De Havilland Rfq Case Study

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  • Topic: Procurement, Bidding, Request for quotation
  • Pages : 6 (2167 words )
  • Download(s) : 107
  • Published : June 8, 2012
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Part 1 – Executive Summary
The subject materials have been selected for competitive bid, the RFQ has been issued, and responses from nine potential vendors have been collected. The variations in the bid responses are staggering, causing concern for the validity of the RFQ process. Should we decide to proceed with the lowest bidder, we would do so at our own risk, as the bidder may not have understood the requirements of fulfilling the contract. I propose that we re-evaluate the RFQ documents to ensure that the bidders have a consistent understanding of the Statement of Work. This is the best way to offer our company the value created by the competitive bid process. Part 2 – Issue Identification

We are midway through the process of competitively bidding flap shrouds and equipment bay doors. Flap shrouds for both the 100 and 300A series airplanes are currently purchased from Dollard Plastics in Montreal. The flap shrouds for the Series 100 airplane are not secured under a vendor contract, while the 300A parts are secured until the end of 1993. The incumbent supplier for the equipment bay doors is Lakeside Industries in Kingston, ON. The flap shrouds were selected for competitive bid as the incumbent supplier was not willing to provide the requested cost savings in order to renew the contract. The Bidder Selection Board developed a list of nine potential bidders for this Statement of Work and sent RFQ packages to each. Responses were received from all nine bidders. As a member of the Procurement Cost Support Group, our department has performed analysis on those bids and normalized them. At this point, our responsibility is to nominate the preferred bidder, and provide supporting information to the Supplier Selection Board to assist them in negotiating a contract to the advantage of de Havilland. It is immediately apparent that the bid received from Marton Enterprises provides a very significant cost savings relative to the incumbent supplier, and a significant savings compared to the majority of the other bidders. The highest bidder (Dollard Plastics, the incumbent supplier for the flap shrouds) has a total cost of $2,810,174 for the entire five year project, including recurring and non-recurring costs. The lowest bidder (Marton Enterprises) has a total cost of $748,994, a savings of more than $2,000,000, or 73% of the high bid. Marton Enterprises did not include the requested financial statements with their proposal. Based on our own research, we determined that they are wholly owned by the British conglomerate, Devon Holdings plc. We have been able to gather the financial statements of Devon Holdings via other sources. They are a public company with almost 23,000 employees worldwide and sales of 1.3 billion British pounds. Their largest market segments are Automotive, Industrial and Aviation. While the aviation segment is their smallest it has the largest growth in terms of sales and the largest profit margins. It is reasonable to assume that Devon Holdings considers the Aerospace segment to be core work and part of their long term strategy. Part 3 – Environmental and Root Cause Analysis

The large variation between the high and low bids of the nine bidders is a cause for concern. Typically, we would expect to see a variation of approximately 20% between the high and low bids. The fact that the low bidder offered a savings of 73% relative to the high bidder brings the entire RFQ process into question. If all of the bidders had the same understanding of the requirements, how could we have received bids so far apart? Even more concerning is the fact that the incumbent supplier is the highest bidder. We would expect that the incumbent would have the greatest understanding of the requirements for this job. If the current vendor will not reduce their price at all, it is a questionable decision at best to believe at face value that the low bidder can provide it for 73% less. It is also important to...
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