Risk sharing and coordination in a new aircraft project

In complex and risky projects to develop new products, the producer must create an environment to motivate the commitment of important suppliers. After observing the practices of Bombardier Aerospace in the development of a new commercial aircraft, the following questions emerged: What are the supplier's concerns when joining a project while the associated reward is still uncertain? From the producer's perspective, how can they structure and coordinate a joint-development project to monitor and motivate best behavior? The work with Bombardier gives the modeling in this dissertation a unique grounding in the real complexities of contracting processes and project management under uncertainty. The primary issues arising from a decentralized project are largely attributable to the complexity of reaching agreements or contracts between the producer and suppliers. Poor contract design and incentive structures can leave the project vulnerable to delays, cost overruns, or even complete failure. Interviews with Bombardier managers indicated that during the contract negotiation period, a project's risk or uncertainty was the biggest determinant of the nature of supplier participation. However, after signing contracts with suppliers, the major challenge facing Bombardier was to ensure that suppliers did their best to keep their commitments throughout the entire development process. Four analytical models are proposed in this dissertation to describe and provide solutions for decision makers at Bombardier. The first model is to explain the risk control strategies of Bombardier's potential supplier. The second model provides a new approach for contract design that optimizes the risk sharing between Bombardier and suppliers. In the third model, the analysis is on the potential value and cost for Bombardier to acquire the private information from a supplier about the current development status. The fourth model tries to describe the contracting behavior between Bombardier and supplier when the information of future demand is incomplete. As more and more companies in areas as diverse as the automobile, electronics, and service industries are using specialized suppliers to improve product development and manufacturing, this work enhances the understanding and provides solutions to the issues of risk sharing and coordination in joint new product development.