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SCMP Module 2 - Assignment #3 - De Havilland Inc. Case Study De Havilland Inc. Case Study February 19, 2014 De Havilland Inc. Case Study Report EXECUTIVE SUMMARY: De Havilland is faced with some extremely deep cost saving opportunities with a recent series of bids on their current flap shroud and bay door requirements. They are in a position that could save them nearly $2-Million over the base of their contract. Their current contract is nearing the end, and they have a limited amount of time to do their analysis and implement some decisions that will put De Havilland in a great position financially. ISSUES IDENTIFICATION: • Parts costs of a Dash 8 airplane represent 60-65% of De Havillands total manufacturing costs. • After Boeings acquisition of De Havilland, a 25% price discount was requested on the price of parts supplied by all vendors, however Dollard was unwilling to lower the price on the flap shrouds. • It is clear after careful review of quotes from 9 different suppliers, that there is a wide range of pricing, from a total of $748,994 to $2,810,174 annually for the flap shrouds and bay doors. SCMP Module 2 - Assignment #3 - De Havilland Inc. Case Study • Switching suppliers brings its own level of complications - from unknown quality control to lead times, to vendor stability. • Current inventory is sufficient to last approximately 1 years production, which means Tomar must put something in place relatively soon. ENVIRONMENTAL AND ROOT CAUSE ANALYSIS: Founded in 1928, the Da Havilland Inc. company has been an established and high-profile part of the Canadian aircraft manufacturing industry. The company has produced a number of different aircraft for various purposes, leading up to the Dash 8 which this case is focused on. The company was purchased by Boeing in 1986 where the procurement cycle was redeveloped, and later sold to Bombardier and the Canadian Government for a 51/49% split. In the Boeing days, and an attempt was made to receive a 25% price discount on all parts from all suppliers. Under the current purchasing process all new and expired parts under contract must follow a process which starts at engineering and existing parts department and go through the bidder selection board (BSB), source selection board (SSB) and finally to the negotiation team who either succeed or fail in reaching a mutual contractual agreement with a business partner. After the failed attempt to receive the 25% discount from Dollard on the flap shrouds, the purchasing process moved to the BSB stage to solicit a number of competitive bids. De Havilland received 9 bids including the current supplier on which they could analyze part costs. It became evident very quickly that there was a wide range of price to be had, and their current relationship with Dollard was on the high end of the scale. Currently the flap shrouds were purchased form Dollard Plastics, but the bay doors were supplied by SCMP Module 2 - Assignment #3 - De Havilland Inc. Case Study Lakeside Industries of which no specific contract was currently in place. Price ranges between the lowest and highest bid was $748,994 to $2,810,174 for the required components - a potential cost savings of $2,061,180.00. This seems like low hanging fruit, but much attention should be spent on analyzing the situation and Marton to see if this is a safe option. ALTERNATIVES OR OPTIONS: 1 - Move all business to Marton. PROS: A realized $2,061,180 in cost savings could be had. CONS: New supplier and a seemingly suspicious price vs. other competitors may have issues of quality, lead times, availability, but would need more investigation. 2 - Move all business to Lakeside Industries. PROS: Already a current supplier - don!t seem to have issues with quality. Not full realization in cost savings, but still significant at $1,908,578. CONS: N/A 3 - Maintain business relationship with Dollard Plastics, however attempt a price reduction again on all items. PROS: If Dollard would budge, costs could be reduced. CONS: Even if Dollard met the 25% reduction as attempted before, costing be reduced down to $2,107,630.50 - a savings of $702,543.50, not significant compared to moving the business to another supplier. RECOMMENDATIONS AND IMPLEMENTATION: SCMP Module 2 - Assignment #3 - De Havilland Inc. Case Study Although I am OK with investigating Marton as a viable option, they were not forthcoming with their financial statements, their pricing seems suspect as it is extremely undercut compared to the other suppliers bids, therefore I would recommend moving all the business to Lakeside, and formulating a solid contract with them. Another site visit would be in order - it!s not certain how long ago a site visit has happened. Companies change, staff change, and machinery could be aging which could compromise the quality of the final product. De Havilland has recently pursued a mandate to reduce the amount of suppliers, and moving towards Lakeside would be the safest option at this point and would follow the reduction in supplier initiative. However, it may be worth coordinating a site visit with Marton as a “back pocket” option. They may find that Marton has a much more efficient process, there costing is in line because of these efficiencies and it could turn out to be positive in the end, however with the information provided in the case, I feel Lakeside is the better bet. MONITOR AND CONTROL: A site visit would be mandatory to Lakeside, considering the amount of business that will be moving. Periodic visits would be necessary - possibly every 6-12 months. These meetings should happen more frequently and address any issues that have resulted, such as supply or quality issues, pricing, and communications. These meetings can be reduced if the issues become non-existent. Group meetings with De Havilland!s staff to discuss quality or supply concerns should happen monthly - if all is going as well as planned, then it will be a good position for De Havilland.