Q1 2020

It’s been a busy year for Keepy Kuppers, a megatrend in the market towards sustainable and hygienic solutions to paper cups meant that very quickly Keepy Kuppers found themselves almost overwhelmed by demand. Last year Keepy Kuppers launched with a single product; a stylish, reusable coffee cup made from sustainable materials in an ethical manner with antibacterial properties. After an unsolicited celebrity endorsement, the stocks have been depleted and you, as head buyer, now must go back to your outsourced manufacturer and ask for a new production run. You have patented the intellectual property rights and you are confident that your supplier, Makers Ltd based in Belgium are a trustworthy and competent supplier with the capability and commitment to help Keepy Kuppers grow. In a recent telephone conversation Makers suggested that they are considering a 10% increase in their price as the main raw material in the Keepy Kuppers has increased by 10%. Makers have indicated a price of €1017.5 per 1000 products made, packed and shipped to your finished goods warehouse. You feel, however that a better price might be negotiated this time, as you ordered only 2000 units last time and this time you plan to order 4000 units with a review in 6 months. From your research you know that the learning rate in the industry is 90%, and that raw material commodity prices have indeed increased by 10%. Do you think it is possible to negotiate a better deal, and what way would you approach the supplier?

In the past few months, you have also given some thought to manufacturing the product yourself. With the help of your accountant, and the local Enterprise Board, a business plan has been developed, which would involve the purchase of a vacant factory in Carlow. Finance will not be a problem, and the proposal appears very feasible, and production could start in one month. The cost per 1000 units, initially, from the factory would be €975.

You are required to prepare a report addressed to your direct manager Jordan Mullins, supported by relevant workings for a meeting with Makers which is planned for next week. The report should detail the key facts, and outline the agenda and strategy for the meeting, with the supplier. Jordan will be travelling with you. The report should specify and justify your target price, and consideration should be given to your BATNA.

Materials cost per 1000 products                500

Labour                                                              100

Production Overheads                                   100.00 (i)

Set up costs per 1000 products                    40.00 (ii)

Margin                                                              185.(iii)

Total Price per 1000 products                       925

(i) Charged on the basis of labour cost

(ii) Set up/cleaning costs were estimated at €13,000 per batch.

(iii) Based on a mark-up of 25%