De Havilland

Topics: Negotiation, Contract, Economics Pages: 5 (1515 words) Published: February 13, 2013
De Havilland
Executive Summary
De Havilland is a major player the Canadian aircraft manufacturing industry. Founded in 1928 by a British company, De Havilland has had multiple acquisitions by various organizations including the government. As of 1992, the organization was co-owned by the government of Ontario with 49% shares and Bombardier Inc. with 51%. The company’s strategic goal is to keep their competitive advantage by focusing on cost reduction through negotiating long-term contracts with various vendors to capture economies of scale as well as set a fixed cost to secure price stability. Although de Havilland’s existing flap shroud supplier was unwilling to accept the renegotiated 25% discount to the current price, the company had more than a year’s inventory left with the contract expiring in 1993. De Havilland decided that it would be appropriate to solicit suppliers. Nine submissions were received, with the cost difference between the lowest and highest bid at $2,061,180. Based on the information provided it was evident that Marton Enterprise had the most attractive proposal.

Issue Identification
Long Term – Strategic
* Contract between de Havilland and Dollard Plastics of Montreal, Quebec for flap shrouds for Series 300A airplane will be expiring at the end of 1993. * Dash 8 airplane represented 60-65 per cent of de Havilland’s total manufacturing costs * De Havilland buyer tried to negotiate 25% discount from Dollard, but was rejected * De Havilland’s BSB is trying to implement cost reduction strategy by: * Partnering with smaller base of vendors to capture economies of scale * Commit to long-term contracts for a span of five years with firm, fixed prices Environmental and Root Cause Analysis

Founded in 1928 by a British company, De Havilland has become a significant part of the Canadian aircraft manufacturing industry. As of 1992, the organization was co-owned by the government of Ontario that held 49% of the shares and Bombardier Inc. owning the remaining 51%. With multiple acquisitions by various companies and the government over the past half-century, the organization has implemented several activities into their operations. These activities implemented in different stages of the supply chain have successfully provided versatility in satisfying customers’ needs, from procurement to production. During Boeing’s ownership, de Havilland experienced tremendous evolution in their corporate processes. In particular the purchasing cycle is a noteworthy system developed during this time. In Exhibit 1 of the case study the diagram demonstrates the step-by-step procurement process the company goes through when it encounters a design change/new design, requiring sourcing of a new part that has not been previously purchased before. Parties that are involved are mainly composed of representatives from Finance and Material departments. The level of management involvement depended on the size of the contract. De Havilland’s current issue was selecting a new vendor to source flap shrouds from. Dollard Plastics, a company based in Montreal, Quebec has been supplying flap shrouds for their Series 300A airplane, but their contract was about to expire at the end of 1993. With parts costs of the De Havilland’s Dash 8 accounting for 60-65% of the organization’s total manufacturing costs, the purchasing department attempted to request a 25% discount from Dollard as a strategy for cost reduction. However, their request for a lower price was rejected. With the failed renegotiation, the procurement process had to move back to bidder selection board stage. In addition to the cost reduction strategy mentioned earlier, de Havilland’s objective was to partner with a smaller base of vendors to take advantage of economies of scale. They would like to establish long-term cooperative contracts (i.e. five years) with fixed pricing so frequent negotiations won’t be...

References: * Module 2 Procurement_Candidate Manual 2013 1.0.pdf
* Module 2 Readings Manual 2013 1.0.pdf
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