly,” says Mark. “It should be interesting to study the exchange rate trends,” comments Steven, “and project them over the project duration. That, in turn, will depend on supplier location. Wow! But I’ve got one more thought that is troubling me. If exchange rates happen to be moving favourably for IGA-ACS, then wouldn’t a longer project time span actually be desirable?" "Gentlemen, don’t forget the other side of the coin!" urges Frank. "For international projects, the exchange rates at the client's end play a major role. If the project is elongated to take advantage of a good exchange rate on raw materials, then the substantial completion and payment schedule from our client are also delayed. In other words, if the client exchange rates do not favour IGA-ACS, that fact can erode the value of a project to a level where we don’t even break even.” Frank pauses and reflects, raising one hand to reposition his silver glasses. “So we must always look at the broader picture. Some projects do get delayed, and an example was the Vancouver Convention Centre, Steven, where the schedule was disrupted due to the discovery of unexpected underwater debris. A possibility does exist in such cases that a project delay and good exchange trends may actually benefit us both financially as well as schedule-wise. But never forget the mortgage payments we are making to the Royal Bank. High corporate loan rates can potentially offset whatever small advantage we may get from exchange rates in such cases. And that reminds me, I need to get going! I have an appointment with the Royal Bank." "The more you think about it, Steven, the more factors start creeping into the equation," Regan adds. “So let’s focus our analysis on unfavourable exchange trends at the supplier’s end and see how these rates and their supply performance could affect the value of this current project." Regan gathers up his empty coffee cup and notepad and heads out the glass boardroom door for the shop floor. Steven and Mark both rise to their feet and push their boardroom chairs back into place close to the table. But as Mark starts to leave, Steven says, "Mark, I understand the project schedule depends on a supplier's location. But why would anyone choose a supplier in another part of the world and live with all that uncertainty for several months? There has to be some kind of incentive or trade-off, right?" Mark stops and sits down again, slightly loosening the knot in his tie. "You are right. Besides delivery performance, the cost of materials is another important consideration. And there are price differentials for glass and aluminum when we are dealing with different countries.” Not finished his questions yet, Steven sits down again, too. "And, secondly, we want to analyze how much project value is eroded by the exchange rates. To start with, we don't even know how much value this project has, do we?” "I get what you mean," Mark nods in agreement. "We can't evaluate the extent to which exchange rates will eat into our profits until we know our costs and profits to establish the project value. Unfortunately, I don't have that information available.”

"But at this stage,” Steven points out, “we are only building a model to study the effect of exchange rates on profits. So let’s just start with some hypothetical numbers. We can always replace them with more realistic figures from accounting when making final recommendations,” Steven suggests. "Sounds like a good plan! How about assuming a $4 million project break-even in Canadian currency that includes $2 million for the cost of materials (that being a 50-50 split between glass and aluminum), and $1 million each for labour and over-head. We can add, say, a 25 percent or $1 million profit margin, with the total project value set at $5 million1. So the question we will really answer is,” and now Mark completely removes his tie and puts it in his blazer pocket, “which supplier combination for glass and aluminum erodes the least amount from a profit margin of 25 percent based on the exchange trends in those countries?” Steven smiles. He agrees to prepare schedules based on different supplier combinations, once Mark has provided their delivery performance information (Table 2). With respect to exchange rates, they agree to look at the last 4 months – as older exchange trends may not be relevant to this new project. Steven mentions that there are quite a few websites that track currency exchange rates and publish their recent trends (exhibits 1 to 5). Table 2: Delivery Performance and Price Differentials at IGA-ACS Suppliers Glass Aluminum Country Delivery

Performance (weeks)

Price Differential (%) Compared with Canadian Supplier

Delivery Performance (weeks)

Price Differential (%) Compared with Canadian Supplier

Canada 7-9 0% 4-8 0% USA 10-14 +2% 8-12 -1% China 30-34 -20% 26-30 -12% Indonesia N/A N/A 30-38 -15% Korea N/A N/A 24-28 -8% Austria 20-24 -5% 18-22 -5% Note 1. A positive differential indicates a higher price and negative differential indicates a discount. Note 2. The country name represents IGA-ACS's most preferred supplier in that country. Note 3. Delivery performance and price differentials do not reflect the real performance or pricing structure

of IGA-ACS suppliers. These numbers have been disguised without sacrificing the pedagogical value of the case.

1 These costs and profit margins in no way reflect the true costs and profit margins of IGA-ACS. The numbers have been disguised to maintain confidentiality.

Exchange Rate Trends at Supplier Countries (Source: http://www.oanda.com/convert/fxhistory) Exhibit 1. US Dollars to 1 CAD

Exhibit 2. Chinese Yuans to 1 CAD

Exhibit 3. Austrian Euros to 1 CAD

Exhibit 4. Indonesian Rupiah to 1 CAD

Exhibit 5. Korean Won to 1 CAD

Exhibit 6. Plant Layout

Exhibit 7. Organizational and Communication Chart