Introduction

In mid 2005, The CEO of Kenmold. Mr. Zhong Jianwu sat in his office reflecting upon the events of the past few months. His company had recently turned a corner in the business of contract manufacturing and product development. Profits were up, business was booming, and the world market had shifted such that his firm was well positioned to grow. However, Mr. Zhong Jianwu couldn't help but feel like there were more changes to be made to ensure future success. A project to make a new "pool bike" for aquatic exercise had just entered litigation, and the related failures were constantly on his mind as a harbinger of future problems if changes weren't made.

Pool bike lessons for the future of contract R & D
Kenmold grew quickly from a purely contract manufacturing firm into a full-service engineering, design, development, and manufacturing company. The majority of its clients were from outside of China. In the beginning, most business transactions revolved around meeting customer requirements and specifications.More recently, in order to separate themselves from the competition, Kenmold had begun to take on projects with few formal customer specifications and do the engineering and development work for the customer. They serviced the automotive,home appliance, aluminum die casting, industrial, and finished goods markets now and were faced with increased competition from lower cost nations in South East Asia.
Kenmold was known for their Project Development System, which provided total solutions to their customers. The system covered the concept discussion, mold design and tooling manufacturing,part manufac-turing,assembly, post processing (painting/packaging),and ship-ment. The making of assembled finished products was complicated. It was a process that not only includes the product's style and function but also the post treatment such as assembling, painting, plating, packaging etc. Customers trusted Kenmold's Project Development System to make new products that would hit the market quickly within a short cycle of development. The key competitive advantage for Kenmold in the Contract R&D market was its ability to quickly take an idea and make it into a final product.
Pool Bike Project
In November of 2001, Kenmold was approached by two investors from Monaco. Kenmold was asked to quote on design, development, and manufacture for a line of exercise pool bikes. The investors had been selling pool bike products for over 15 years and were licensed to sell in the EU and US markets. Kenmold submitted a quote as asked but heard nothing until October 2003. The investors had chosen a competitor instead, and by 2003 were unhappy with the work done. The relationship between the investors and the competitor had ended badly and gone to court. A new development and manufacturing firm was needed to complete the project. Kenmold re-quoted the project and received the order.
Then things turned nasty. The increase in tooling and part costs was communicated with the customer in April of 2005. The customer to the customer in April of 2005. The customer refused to pay the increase in tooling and became angry with Kenmold, but begrudgingly paid the second installment of US$50,000 as per the original contact. The customer arrived in May with a check for US$50,000. Jianwu's partner did not trust the check to clear. The bank informed Kenmold that it would take more than 90 days to clear such a check. By August of 2005, the customers and Kenmold were in a legal battle. Kenmold was paid only US$110,000 dollars and was still owed more than US$70,000 in tooling and development costs. The customers were using to get the molds and were shopping around for other manufacturers in South East Asia in the mean time. Kenmold, of course, would not release the molds until such time as payment was received in full, and they had recouped the costs invested in the project.