DYNAMIC AIRCRAFT The Dynamic Aircraft Company was recently awarded a multibillio
ID: 447366 • Letter: D
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DYNAMIC AIRCRAFT The Dynamic Aircraft Company was recently awarded a multibillion dollar contract for a new high-performance aircraft. This project required the use of new materials in many areas of the aircraft. The aircraft incorporated a state-of-the-art concept known as fly-by-wire. Among the conventional materials no longer useful were many of the types of wire used in the electrical systems of aircraft. Fortunately, however, the electrical wire manufacturers had been brought in on the problem at an early date so that, before long, many of them could offer for sale a standard stock electrical wire capable of withstanding unusually high temperatures. One leading electrical wire firm, Advanced Wire of Chattahoochee, Georgia, had developed a ceramic-coated wire. Other wire sources had tackled the problem in different ways. The representatives of all these companies were anxious to demonstrate their products to the engineering departments of the aircraft companies. The engineers at the Dynamic Aircraft Company, a large airframe manufacturer, were quite favorably impressed with Advanced Wire’s ceramic-coated wire. They knew from previous experience that Advanced Wire had a reputation as a quality supplier of electrical wiring for the aircraft industry. Believing that Advanced’s wire was the highest quality obtainable, the engineers specified it on the bill of materials. Bill Marshall bought wire and related items for the Dynamic Aircraft Company. An experienced buyer, Mr. Marshall had a reputation for being conscientious and knowledgeable concerning the commodities that he purchased. When the requisition came to him to buy Advanced’s ceramic-coated wire, he immediately wondered why Advanced Wire had been designated as a sole source. From his experience in buying wire, he knew Advanced to be a high-cost producer. Moreover, he always attempted to follow the Dynamic Aircraft Company policy of dealing with more than one source whenever possible. Believing that engineering may have been “sold a bill of goods” by the Advanced sales representative, Mr. Marshall decided to telephone the engineering department to learn what specifications governed the wire in question. Mr. Marshall did not want the engineer he was telephoning to think that, despite the fact that the current instance was typical of a number of similar instances, he was in any way censuring him for specifying Advanced Wire as a sole source. The engineer explained that the wire was of a special nature, designed to withstand extremely high temperatures. He also said that Advanced’s wire was the highest quality obtainable and that in his judgment, it should be purchased to fill the current need. Mr. Marshall pointed out to the engineer that there were many thousands of types of electrical wiring. He said that all of these types were made according to some sort of specification—either military specifications, wire industry specifications, or specifications established by the purchaser. Mr. Marshall also said that a rule of the Dynamic Aircraft purchasing department required a buyer to know about any governing specifications before issuing a purchase order. After a few more minutes of conversation, the engineer said that he would attempt to locate the governing specifications and send them over to Mr. Marshall. In the meantime, Mr. Marshall got in touch with the local representative of Advanced Wire to request samples of its ceramic-coated wire and price quotations. When the quotations were submitted, Mr. Marshall observed that once again Advanced’s prices were higher than those of the industry in general. Yet he realized that this particular wire might well be a more expensive item to manufacture as a result of its ceramic-coating feature. Several days later, Mr. Marshall received the specifications for the wire. The specifications were of the military standard type and listed the performance requirements that the wire was to meet. Accordingly, Mr. Marshall solicited quotations from the other qualified suppliers and asked that samples be submitted to him that would meet the performance requirements of the specifications. Five other suppliers submitted samples and price quotations. On receipt of the samples, Mr. Marshall forwarded the samples, and with Advanced’s sample, to the production development laboratory of Dynamic Aircraft for analysis and evaluation. The production development laboratory was under the direction of Dynamic Aircraft’s inspection department and was separated both physically and organizationally from the engineering department. A week later the report of the production development laboratory was in Mr. Marshall’s hands. The samples submitted by the six suppliers had undergone exhaustive tests, particularly with regard to their ability to withstand high temperatures for prolonged periods of time. One of the suppliers was eliminated from consideration when its product failed to meet performance specifications. The other five samples, including Advanced’s, were found to exceed minimum performance requirements, and at extremely high temperature ranges the ceramic coating of Advanced’s sample made it superior to the others. With regard to the weight of the samples (another important consideration), Advanced’s wire was found to be heavier than the others. Furthermore, the conductivity characteristics of Advanced’s were rated as inferior to the other samples, although all the samples exceeded the minimum performance requirements and were rated as acceptable. On the abrasiveness test, Advanced’s wire was found to be slightly less durable than the other supplier’s samples but, nevertheless, acceptable. These laboratory findings tended to confirm Mr. Marshall’s belief that the engineering department had been sold a bill of goods in specifying Advanced as the sole supplier. The samples submitted by four of the other suppliers had met the governing military specifications and in some ways were superior to Advanced’s. While Advanced’s wire withstood higher temperatures, Mr. Marshall saw no need to pay a premium price for it since the wire supplied by the other suppliers met the specifications that engineering had submitted to him. With regard to price, the Easternhouse Electric Company was the lowest bidder and Advanced was the highest. The high and low bidders compared dollar wise as shown in Exhibit 1 on the quantities to be purchased. The delivery schedules required by Dynamic Aircraft posed no particular problem since all five of the qualified suppliers seemed capable of meeting required delivery dates. Exhibit 1 Eastern- Quantity Advanced house to be Eastern- Difference price (per price (per purchased Advanced house in Size 1,000 ft) 1,000 ft) (in 1,000 ft) total price total price total price 20 gauge $ 55.20 $ 21.00 100 $ 5,520.00 $ 2,100.00 $ 3,420.00 12 gauge 102.00 50.40 70 7,140.00 3,528.00 3,612.00 10 gauge 124.60 76.90 120 14,952.00 9,228.00 5,724.00 8 gauge 243.60 129.60 40 9,744.00 5,184.00 4,560.00 4 gauge 399.90 248.40 20 7,998.00 4,968.00 3,030.00 Totals $45,354.00 $25,008.00 $20,346.00 The laboratory report and the price quotations were then sent by Mr. Marshall to the engineering department, along with a request that the purchasing department be authorized to place the order with any company that could meet the military specifications. The engineering department refused Mr. Marshall’s request, maintaining that Advanced was the only company that could manufacture wiring that would meet the requirements of Dynamic’s engineering department. The engineers stated further that since Advanced had been the first company to develop this particular wire, the purchase order should be placed with it. In conclusion, they reiterated their claim that Advanced had a superior product that would justify any price differential.
DYNAMIC AIRCRAFT TEST QUESTIONS 1. If you were Mr. Marshall, what action would you take now?
2. What would have been a more effective way of specifying the needs rather than listing a supplier’s name and part number?
3. Was this over specified?
4. Should Mr. Marshall have challenged the engineering department’s specification of Advanced’s wire?
5. How can specifications limit competition? Is this good or bad?
Explanation / Answer
1. By considering the test reports from the testing team of the organization, Mr. M can reach a conclusion that it is not necessary to buy premium cost wires as the wires with competitive prices are available with equal quality and performance. Here the engineering team is not willing to prefer other wires as the ceramic coated wire can serve their requirement. Now Mr. M should also think about the budgeting of the organization. he can raise this issue to the top management so as to reach a conclusion. He can also enter into negotiation with the supplier so as to get the reduction in the price by favoring a long-term business relationship.
2. Through specifying the supplier name and the part number the actual requirement cannot be understood. While specifying the requirement in the bill of materials one should also specify the actual requirement of the material and its purpose. This can highlight the importance of that material for the production process and how its unavailability can impact the productivity and the performance of the manufactured product.
3. The specification cannot be considered as over specified. The specification given by the engineers highlighted the relevance of the ceramic coated wire for the aircraft manufacturing. Through opting substandard wires, the quality of the manufactured parts can be reduced. From the engineers point of view, they opted for the highest quality wires which can ensure 100% safe and secure output. Meanwhile, the specification sent by Mr. M to the engineers highlighted the cost variance and the reports of the testing done on the other supplier's wires. This detailed specification is also required for reaching a conclusion.
4. If Mr. M have challenged the engineering department through highlighting the reports of the test conducted on the wires of other suppliers unnecessary conflict might have raised which could have affected the production. The advisable way is to arrange a meeting and to reach a conclusion together.
5. Specification can certainly limit the competition. The requirement of each organization will be different according to thir specifications. If only the organization gets a supplier who provides the products which meets their pecification the purcahse is done. this limits the competition. This is good as far as the performance of the organization is taken into conideration.
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