Case Report- DeHavilland Inc.
CASE ANALYSIS CONTENT MARKS AVAILBLE
EXECUTIVE SUMMARY De Havilland had high inventory and high manufacturing cost which has been caused by the high cost of sourcing the flap shrouds and bay doors from Dollard Plastics of Montreal and the company was looking forward to an alternative supplier with a long time relationship. I found they were less of strategy and more tactical.
The total parts cost of Dash 8 airplane at De Havilland represented 60-65% of their total manufacturing cost. It’s is evident that the company has recognized that and they have taken steps to solve this issue. A further indication that the company is operating at high cost is their previous failed attempt when they requested a 25% discount on all parts across the board. Dollard Plastics of Montreal is currently supplying the company with the parts needed but at about 3 times higher than Morton’s quote. The uncertainty that De Havilland was going through at this point in terms of choosing the right supplier who was going to be reliable enough to commit to a 5 year fixed contract with the company.
The company wanted to move to a smaller base of vendors but should not be sore source without a backup plan. The company focused on cost reduction but cost should not be the only criteria of vendor evaluation and selection. The whole structure and process did not respect the strategic role of procurement, as well as tactical approaches that support the strategy. Such as Kim Tomar as a financial analyst was impropriate to make a direct recommendation to SSB. Because the only criteria based on her background was price. She had no idea about other KPIs like manufacture capacity, inventory management, lead time, response and maintenance services ability and new technology invention. The buyer Bob Katz did not involve in the beginning of procurement process like recognition, specification clarification, sourcing and selection. The only responsibilities of Bob was negotiation.
Alternative 1
To develop a negotiation strategy and proceed with vendor selection considering price, safety, quality, manufacture capacity, inventory management, transportation, lead time, response and maintenance services ability and new technology invention. I recommend to give the 80% of total purchasing value to Marton as the lowest vendor and keep 20% of share to Dollard as the experienced vendor.
Alternative 2
Negotiate separate agreements on the same basis and contractual terms with DasComposite and Lakeside Industries who were the next lowest bidders after Morton. These negotiations should be in the same time period as Morton’s and the successful outcome should function as a best alternative to a negotiated agreement (BATNA) for De Havilland if negotiations fail with Morton’s.
I do recommend alternative 1 as the best choice for DeHavilland at this point because this option will solve their problem in 2 ways: reduce their manufacturing cost and establish a long term relationship with Morton.
Need a bid clarification meeting with Morton in order to clarify its pricing and all terms to the agreement and ensure that they are realistic and firm and get a written commitment from them before final decision to award. Bid clarification meeting will include experts from the Material, Finance, and Engineering and Quality Assurance teams of de Havilland. After bid is approved, then both parties will sign the contract so that the supply will commence as per the agreement.
Each party should designate a representative such as key account whose main duty is to meet periodically with the other party’s representative in order to discuss the progress and help troubleshoot any issues. In case of major issues or if any opportunity arises, then a meeting between the appropriate people should be scheduled to deal with it. 5
ISSUES(S) IDENTIFICATION De Havilland had high inventory and high manufacturing cost which has been caused by the high cost of sourcing the flap