Right to Reply

For Manufacturers Only

Right to Reply

By Richard Rowe

June 2001

As expected, our April column looking at the theme of "Coping with Price Pressures" caused quite a stir. You may remember that a guest writer presented his view of why the buyer/seller interface has broken down in the past and offered one or two possible solutions. The column generated its fair share of phone calls and several excellent written responses. You will find two of the latter below--one representing an airline point of view, and one from the vendor side of the fence.

Dear Sir,

I have just read the article, "For Manufacturers Only: Coping with Price Pressures" in the April issue, and I was most pleased that someone else had the same beliefs as I. Having been directly involved with GSE at Air Canada for the last 33 years--21 with GSE specifications and evaluations and prior to that, GSE maintenance--I wholeheartedly support the views and recommendations.
GSE acquisitions and evaluations cannot be made in isolation. The choice must have the involvement of all the involved parties--the user, maintainer, engineering, purchasing and, of course, at the appropriate time, the vendor(s). To this end, these participants (excluding the vendors) were part of Air Canada’s GSE Steering Committee of which I was Chair for the last 18 years.
First, the user must know the basics of what it wants or wishes for to meet its operational requirements. Then, the maintainer must share its data and experience re unit quality, reliability and vendor support, and the impact new equipment and/or vendors might have on their operations.

Then there is engineering, which should concentrate on the technical specifications. I was responsible for this element and over the years changed the venue as it became obvious from the early days that you could not specify a Ford and expect GM to properly quote or build it.

It was also obvious that some vendors either didn't read, or indeed misread, those multi page documents. I can recall one of which was 42 pages long specifying the requirements for a 400 Hz, 90 kVA GPU.
Those were the days when there was a large staff (more workers than work) in the department that with time became diluted to one.
Obviously, reduced resources dictated change. In the last few years I had, in most cases, condensed the technical requirements for GSE to a single page document. Why be long winded if the prior situation was indeed fact? The proviso being that quoting vendors must submit their specifications and their available options with their quotations. I would certainly read and question the same.
The Purchaser must solicit the quotations and be aware of all potential vendors, negotiate the best price, terms, delivery, and action the legalities of the acquisitions based on the directions of what we referred to
as the Ordering Information. This sheet, prepared by the Steering Committee Chair, was based on the input of the participants, referenced our initial requirements, the vendors quotation and specifications and the agreed to variances. Most importantly it stated the exact vendor, model and required options. If, for some reason, the criteria could not be met then it was back to the committee and another Ordering Info was prepared.
During the selection process and when deemed appropriate, Steering Committee participants, and/or their delegates, participated in factory visits to see first hand the vendor's product, their facilities and support capabilities. I've had many surprises, both positive and negative, regarding what I had initially perceived or had been led to believe.
Such visits were of great benefit through the resulting "buy in" and/or support of the participants. Unfortunately there have been disappointments but they have been the exception and we all learn accordingly.
My involvement with IATA in the 900 section of the Ground Handling Manual and the SAE with AGE 2C committees exposed me in part to the various workings of other airlines, and I was able to build on that knowledge.
Yes, price is and always will be a major part of the acquisition equation, but when the prescribed process has been followed the best decision can be made and be defendable.
Of course, and it does happen, the product deemed the best can also be the least expensive. You can imagine then the great sigh of relief.

Great article, keep up the good work.

John Mitchell
Ex-Air Canada

Dear Sir,

Having just read the most interesting article in the April Issue, "For Manufacturers Only: Coping With Price Pressures," I would like to endorse the majority of the writer’s comments especially with regard to his frustrations when dealing with capital investment procurement teams, buyers, and agencies.

My views are pointed more at the comparatively lower end of the investment scale and relate to fixed installation warehouse equipment, mobile equipment, and airside ramp based GSE units. It is difficult to comment in specific terms on the varied commercial price and cost pressures exerted on manufacturers and suppliers by fixed installation, GSE and related equipment buyers, procurement agents, airlines, and GSA purchasing departments, except with one or two rather general broad brush statements. That said, I hope my comments are of interest.

The pressures placed on GSE and fixed installation systems capital expenditure budgets have always been intense. In fact, it is probably more so nowadays as attempts to save costs at the front end of the procurement chain are passed through to the maintenance and service side of the customer’s operation. They are, in turn, pressurized to keep equipment in a safe, reliable working condition in a competitive and harsh operational environment where low daily running costs are mandatory (particularly in this world of thin profit margins).

In my experience, purchasing orders and contracts are increasingly tied to more stringent and sometimes onerous terms and conditions. This includes extended warranty periods, financial bonding, and guarantee certificates linked to, or in addition to skewed payment terms (e.g. no deposit or very low deposit payments with order and payments made after delivery or beneficial usage only). Financial retentions are also an essential part of most supply agreements.

The above commercial requirements together with a perceived philosophy of lowest bid or lowest price wins the contract is meant to eliminate poor quality and unfit equipment. However, such an approach sometimes has an opposite and detrimental effect whereby the lowest priced equipment can be the only solution choice left to the buyer. This, of course, benefits the supplier who only wants volume sales, supplying items that generally barely meet the end user’s specific requirement and eliminating those manufacturers who in the main are trying to provide a workable solution and not just another sales statistic on their financial report sheets.

Comparing airlines with GSA end users appears to confirm similar pressures on their operations to maintain service and turnaround times, through the use of equipment designed specifically for their operational requirements.

Cost, best price, and hopefully value for money, are still very high priority requirements amongst buyers and procurement agencies. However, the immediacy of a lowest cost option or a best price does not always mean that the best quality or value over time service equipment option is obtained.

Some organizations and individuals do exist, however, that appear to be more enlightened and experienced when considering their capital expenditures. They will, for example, genuinely examine their longer term running and maintenance costs, medium- and long-term spares cost requirements and consumable purchasing budgets for equipment and fixed system installation solutions. Such buyers build proper long-term life and utilization factors into their evaluation matrices.

In addition to the operational considerations noted above it is very important that the equipment manufacturer has at least a basic understanding of the customer’s requirement specification(s) enabling the best option or model type to be purchased.

Customer and end user operations together with understanding individual needs and requirements, are important considerations in deciding specific equipment types and system solutions to be offered.

Sales and marketing activities undertaken by suppliers and manufacturers within their marketing mix should include regular personal contact with the customer, end user and specifying organization. This will help better understand their needs and, in turn, help the customer to better understand what alternatives and optional solutions are available and why costs and prices are a variable factor when reviewing a particular operational solution or equipment model type.

It is inevitable that, in some instances, an operation may change precipitating a change in the equipment and the original specification requirements before or just after delivery has occurred. Luckily these changes and cost variations can sometimes be incorporated before or during beneficial usage and in a planned implementation rather than with recourse to a knee jerk reaction.

Therefore, it does mean that it is essential that the customer, the buyer or end user, and the supplier establish a good working relationship and good two-way communications links between each other.

The onus to establish and maintain good working relationships and good communication links should be placed on both ends of the manufacturer/supplier and customer/buyer chains. It is generally this area where problems related to understanding requirements and competitive price variations tend to occur. This suggests that if better understanding and information exchange occur the manufacturers and suppliers should be able to obtain fairer prices and customers would receive value for money prices for equipment and system solutions that really do work.

In closing I would like to repeat the old adage: "The bitterness of poor quality remains long after the sweetness of a low price."

Editor’s note: Like the author of the original "For Manufacturers’ Only" article in our April issue, the author of this letter prefers to remain anonymous. What we can say is that the author is someone who has been involved in the air cargo handling system business industry for more than 20 years. He represents a well-known U.K. and U.S. based manufacturing company with an extensive GSE manufacturing and service division.

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