After De Havilland discovered that its high manufacturing cost which caused by high cost of sourcing the flap shrouds and bay doors from Hollard Plastics of Montreal, the company decided to explore new business opportunity with potential new suppliers. With the objective of lowering the manufacturing cost in the future and develop proactive vendor relationship, De Havilland evaluated all quotes received and had difficulty to make future decisions.
Based on financial and operational analysis, it is for De Havilland’s best interests to develop further negotiation with the lowest bidder Morton in order to ensure all requirements could be met.
Under the high manufacturing cost pressure, which majorly from the bill of material/parts cost of the Series 300 Dash 8 airplane; moreover, with the objective set by Boeing to cut 25% of the cost of parts supplied from all vendors, De Havilland was taking this opportunity to reduce parts expenditure, and achieve the economics of scale by negotiating longer term contracts with reduced number of suppliers.
Tactic/Short term issue:
To generate the next contract for the next term flap shrouds and bay doors supplies with optimized price and conditions, after discovered the high cost these two components contributed, and the fact the current vendor was not willing to lower these costs.
Environmental and root cause analysis
Since being found in the early twenty century, De Havilland had been established itself into a major manufacturer in the Canadian aircraft industry. Along with the innovation on its airplane development from the first generation to the market-welcomed D-8 airplane, De Havilland had also been acquired few times by large organisations in order to reach bigger markets and resources. After being acquired by Boeing and the government, De Havilland was deeply influenced by Boeing’s advanced procurement philosophy, which aimed to optimize the cost structure, especially to increase the cost efficiency by reducing unnecessary costs.
Dollard Plastic’s unwillingness to re-negotiate a lower priced contract with De Havilland became the incentive that caused De Havilland to reconsider the partnership with Dollard in the future, and start to look for other potential supplier for the flap shrouds and bay doors required on the Series 300 Dash 8 airplanes.
Beside the other 8 quotes were received, a US company named Matron caught De Havilland’s attention by its competitive unit cost, which would save DH over $2 million dollars in production by just sourcing the flap shrouds and bay doors from them.
Both risks and opportunities were provided under this circumstance, where De Havilland would be able to leverage the relationship with its suppliers to improve manufacturing efficiency in lower cost. On the other hand, there was potential risk, where DH would sacrifice products quality for cost, and put the whole production line in jeopardy.
Alternatives and options:
Alternative one: switch to Morton immediately and cancel the contract with Dollard in short notice.
Cut cost in very short term.
Start the new partnership with Morton right away, which allow the vendor to get familiar with the business process.
Jeopardize the relationship with Dollard, and damage the De Havilland’s company image from the vendors’ perspective.
Quality assurance of Morton’s products has not yet been approved,