Bombardier Snowmobile Who makes better snowmobiles? Bombardier or Polaris?
Ski-Doo has an all around better product that the Polaris. I work on these machines daily and from experience the Ski-doo is a much better sled. Try a 2003-2008 REV Model, these sleds rock.
Bombardier Transportation: The Challenges Of A Multinational Manufacturing Firm
History
Bombardier Transportation is a multinational firm that can trace its origins to making snowmobiles. As the company improved its manufacturing capabilities, it entered into rail equipment manufacturing. The firm has since become a world leader in the rail equipment industry, and offers equipment and services to the transportation industry. In fact, Bombardier now classifies itself in the transportation industry, which is an umbrella term for all of the sectors in which it competes. These include rail, aerospace, manufacturing, services, and signal and rail control systems.
Industry
The three main components of Bombardier’s business are rail, maintenance, and aerospace. The rail industry is this case refers to the rail equipment itself, namely freight and passenger cars. Contracts may be awarded for the construction aspect of the project as well. In either case, there is a significant amount of costs incurred by Bombardier. Initial outlays are required for materials needed for the contract requirements, and to begin production. In addition, there is a massive amount of investment in research and development and engineering that was required to assess the project’s viability and a subsequent bid.
Maintenance is referred to separately because there are various stages of contracts that Bombardier obtains that do not always include all of the maintenance for a particular project. These contracts are most often for equipment, such as passenger trains and automated people movers. However, lately Bombardier has won opportunities to maintain the right-of-way used by the equipment, which includes tracks, bridges, and buildings.
As the few companies that are equipped to compete in these markets have grown in size and capabilities, a new term has been coined to describe the one stop shopping that these firms can provide for infrastructure projects. DBOM, which stands for Design, Build, Operate, and Maintain, is a full service solution that lets the government simply offer out contracts for an entire system with specifications, and let these companies bid on them. After construction is completed and equipment has been provided, the contract calls for continued maintenance for a specified time period.
Aerospace is the newest segment of the transportation industry that Bombardier has entered. This seems to be a natural evolution for the company, since the framework for this product line is very similar to that of rail. Both consist of significant investment in engineering, design, and production before seeing any profits, albeit at a higher factor in aerospace than in rail.
Accounting Challenges
The biggest challenge for Bombardier Transportation, and most heavy manufacturing firms for that matter, is allocation. Engineering in the form of design and research and development is a major expense that these firms incur, especially when there is no guarantee of revenues derived from much of the work completed. Eventually when contracts are awarded, they are normally part of long term infrastructure and manufacturing projects. As stated before, these require a significant outlay and carrying costs while being assembled.
Several reasons exist for allocating these costs. For financial reporting purposes, costs must be properly accounted for to develop the accurate amount of taxes that Bombardier would be responsible for paying. This is obviously required of all firms. Cost-based reimbursement is the most significant reason for Bombardier to allocate its costs in a proper manner. The massive amount of investment required in this industry necessitates clear allocation of costs incurred so that there is no question of amounts when it is time for reimbursement upon completion of the project. One more purpose of allocation is within the budget. Bombardier is such a large corporation, that control of numerous subsidiaries and business units is accomplished through budget allocation. Any variance of the budget required explanation and thus greater control.
Exactly how these costs are allocated by Bombardier is an internal matter for the firm. However, the case for cost absorption could be made. Direct and indirect costs can be assigned for the various stages of completion for each project that it works on. These initial allocations are forecasted amounts, but as the actual amount becomes clear, adjustments for over or under absorption will be made and the actual costs restated. These matters are further complicated with the inclusion of multiple overhead rates, originating from the numerous departments of the firm involved in any one project.
Operations for Bombardier span the globe, with a total of 55 sites in 25 countries creating added challenges for it. Despite a trend towards international standardization of accounting practices, the laws still vary among countries. Varied tax rates and structures need to be managed for proper compliance in every locale, and currency fluctuations magnify, whether positively or negatively, the effects that translation has on Bombardier’s income statement.
No matter how significant the investment required or the challenges that multinational firms like Bombardier may face, infrastructure will remain an important growth area on a global scale. Firms that want to remain relevant will need to address these issues if they want to compete.
About the Author
George Carroll is a graduate student in the MBA program at West Chester University of Pennsylvania.
