What would you do??
FGPS have just completed a successful development (Posh 101) which is now due to enter service in twelve months time. This will require the manufacture of 300 cells per year for at the next 15 years, and the parts will need to be supplied to both FGPS UK and Malaysia cell build lines.
The Posh 101 is a strong product in a tough market place, and we need to ensure we have a product that meets the market cost expectations of our customers.
ISM has just successfully completed the Motor Development Contract which has resulted in 400 different tube parts comprising an engine set. The development programme covered 8 separate cell builds and 4 different modification standards. This resulted in over 1600 separate tube parts being designed to define the final cell solution.
ISM is based in the UK and compete in a competitive supply chain. The alternative suppliers in this commodity group comprise of GSM (based in the Canada with a sister facility based in Brazil) and Downtown (who have dual capabilities in France and China). These three suppliers have had long standing relationships with FGPS, and have been selected on the last three major cells programmes. All companies have capabilities in design and manufacture, with varying levels of success in terms of Quality, Cost and Delivery performance.
Market Analysis has helped to identify a new sourcing opportunity of tube parts in India, a company called DEMAIC. Although, they are not GPS approved it is understood they currently supply products into the Oil and Gas industry which would mean they would be used to similar quality requirements. They are understood to have available capacity.
ISM Pricing Cell Set Value Package came in at £72,000, an average of £180 per part. ISMís performance on Quality and Delivery is seen as the best with good product knowledge and very responsive, but very expensive. They currently have not committed to work via cost models and this was a key reason why they were not awarded the production contract at the point the development contract was placed.
GSMís Quality performance is excellent and they have built over the past years a close relationship through an open book cost relationship, which means all prices are agreed through a cost model. They do however have a history of poor delivery performance which was triggered by an unsuccessful transfer of business.
Downtown is seen as a reliable supplier in the Supply Chain with acceptable Quality, Delivery and Cost performance. However, they have been reluctant to invest and grow their business with FGPS. The belief is they are having financial difficulties.
Negotiations have now commenced for the production contract, and a decision has been made within FGPS that to meet this unprecedented engine programme a dual source strategy should be adopted. In addition, a cost challenge has been set of achieving an average part price of £100, and within the next three years a target cost reduction of 10%.
The Purchasing team have received the following quotations, and have reviewed the current Quality and Delivery Performance.
CSV Bid Quality On-Time Delivery
ISM £56,000 250ppm 90%
GSM £40,000 300ppm 25%
Downtown £42,000 600ppm 75%
DEMAIC £28,000 n/a n/a
Based on this, make an evaluation and an assessment of the situation, and a recommendation as to what sourcing decision you believe the Purchasing team should make and what is your rationale for your decision.