De Havilland Canada was an aircraft manufacturer with facilities based the Downsview area of Toronto, Ontario, Canada. The aircraft company was created in 1928 by the British de Havilland Aircraft Company to build Moth aircraft for the training of Canadian airmen, and subsequently after the Second World War, designed and produced indigenous designs. A number of company ownership changes occurred historically changing hands from British de Havilland, Canadian government, Boeing and Bombardier Inc. Bombardier sold the rights to the out-of-production aircraft (DHC-1 to DHC-7) to Viking Air Ltd. of Sidney, British Columbia, in May 2005.
This case study report is about Competitive Bidding and Negotiation process with respect to a historical case at De Havilland during August 1992
Table of Contents
Page 3, 4
Environmental and Root Cause Analysis
Page 4, 5, 6
Alternatives and Options
Page 7, 8
Recommendation and Implementation
Page 8, 9, 10
Monitor and Control
Page 10 Reference /Exhibit / Appendix
De Havilland is a world-class aircraft manufacturer with both military and civil aviation background in Canada. Through the multiple ownership transitions with some of the word’s leaders in the industry De Havilland adopted some of the best practices that help their decision-making processes. Over a period of time, De Havilland’s manufacturing costs have increased, particularly for the modern Dash-8 aircraft which accounts for up to 65% of the entire manufacturing cost at De Havilland. Inspired by Boeing’s initiative the Management has asked for a flat 25% reduction in costs in order to remain accountable to its stakeholders, e.g. Boeing.
Dollard Plastics, the current supplier of flap shrouds, has refused to reduce their prices which are already on the radar of the Procurement and Cost Support Department. As a net result a bid has been conducted to find other supplier options that are viable sources of the item at lower costs. Nine bids have furnished, citing various price points of different materials to manufacture the part. Morton Enterprises, the lowest cost bidder is to be scrutinized to be the successful bidder.
Considering various risk criteria, e.g. potential manufacturing delays from a single source it is not recommended to accept only one supplier but to have minimum two based on a tiered system. There will still be a great cost saving over Dollard Plastics, however there will be less risk relying only on one supplier. The total value (quoted costs plus un-negotiated transaction costs) should be evaluated to determine the two successful suppliers with 5-year, strategic contracts.
The negotiations are planned on a fair basis though De Havilland will have the power position due to the on-going consolidation within the aviation manufacturing industry.
A periodic review process shall be set up to measure the success of this strategic initiative.
De Havilland has been hashed between the rising input and manufacturing costs and incrementally competitive sales market and has has recognized a need to reduce all costs by 25% which is also inspired by the Boeing initiative. The company has identified some low hanging fruits in the form of few suppliers who refuse to grant any cost savings to De Havilland, e.g. the flap shroud supplier, Dollard Plastics. After successfully conducting the bidding process to find a new supplier for this existing component, De Havilland must evaluate whether Morton Enterprises, the lowest bidder, can be a feasible substitute. It is also important for De Havilland to reduce the number of suppliers with a long-term, fixed pricing.
Environmental and Root Cause Analysis
De Havilland has its ownership changed hands with four entities in the past twenty-five years. These changes could be attributed to the changing aviation market and its