QUESTION 1

Your sister, Amie, has worked as a visual artist and teacher since graduating from Art College fifteen years ago. During that time her creativity led her down many different paths, and she has been involved in furniture design, setting up a retail craft business, and more recently she has delved into materials technology. Through her interest in sculpture, she developed a polymer based modelling compound with amazing qualities of strength and flexibility. It is also totally waterproof (she discovered this by accident). Your experience in the construction business lead you to believe that there may be a huge market for the product in construction. You have encourages Amie to patent the product accordingly. You formed a company called Modelplast Ltd.

Six months ago you engaged with YCC Plc, a chemical manufacturing company in the UK, to manufacture the product on your behalf, it is supplied in bulk, and packaged in Dublin by WePack Ltd, for distribution in Ireland and the UK. In total, 650 tonnes were ordered, in one batch, packed into 20kg bags, which sold at €18 each to the trade. The product has been successful, sales exceeded €500,000 in the first six months. All prices/costs are in euro.

Indications are that sales will double in the next six months. You are now preparing to order more product from YCC, and have scheduled a meeting with them for next week. You are planning to buy 1,300 tonnes to be delivered in one batch. Storage is not a problem at the moment. Details of the first order are shown below:

(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%

YCC in a recent phone call have 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 tonne. 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 accountant, and the local Enterprise Board, a business plan has been developed, which would involve the purchase of a disused cement factory in Athy. Finance will not be a problem, and the proposal

appears very feasible, and production could start in one month. The cost per tonne, initially, from the factory would be €500.

You are required to prepare a report addressed to Amie Durnin, supported by relevant workings for a meeting with YCC 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. Amie will be travelling with you. The report should specify and justify your target price, and consideration should be given to your BATNA.