Upload
nadkhula
View
289
Download
0
Embed Size (px)
Citation preview
Charlestown Chemical Products
By-Akshay Salaria 08FT-125
Atul Gupta 08FT-137 Sarang Bhide 08FT-140
Mudita Jain 08FT-158 Swati Kundu 08FT-177
Vivek K 08FT-180
Case FactsMost wanted?!
Players & Positions (Physical)• Charlestown: $4.5 bn revenues , $200 mn PAT.
• Puritan: $600 mn revenues, $30 mn PAT.• Lee: Jobber• National Chemical: Possible Supplier
Charlestown - OklahomaPuritan - Texas, MissouriLee (Jobber) – TennesseeNational Chem - Missouri
Sequence of Events• 15th June: Puritan raises price from $48.75 to
$66.25 per ton effective 1st July.
• 17th June: Todd invites quotation from Lee Chemicals.
• 21st June: Lee submits bid of $55.50 per ton(delivery by tank car, max 3500 ton per yr, must-take 3000 tons). Lee also gives sample for trial run.
• 22nd June: Todd meets Puritan representatives, refuses price rise, and informs of a better offer.
• 23rd June: Todd expresses concerns to Lee over consistence of quality, price, delivery mode and must-take condition.
• 23rd June: Puritan reduces price to $52.50 per ton delivered by truck. Does not drop must-take condition. Offers full truck sample for trial which arrived on June 28.
• 1st July: Puritan retracts price rise. Reiterates exclusive supply clause.
Sequence of Events
• 10th Aug: Results of trial run with Lee’s product found satisfactory.
• Later in Aug: Lee reduces price to $51.25 delivered by tank truck, drops must-take condition.
• Early Sept: Puritan offers to renew contract for 1976 at $48.75 per ton on entire-requirement basis. Also offers to increase business by $0.5 mn on other products.
Sequence of Events
Thoughts!(Analysis)
• Insignificant Loss in Sales (~.1%)
• A lost Supplier (Needs raw materials equivalent to ~.13% of sales)
• Loses a Potential Long term partner
If its going to be Adverse!
Effect on Puritan
• 1% Loss in Sales
• A lost Supplier (Needs raw materials equivalent to ~.75% of sales)
• Loses a Potential Long term partner
Effect on Charlestown
Bargaining Power before Lee’s Quotation
• Puritan was sole supplier to Charlestown.
• Muriatic acid was a prime asset(A product very important for the buyer reduces buyer’s bargaining
power)
Puritan - High
Charlestown - Low
Customer Capability is Low
Customer Priority is High
Lee’s Product Specification & ComparisonSpecification/content Charlestown requirement
(Puritan’s supply)Lee’s offer
Appearance Clear Clear
Color- APHA 35 max 40 – 50
HCl 31.45% – 32.56% 31.5%
Free Cl Low concentration Nil
Organics Low concentration 5-7 ppm
Fe 1 ppm max 0.8 ppm
Ni Low concentration Nil
Arsenic 0.2 ppm max Nil
Overall Quality Good Satisfactory
Bargaining Power after Lee’s Quotation
• Lee’s offer bettered Puritan’s $66.25
• Lee could lose the chance to make a riskless
margin if it did not get a chance to supply.
• If Puritan would have lost the contract while
affecting the relationship with Charlestown.Charlestown- High
Puritan and Lee - Low
Value Analysis
VIU = (Valuef – Pricef) - (Valuea – Pricea)
Contractual - Legal Aspects
• The condition of ‘Buyers Requirement of Muriatic Acid’ – was open to interpretation.
• First right of refusal to Puritan.They had the chance to meet any offer by a competitor before a contract with a competitor was signed.
• Hence legally, Charlestown can not go with Lee’s offer, unless Lee’s price is better than Puritan’s in 1975.
Options Left for 1976 and after
• Continue with Puritan• Buy from Lee and look for other
suppliers• Get quotation from National
Chemicals and test them• Make indigenously
Advantages:• Proven results – Track record• Least Cost & High Quality• Meets current capacity
Disadvantages:• End up with low bargaining
power• High Supply Chain Risk• Price risk in future• Deteriorated relationship
with Lee (Could help the best in riskier situations)
Implications
Puritan – Sole Supplier
Advantages:• Replacement in short time• Risk of delivery lies with jobber
(Multiple Sourcing)• Least Supply Chain Risk• Least Contractual Obligations
DisAdvantages:• Relatively High Cost• Not a proven player• Satisfactory Quality• Deteriorated relationship with
potential long term partner
Lee and Others
Advantages:• Similar location to Puritan• If plant manager’s guess work
was right, could get the lowest cost
• Increased bargaining power with Puritan
Disadvantages:• Unknown territory (SC Risk,
Capacity, Reliability, Quality)• Relationship is yet to be
established• Deteriorated relationship with
potential long term partner
Implications
National Chemicals
Advantages:• No risk (Price, Supply
Chain)
Disadvantages:• Known to have high
cost structure• Possible loss in sales as
Charlestown is a potential competitor in certain segments
Make
Continuum of Relationships
Industry Relationship Bandwidth
Pure Transactional
Exchange
PureCollaborative
Exchange
Flaring - OutUnbundling
StrategyAdded
Augmentation
Strategy
Core Produc
t
Augmented
Product
Advantages:• Long term
relationship (Assured supplier with assured quality)
Disadvantages:• High Supply Chain
Risk (Delivery)
Supplier Selection Strategies
Single Sourcing
Advantages:• Reduced risk in
Supply Chain (Delivery)
Disadvantages:• Transactional buying• No obligation from
supplier as well
Multiple Sourcing
Decision Factors
In light of the following facts……
• Lee’s final offer (TCO) by tankcar and tanktruck
cost the same.
• Lee can supply a maximum of 3500 tons and the
Tulsa Plant may need upto 4000 tons
• Puritan has promised contracts worth $500,000 to
Charlestown, if the muriatic acid agreement
works out.
And implications of various strategies its clear that,
Charlestown…..
– Should move out of Puritan’s offer if and only if
increasing bargaining power is a main criteria
– Else, Puritan’s offer could be the best
Decision Validity Test
• As the buying is towards transactional nature –
the extent of current relationship could be well
over the standards
• Supply Chain risk could be termed as less, as in
any case jobber is ready within a lead time of just
4 days (Sounds like excess capacity
somewhere!!!)
• “Road not taken” might well be a “Road should
not be taken”
Tough Diplomatic Options
• Convert “Entire-Requirement” Clause to “Must-
Take” Clause and get atleast 10% from Lee or
National Chemicals to enjoy both Single Sourcing
and Multi Sourcing Benefits
• Extend notice period from 15 days to 30-45 days
so as to completely negotiate with a new supplier
so as to avoid high price risk
• Contract should hold provision for supplies in any
quantities at same cost in failure of “Right to first
refusal”
Fallacies in what we just said!
• Buying Orientation!• Buying Orientation!• Buying Orientation!
Primary Objectives:•Reduce Cost•Increase power over the supplier•Avoid risk wherever possible
Ideal Design:•Focus all of firm’s efforts in delivering value to end customer•Build supply network completing business processes