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Norther Drilling

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NORTHERN DRILLING INC.: A TACTICAL DILLEMA IN GROWTH STRATERGY

The DILEMMA
The General manager of Northern Drilling Inc.(Northern) Peter Bremner (referred to ‘Bremner’ hereafter), has received a request for a proposal to perform exploratory drilling for MOND NICKLE COMPANY, and Bremner will need to submit his proposal within the next three weeks. If Northern manages to get this order, this will be their largest contract till date and will give them a chance to get on board one of the largest Canadian mining companies which is on the verge of massive growth. On the flipside, this project may endanger the relationship Northern has with Noranda Nickel (Noranda), one of its most loyal customers who contribute to 60% of their business.
Also since this is a highly complex project, Bremner must evaluate whether Northern has the capability to handle a job of this magnitude given the challenges the industry is facing with finding experienced drillers.

PROBLEM STATEMENT:
Bremner must factor in all the challenges mentioned and take a call to submit a proposal. If he does then he should make sure that price is competitive yet profitable and that should also make sure Northern has contingency plans in place to handle this complex project

CRITERIA: 1. Project Profitability (Cash Flow): Given that the company management wanted a 30% gross margin, what would be the cash flows of the company for the duration of this project. What alternative will fetch them the highest positive NPV at a hurdle rate of 20% 2. Continued Strategic Relationship with Noranda Nickel: Given the dependency of their business on Noranda, what alternative ensures that they safeguard this relationship and continue business with them in the future. 3. Competitiveness of the bid: Since there are many players in the market bidding, Northern has to evaluate what measures it should take to

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