Mason Instrument, Inc. 1986 (A): Electronics Guidance System for the Cherokee Missile – Case Solution

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Mason Instrument, Inc. 1986 (A): Electronics Guidance System for the Cherokee Missile Case Answers

This case solution includes an Excel file with calculations.

What was Mason Instrument, Inc.’s strategy in the Round 1 and Round 2 bidding? What do you think of it?

First round’s bid

Mason Instrument, Inc. proved that it was able to produce both the quality and the quantity required for this job, fortified during the company tour to the Navy team.

Mason showed its strong interest in the opportunity by bidding even below the cost level and by making considerable investments in tooling (splitting the tooling costs almost by a 2 to 1 ratio).

Mason enabled the government to cut costs, which they achieved with a price per unit well below an important psychological barrier for the Navy.

Additionally, Mason Instrument, Inc. was able to further drive down costs by utilizing its Value Engineering team for continuous design improvements and building the seeker, a core component of the avionics system.

Overall, one can say that this contract has set the foundation for fruitful collaboration in the future. The company’s Military Products Division (MPD) has clearly shown that it has understood the Navy’s interests.

One could evaluate the approach as quite risky when thinking about the project’s future development and implications on the cost development of Mason’s suppliers.

Second round’s bid

In the second round, the focus remained on the price. However, by the time of the bid, Mason was successfully supporting vendors to cope with requested design changes from NavSea, lowering overhead rates and cutting costs.

Mason Instrument, Inc. utilized the new auctioning process by packaging the unit price with the split of the tooling investment quite smartly. By following that path, Mason could reduce the cost for the Navy while getting a higher volume of orders, which subsequently drives down average cost.

Additionally, Mason tried to improve the payment terms. Testing the waters in these matters has been a good signal to the Navy. Mason showed the importance of the matter, thereby broadening the leeway for discussion.

However, realizing that an incentive-type contract had led to Eldridge’s rough waters should show Mason that this matter is a rather difficult subject for the Navy.

Overall I am convinced that the chosen strategy is consistent with the first bid, enabling Mason to strengthen the relationship with the Navy and proving that Mason is the right choice.

As a member of the Mason Instrument MPD staff, what factors are important for you to consider in the Round 3 bidding?

Pricing development & competition

Firstly, price competition is expected to be keen on the final bid as Eldridge’s “management was seriously interested in once again becoming the major supplier on this missile.”

As Mason Instrument, Inc. has realized that testing and engineering costs per unit were far higher than originally expected, measures such as changing the payment terms or the risk-sharing implied by the deal should be handled with care. The profit margin could easily be terminated if the situation becomes even worse.

Bidding Competition

Secondly, both suppliers have already invested serious amounts into the production of the first 50 units. Hence, both companies should have a strong interest in getting the deal. Although there are some flaws with past bids of Eldridge, Mason has to expect that Eldridge has learned from these mistakes.