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Drilling

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Submitted By Naoki
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1. Case Summary
Northern Drilling (“Northern”), an exploratory diamond drilling contractor, was invited to submit a request for proposal from Mond Nickel Company (“Mond”), one of the largest players in the Canadian mining industry. Northern only has three weeks before the proposal deadline. However, Northern currently does not have a drill or the crew necessary to work on the contract, which requires experienced drillers. Northern needs to consider whether the contract is financially feasible for the company; whether the contract is worth the risk of spoiling Northern’s relationship with their current biggest customer, Noranda Nickel (Noranda); whether the contract would help in strengthening the business; and if it would aid the growth of the business as a whole. Would Northern be able to handle these issues?

2. Problem Definition
(1) How to respond to Mond’s request for proposal? Bid high or low?
(2) How to secure necessary resources to implement the job?
(3) How to maintain the relationship with Noranda, and a reputation in the closed mining guild?

3. Criteria Selection
(1) ROI (%): Will Northern be able to generate profit in line with management requirement?
(2) Labor availability: Does Northern have enough labor to handle the contract or not?
(3) Noranda: How does Northern’s decision affect its relationship with Noranda?
(4) Future growth: Is Mond’s contract essential for Northern’s future growth or not?

4. Alternative Development
(1) Will Northern respond to Mond’s request for a proposal or not?
(2) If Northern bids to Mond, should Mond apply for a deep job, intermediate job, or both jobs?
(3) In each job, should Northern buy a new machine or ask Noranda to tranfer a machine?

(1) ROI: Will Northern be able to make enough profit in line with management’s requirement?

Costs
Direct costs are calculated based on the number of shift in

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