QUESTION 1

(a) Intron Ltd have designed a novel mini desktop computer, which was launched on the market two months ago, at a retail price of €355. The product is faster and more powerful than the Apple or HP equivalent, and has extra features such as built in speakers and Bluetooth phone connectivity. Con Barry who is the brains behind Intron negotiated the manufacture of the unit with Kingtech Industries in Taiwan. The sales forecast for the first 6 months was 25,000 units. The initial order was for 20,000 units at an ex-works price of €147.00. The details are shown below:

(i) charged on the basis of labour cost

(ii) re :€250,000 fee covering CAD/CAM processing and tooling

(iii) based on a margin of 33%

Intron’s distribution strategy was to target online retailers such as Pixmania and Amazon, and 80% of the units delivered are now sold. Interest in the product has surpassed all of Con Barry’s initial hopes and he needs to be able to provide the online retailers with more product and quickly.

Con hired you as Supply Chain Manager last week, and you have full responsibility for managing supply and meeting global demand.

You are to negotiate a repeat order with Kingtech Industries, this time for 60,000 units, with first deliveries as soon as possible, preferably within two weeks. Initial contact with Kingtech resulted in them offering a 5% discount off the previous price and them promising 20,000 units per month with first deliveries in one month’s time.

From your research you know that the learning rate in the industry is 90%, and raw material commodity prices are stable. Do you think it is possible to negotiate a better deal, and what way would you approach the supplier?

You are required to prepare a report supported by relevant workings for a meeting this afternoon with Con Barry. You and Con are flying to Taiwan tomorrow, to meet the supplier. The report should detail the key facts, and outline the agenda and strategy for the meeting with the supplier You