With the current production and upcoming product development and contracts up de Havilland Inc. decided that that the flap shroud and equipment bay door vendor arrangements needed to be reviewed. With no solid contracts in place and the request to review vendors and reduce costs. Creating long term relationships and multiple contracts gives the flexibility de Havilland requires.
Issue Identification Immediate Issue Changing vendors for the supply of the flap shrouds and equipment bay doors due to the unwillingness of Dollard reducing their costs by 25%. de Havilland Inc. believes that their could be significant savings in total manufacturing. Some vendors are working without any contracts and any possible savings they could be losing without having contracts in place. The risks of moving to a new vendor are the sustainability of the company for the long term and product durability. Is Marton Enterprises going to be able to keep up with production and provide a quality product.
Long term: Vendor relationships de Havilland currently has two major suppliers for the flap shrouds and equipment bay doors. With no firm contracting or relationships in place. A small base of vendors creates closer partnerships. But having one supplier of both products could create problems on the reliability and having one supplier means you rely only on that vendor. De Havilland would be at their mercy if economic and production activities were to come to a halt. Greater ability to renegotiate with the possibility of not having to search for new vendors.
Long term: Contract pricing Cost savings on both sides for de Havilland and their customers. Firm, fixed prices would reduce the need for frequent negotiations.
Environmental and Root Cause Analysis Root Causes
Currently Dollard Plastics of Montreal, Quebec supplies them with the flap shrouds. But parts for the Series 100 were not covered by any contract but the flap shrouds for the Series 300 A were supplied under a contract that would expire in 1993. Currently Lakeside Industries based in Kingston, Ontario supplied all equipment bay doors with no specific contract in place. When Dollard was presented with a request of 25% discount across the board for the flap shrouds because de Havilland believes that Dollard is on the high side. Dollard refused, that then was the basis to put it to competitive bid.
Because of the policy that Boeing had implemented and a request was made to reduce costs by 25% and the current supplier Dollard was unwilling to lower their costs on the flap shroud. The purchasing process moved to solicit a number of bids. Since some vendors have contracts and others don’t de Havilland felt they could capture cost savings through more contracts with more vendors and reduce the need for frequent negotiations. Production Issue
Moving to Marton Enterprises de Havilland doesn’t know the type of work they do and if they could keep up with production. With Marton providing all parts for the flap shrouds and equipment bay doors the reliability is great on ensuring parts are manufactured on time. How is it that Marton can produce the flaps and doors for significantly less than Dollard? Have Marton create a prototype and verify the material being used. Ensure all tooling is available.
Implementing the strategic goal of having several vendors and contracts for long term alliances alleviates the need to go out to bid every year. Relationships are built with the current vendors and competitive pricing is in place. This type of contract is easier to manage and production and financial forecasting is easier to predict.
Alternatives and or Options Alternative 1 Keep things as they are for contracts and vendors. Pro: We know the quality of work from Dollard and don’t need to worry about keeping up with production. Reliable. Con: But the unwillingness to cut costs is a concern.
Alternative 2 Have many contracts with multiple vendors. Pro: Having many vendors including Marton to choose from gives the flexability de Havilland wants with cost savings, firm pricing and vendor relationships. Huge cost savings compared to the other companies Con: Unsure of quality and if they are reliable to keep up with production. Currently Kevlar is being used and the other choices were nickel, graphite and aluminum. These choices had important implications for tool cost and durability.
Recommendations I recommend Alternative 2. There are real cost cutting savings with moving to Marton. By leveraging more than one vendor and contract the flexability will be available for suppling the flap shrouds and equipment bay doors. This will have all vendors working under the same policy Boeing has implemented since taking over deHavilland. Create contracts for vendors not under contract right now.