De Havilland (Havilland) is Canadian aircraft manufacturer that was recently acquired by Boeing. The parent company has requested Havilland take on several initiatives including seeking 25% price reductions from suppliers, reducing the total number of suppliers and seeking more long-term fixed pricing agreements. Havilland recently received submissions for an RFQ for the supply of supply flap shrouds and equipment bay doors. The pricing received raises some concerns however, as there are large variations in pricing between the lowest price from Marton Enterprises Inc. (Marton) and the highest price from the incumbent, Dollard Plastics (Dollard).
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Havilland must spend the next few weeks determining if Marton can rectify all the outstanding issues before they are awarded the contract then Havilland must utilize several key KPIs, over the next year, to determine if Marton is suitable to become the sole supplier.
Havilland has put out an RFQ for the supply flap shrouds and equipment bay doors for its Dash 8 aircraft. The pricing came in and offers great savings but the variations in quotes are substantial and of concern. The incumbent, Dollard, came in at the highest price and Marton came in at the lowest. Havilland must now determine how to proceed and whether to accept the bid from Marton, which has some concerns including the lack of financial statements and unexpectedly low price.
The bill of materials for the Dash 8 airplane represents 60-65% of the total manufacturing cost. As such, in an effort to reduce costs, Boeing has ordered Havilland to seek 25% reductions in prices from all vendors. Dollard, one of the current suppliers, is unwilling to lower their price.
Havilland also has an excess number of suppliers and would like to consolidate their vendors and create more long-term relationships with fixed pricing. This would allow Havilland to avoid frequent negations and improve forecasting.
There are some concerns presented with Havilland’s BSB, specifically their goal of renegotiating pricing received from the low bidders in hopes of further squeezing bidders. This raises serious credibility issues with their procurement process, leads bidders to include a “buffer” in their prices and unnecessarily wastes internal resources on negotiations.
Environmental and Root Cause Analysis
Havilland is Canadian aircraft manufacturer founded in 1928 by a British company. The company was purchased by Boeing in 1986 and several mandates were employed by the parent company. One of them being that Havilland is to seek a 25% reduction in costs from suppliers. With this RFQ process, Havilland has successfully achieved the target but several concerns have emerged regarding the procurement process.
One of these concerns is ethical, as the intent in a fair procurement process is for all bidders to have the same understanding of the scope. If the difference between the lowest bidder and highest bidder is substantial, it becomes evident that there were different interpretations of the requirements. It becomes of further concern when the incumbent comes in at the highest price, as the incumbent can generally be expected to have the best understanding of the scope. Ethically, Havilland is obligated to ensure Marton, and any other bidder they may choose, fully understands the requirements before entering into the contract. Although Havilland may technically still be able to enforce the contract if Marton misunderstood the expectations, there would be significant legal costs, delays and other...