Introduction paragraph

* IPL Inc. is a leader in the Canadian injection molded plastics industry, specializing in the design, manufacture, printing and marketing of plastic products, mainly intended for industrial uses and made of thermoplastic resins. IPL distinguishes itself from competitors through its emphasis on better quality and performance products, superior engineering and service, innovativeness and the capacity to meet customers’ specific needs.

Objective

* Julien Metivier, CEO of IPL Inc.

* Make a decision, in the next month and respond to Ford’s contract offer as well as deciding on several other projects IPL is considering.

* What direction should the company move into?

* Find an alternative that will agree with all his managers and avoid major disagreements among IPL’s executives and unnecessary threats to the company’s successful strategy.

Analysis

* Because of the fluctuating nature of demand, as well as price sensitivity traditionally associated with custom molding, IPL had historically limited its involvement in this activity. The appearance for high-volume markets for custom molding, particularly in the auto industry, had encouraged IPL set its involvement with custom molding to 25 percent.

* It was common for producers of proprietary products to also devote a portion of their activities to custom molding in order to increase utilization of production capacity.

* IPL also produced a plastic-made system for gathering maple sap. Quebec produced 70 percent of the world’s maple syrup, a crop worth over $50 million annually to sap producers. IPL dominated the North American market for these systems and no significant competition was perceived to exist.

* About 50 percent of the employees live in Saint-Damien, with the remainder coming from nearby rural communities.

* IPL contributed as much as $150, 000 annually for local charities, sports facilities and the Metivier arena. Metivier brothers always tried to concentrate IPL’s activities in Saint-Damien in recognition of the local population’s continuing support – if they expand to different areas, will this make the community backlash and IPL’s reputation diminish?

Alternatives

* IPL had become one of two North American firms developing visible, imitation leather parts for Ford. Ford had offered IPL a five-year contract, beginning in spring 1989 and worth an estimated $10 million annually, for supply of these parts.
PROS
* The deal could make IPL roughly $40 million. * The contract would be in addition to existing business done with Ford, and could thus raise IPL’s annual sales to them. * This contract could be executed with IPL’s current production capacity. * Collaboration with Ford represented a unique opportunity to enter a market offering rapid growth and profit potential, while capitalizing on IPL’s skills in high quality injection molding. * Business with Ford was facilitated by the rapid accreditation of IPL’s Saint-Damien plant as a Q-1 supplier in 1984. * In 1986, Ford had expressed an intention to reduce its number of suppliers by 90 percent within five years and to develop lasting relationships with the remaining firms, especially those which obtained Q-1 or TQE accreditations. * IPL’s achievements in quality control were recognized when the firm received the prestigious Mercure award for Total Quality form the Quebec Board of Trade. * The automobile market could represent a lucrative opportunity, if IPL is able to maintain a good margin on these products and it would allow them to expand their customer base. * All major advances in knowledge in plastics industry came from work in the auto and aerospace industries. The auto parts market could be a priceless source of know-how if IPL was able to develop lasting relationships with automakers. * Ford’s increasing emphasis on quality rather than just price is consistent with IPL’s capabilities. * Ford is offering F.O.B shipping

CONS * The order volume was not guaranteed but would depend on the sales volume of Ford’s cars. * The contract terms allowed IPL a level of profitability equivalent to the industry’s average, but included clauses permitting Ford to withdraw its business at any time and required price reductions of five percent annually. * Ford was at the forefront of trends toward rationalization of supplier networks and improvement of overall product quality. * Some concerns were voiced regarding IPL’s increasing dependence on a single, much larger customer. * IPL will have to create an independent division to exclusively handle the auto market. * IPL being involved in custom molding for Ford are basically subcontractors that used molds owned by Ford for the molding-on-order of plastic products. * In return for the long-term contract, IPL would most likely have to assume a larger part of the costs of tooling, R&D and warranties.

* IPL should stick to only 25 percent policy or further reduce its activities in custom molding and instead focus on the development of proprietary products, especially material handling products.
PROS
* IPL’s sales forecasts for most material handling products were excellent – this was particularly the case for recycling boxes, already introduced in the market and whose sales were projected to reach $16 million within five years. * Development of mobile bins for domestic garbage collection, a product that within 10 years could represent a potential $200 million market in Quebec alone. * Because IPL will own the mold and the product, they could sell each product to more than one customer in order to amortize their investment in products and distribution channels. * Proprietary producers tend to have a higher return on investment than did custom producers. * Pails and containers were IPL’s largest and most profitable product line.

CONS * The development of mobile bins for domestic garbage collection depends on municipal and provincial governments’ willingness to adopt this technology of garbage collection on a large scale. * Competition in the recycling box and mobile bins segments was also expected to be intense, as many companies had already entered or were expected to do so in the near future.

* IPL’s plastic housewares product line had been declining in relative importance because it has been perceived to be inconsistent with IPL’s strategic focus. The opportunity to create a strategic plan and focus on this product line to allow them to competitively compete in this market.
PROS
* IPL’s investment in technology allowed them to considerably reduce the gap between their production costs and those associated with large-scale production, while simultaneously maintaining manufacturing flexibility. * IPL’s facilities operated on a continuous, 24 hours a day, seven days a week basis, compared to the single shift, five days a week schedule typical in the industry. * IPL was able to achieve higher production volumes, which permitted more rapid amortization of equipment and enhanced the feasibility of continued investment in new technologies.
CONS
* Producers of proprietary products generally required greater financial capacity in order to cover the added costs of product development, mold making and sales and distribution.

* IPL manufactured rigid wall, multi-cavity containers used in forest seedling production for the Government of Quebec but this contract was ending so IPL is looking for new markets for this product.

CONS * Increasing concerns regarding the effectiveness of paper pots, the major substitute product, suggested that future market prospects for plastic seedling containers were substantial.

* IPL was considering introducing European-designed beverage cases for the brewing industry.
CONS
* Difficulty selling the concept to major breweries.

* IPL should take advantage of the proposed Canada-U.S. Free Trade Agreement and work on increasing penetration of its proprietary products in the U.S. market.
PROS
* Considering investing $300,000 in molds for a five-gallon size pail. At a price of $4, management believed IPL could sell more than one million in Canada and 750, 000 in U.S. * This would strengthen U.S. market position * IPL should have manufacturing facilities rather than just a sales office in the Boston area. * Contemplating acquisition of a small U.S. manufacturer of high quality industrial containers or small-scale manufacturing of certain products in its U.S. facilities in order to reduce tariff and transportation costs.
CONS
* In the U.S. have been judged too expensive, inadequate because of metric sizes or over engineered for highly competitive and price sensitive U.S. market. * Margins in this network are less than half because of competition of larger American firms already producing this and lower prices.

Recommendations / Action Plan

If Ford accepts on conditions that we only do 28% of their custom mold productions, the offer with ford is a great opportunity and should be accepted by IPL. Collaboration with Ford represents a unique opportunity to enter a market offering rapid growth and profit potential, while capitalizing on IPL’s skills in high quality injection molding as well as allowing IPL to gain the priceless source of know-how that is acquired in the auto industry and most of all developing lasting relationships with the automakers. The key challenges facing North American auto parts suppliers is the ability to achieve continued improvements in productivity and quality and to survive the cyclical demand fluctuations characterizing the auto industry and because of that IPL will only agree to producing 28% of Ford’s custom mold auto parts. By only producing 28% of Ford’s custom mold products allows IPL to focus on the development of what they do best, which is proprietary products. Pails and containers are IPL’s largest and most profitable product line. If IPL were to switch focus and put auto parts as their priority, it may be perceived as inconsistent with IPL’s strategic focus just like the housewares product line. IPL must put an urgency on working with municipalities and governments so that they will be willing to adopt this technology of garbage collection. The potential of a $200 million market in Quebec alone is too good of an opportunity to pass up on. Because IPL has distinguished itself from competitors through its emphasis on better quality and performance products, superior engineering and service, innovativeness and the capacity to meet customers’ specific needs, IPL will stand out amongst the competition in the recycling box and mobile bins segment.