DE HAVILLAND Case Report

January 20, 2015

Table of Contents
Executive Summary 3
Issues Identified 3
Environmental and Root Cause 3
Alternatives and Options 4
Implementation 5
Recommendations 5
Monitor and Control 6
Conclusion 7

Executive Summary

This case report addresses many factors when decisions are made in identifying and working strategically with custom designed components and assemblies. De Havilland Company especially Kim Tomar has a decision to make. A RFQ proposal by Marton Enterprises could bring cost reductions down by 60% for this particular assembly and help with streamlining BOM cost to achieve a reduction of 25%. There’s risk to using a new vendor, including delivery and trust and even if the correct SSB members are evaluating the proposals. There are discrepancies that need to be reviewed and questioned by the Operations, Logistics and Sourcing staff and hidden costs not noted on the price breakdowns ie: soft and hard tooling costs. Marton must prove to the SSB group and OLS that their proposal is solid and can manufacture and meet spec’s as identified by De Havilland Engineers. There also needs to be plan to increase capacity should there be an upswing. My recommendations include two options including a primary and secondary vendor model (mitigating risk of custom components and shortages and working with the existing vendor Dollard Plastics to looks for ways of continuous improvement through design and factory lean initiatives to realize savings. The drawback is resources. Implementing a new vendor or otherwise looking at “Leaning the process” through design and manufacturing require resources. Hopefully the assembly cost for the flap shrouds by Marton Enterprises are correct not to mention their corporate presence.

Issues Identification
The issue identified is a rather simple one. A potential new vendor, “unproven” will manufacture, assemble and supply a custom sub assembly part that meets all specific tolerances, capacity and quality levels of De Havilland design at 60% less than the price of what the existing vendor Dollard Plastics charges. There is minimal knowledge of the corporate structure or finances of this company other than they are a division of Devon Holdings, a large corporate traded company. There are also internal issues with the SSB team questioning if there are correct members in the team to analyze the data presented to them in the Marton Enterprises proposals. From an operations perspective, Exhibit 5 “breakdowns” missed many issues that are instrumental in coming up with the cost of the part which could play a major impact on the price once the product comes closer to production. They are:
1. One-time tooling cost in its proposal. Was the cost absorbed in the, per/piece part price or is it a one-time fixed cost? Tooling plan similar to below was not provided.

2. Quality expectation. What level of quality are they expecting and can they meet the
Specifications provided at this cost? This has a major impact on cost of the part?
3. No Continuous Improvement plan to see future cost reductions.
4. And soft costs like logistics and duty costs and future potential issues with labour relations.
5. Breakdown in BOM Cost similar to this one was missing on the overall cost of the assembly and parts over the multi-year span of the contract.

These were not factored in during the evaluation process by the SSB.

Environmental and Root Cause Analysis
An important issue to understand who the supplier Marton Enterprises is and their long term financial existence. The industry has a wealth of experience as identified by the amount of bidders in the RFQ. As De Havilland is 49% owned by the Ontario government, it has rules how it engages with suppliers which could potentially put them under fire with (AIT/TILMA) by accepting a bid that is non-compliant (did not include a price breakdown). The RFQ had over 10 suppliers bidding with majority Canadian which tells us the manufacturing process, labour and experience is available locally. The pricing structure missed some key costing points including tooling cost which were known to be expensive. As a US firm, duty and clearance delays could also occur and costing longer delays in delivery affecting JIT and inventory reduction plans.

Alternatives and Options
There are 2 alternatives I see would fit in well.
1. Have 2 suppliers produce the part while gradually switching to the new incumbent supplier of the RFQ (cheaper) Primary & Secondary Vendor.

Keep Dollard as a backup supplier. The advantage to this methodology is to reduce risk and continue production of parts for production while getting the new supplier up to speed. Create a schedule identifying Dollards production and volume while preparing Marton’s gradual entry into production. The volume split could be 60/40 for Dollard while gradually moving in favor of production to Marton over a scheduled plan. This would also allow De Havilland mitigate risk by having a 2nd vendor for future delivery and production issues like upside in capacity or loss of production due to environmental causes. The disadvantage to this is the initial upfront resource costs in implementing 2 vendors. Also, Relationships with Dollard may go sour as they are being phased out..

2. Work with the existing supplier to identify areas of improvement to reduce cost including working with Engineers to redesign the component. Create a task force to look for opportunities for cost improvement.

Collapse the RFQ and work with Dollard Plastics in finding ways to improve on cost. This would involve reviewing the assembly line with LEAN process or working with Engineers to redesign components to reduce steps in manufacturing. Technology could be used to decrease cost and outsourcing sub parts for assembly may be other alternatives. The advantage to this is the relationship and partnering with Dollard Plastics will bring a strategic alliance for future projects. The disadvantage is the chance the 25% cost reductions are not met.
Recommendation:
Move forward with Marton Enterprises as a secondary vendor while continuing with Dollard and gradually phase out Dollard Plastics. This will place least risk to De Havilland on their production line of their series 100 aircrafts. As the series 300 will be out of contract with Dollard the following year, this will give opportunity to move to Marton for additional savings.

Implementation
To understand the challenge and implementation plans required to setup a secondary vendor. Create a tiger team identifying what is needed and to split the tasks into manageable tasks. Create timelines with control points used for metrics and KPI’s identifying status and what phase you are in. For setting up a second vendor, a ramp up plan and ramp down existing vendor would be required. This would be done within a12month period. Item 1 - Schedule :

Control
Monthly Project Management meetings to identify risk and support if needed. Create metrics and KPI’s detailing status and production status. Make small prototype builds and test to meet quality and design specifications. Management and Production schedules are reviewed monthly.

Create prototype and build schedule with controls Create a Cost reduction plan

Capacity planning for either option 1or2. Option 1 primary and secondary. The plan could be show a split between vendors.

Conclusion

De Havilland has a great opportunity to meet cost reduction goals and introduce a new supplier to their supply chain. They are able increase capacity and de-risk quality to its production of the S100 and S300 flap shroud assembly currently single sourced out to Dollard Plastics. This can be achieved by having two suppliers in there vendors list for this assembly and switching majority of production to the cheaper supplier in a controlled schedule to see cost reductions.

In conclusion if the recommended strategy is implemented successfully and in a timely manner, savings can be achieved. Full Implementation of Marton Enterprise as a 2nd supplier of flap shrouds and equipment bay door would reassure DeHavilland parts are readily available and tested to meet their supply chain challenges.