Question 1

You are a buyer for Techno Tots, a company that makes interactive learning gadgets for children. Last year the company launched a new product that is a plastic clock with moving hands. Because of capacity constraints Techno Tots decided to outsource the manufacture and the packaging of the new product. The company has succeeded in winning a large contract effectively doubling their sales for next year.

Ten months ago, you engaged with Plasco Plc, a plastics manufacturing company in the UK, to manufacture the product on your behalf, it is supplied in bulk and packaged and boxed in Dublin by Well Pack Ltd, for distribution in Ireland and the UK. In total Techno Tots ordered 6,500 products in one batch. All prices/costs are in euro.

You are now preparing to order more product from Plasco and have scheduled a meeting with them for next week. You are planning to buy 13,000 products to be delivered in one batch. Storage is not a problem at the moment. Details of the first order are shown below:

Materials cost per 1000 products            250.00

Labour                                                          50.00

Production Overheads                              50.00 (i)

Set up costs per 1000 products               20.00 (ii)

Margin                                                          92.50 (iii)

Total Price per 1000 products                  462 .50

(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%

In a recent phone call Plasco’s salesman has indicated that materials have increased by 10%, so they will need to increase the price by 10% accordingly and have indicated a price of €508.75 per 1000 products. You feel, however that a better price might be negotiated, this time. 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 production planning department, and the local Enterprise Board, a business plan has been developed, which would involve the increasing capacity by creating an evening / night shift. Capacity will no longer be a problem as the moulds will be very cheap to produce. Production on an evening shift could start in one month. The cost per 1000 products, initially, from the factory would be €500.

You are required to prepare a report addressed to Alex Kelly, your direct boss and the supply chain manager for Techno Tots, supported by relevant workings for a meeting with Plasco Plc 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. You will be travelling to and attending the meeting with Alex Kelly. The report should specify and justify your target price, and consideration should be given to your BATNA.