Collaborative Procurement

P: Problem (s)

The main issue faced in the case is whether to complete a request for quotation (RFQ) competitive tender, or to pursue a sole-source justification for a modernization of Montreal’s 336 Metro Cars. This is an estimated contract of > $1 Billon and can have significant implication on the Canadian/Quebec economy, especially in the surrounding Montreal area. In addition to the decision between tendering this contract and pursuing a Sole Source negotiation, the Montreal Transit Corporation must weigh the benefits of using a Canadian manufacturer, Bombardier or the French Multinational Corporation, Alstom. The benefits and risks of each option will be considered.

C: Cause (s)

The Montreal Transit Corporation is a public transportation agency that is responsible for operating the busses and rapid transit system in Montreal Quebec. This is a major public service with an annual ridership is > 3.6 million passengers and an average annual passenger usage of 405 million. The current system was incepted in 1966 for the Expo 67 World Fair that was help in Montreal. Since then, it has become an integral part of the Montreal public transit system. The Metro in Montreal is unique as it operates rubber-tired trains instead of the traditional steel. This has caused some increased maintenance costs throughout the transit systems lifetime and the Montreal Transit Corporation (STM) has determined that the existing railcars in the metro, are in need for modernization.

The SMT is a major receiver of public funds as it is a wholly owned subsidiary of Montreal. This means that its revenues come from ticket sales and the tax base. Given the amount of funding that the SMT receives, there is an ever-watchful eye on how the SMT’s funds are being spent to ensure that taxpayer contributions are being properly allocated. Ticket pricing is also a major issue that the public is cognizant of; since the Metro cars are rubber-tired, they typically require more maintenance and as the trains age, ticket pricing needs to be increased in order to cover the escalating costs.

In regards to the completion of the modernization of the railcars, two main competitors are capable of executing the contract, Bombardier and Alstom.

Bombardier:

Bombardier is a manufacturer of both Trains and Planes. They are a global company with annual revenues of ~ 6 billion that focus on being market leaders and continually expanding business to new markets. Bombardier focuses on being a leader in innovation while practicing Corporate Social Responsibility (CSR). In addition to Bombardier being a leader in the industry globally, they also have a significant impact on the Quebec community by owning an operating a modern manufacturing facility in La Pocatiere. This facility is a major employer in Quebec that generates ~ 4600 employees and utilizes 50 suppliers with an annual spend of $250 million. To illustrate Bombardiers position more effectively, see the below SWOT chart:

As seen above, Bombardier has strengths in their manufacturing technology and innovation but they have a disadvantage of not having the same market share as their counterparts Alstom ($17.4 billion annual Revenue). In terms of opportunities, because Bombardier already has an established Canadian manufacturing facility and presence in the Canadian market, they would be less susceptible to changes in exchange rates and government policy. With a long-term project like the modernization of the rail cars, changes to foreign investment or changes in the value of currency can escalate pricing very rapidly or expose the SMT to significant risk. Due to the localized benefits of reduced lead times, transportation costs, and monetary benefits of the public relations story, it is likely that Bombardier would be able to offer reduced costs. In regards to the threats, Bombardier has less financial resources than their competitor’s, meaning they likely do not have the same funding for research and development. In addition, they are also not specialized to only producing trains. This diversification means they likely have less resources allocated to developing their train technology than an industry specific company.

Alstom:

Alstom is a French multinational corporation that specializes in electricity generation and rail transport markets. They have annual revenues of $17.4 Billion and have a large workforce (25,000) that are dedicated to their rail transport customers. Alstom has a large focus on growth and sustainability that can be seen through their CSR programs. Alstom has had extensive experience in the modernization of railcars that help to improve the performance and lifetime of the assets. Alstom also has a program that promote the use of local resources and creates opportunities for current and future needs. Below is the completed SWOT Chart for Alstom:

As seen above, Alstom has many strengths. They are a leader in market share, they have exceptional manufacturing technology, the financial resources capable fo meeting or exceeding the requirements of the contract while mitigating some of the risks, and have a management team that has been successful in similar contracts previously. These strengths also lead to some major opportunities; Alstom is posed to have a strong future and they continually innovate and have made long-term decisions regarding sustainability, they have a large dedicated workforce that makes them industry specific and a leader in the industry with both innovation and brand image. However, due to Alstom being a French multinational corporation, it exposes SMT to a more significant risk of pricing, exchange rates and government policies. If things were to change in the European Union or in the Canadian market, there could be a significant risk of price escalation or barrier to trade.

Relating to the issue of how the