7 Pages Posted: 2 Jun 2017
This case and its companion case, “WMC: Hydra Division” (UVA-QA-0785), are a supply-chain negotiation for which there is a narrow zone of potential agreement. Locating outcomes in that zone is challenging due to differences in raw material costs (real and perceived), potentially extreme opening offers, lack of commitment to do a deal, and different interpretations of history. The difference in raw material costs can provide an opportunity for mutually beneficial agreements to be reached. The cases are simplified versions of “Akron Foundry” (UVA-QA-0398) and “RMC: Hydra Division” (UVA-QA-0399); the performance criterion for Akron has been simplified.
Rev. Apr. 30, 2012
The instruction that Pat Mihelic had just received from Toledo Foundry's manager of nonferrous products was quite clear. The operating margin on the potential WMC contract for December 2011 had to be at least $ 8.40 per unit. Although the WMC business provided a useful means of enhancing capacity utilization, it was not essential to Toledo's strategy, and senior management was no longer willing to let margins erode.
Toledo was a medium-size foundry with sales of $ 225 million and an after-tax profit of 9%. It was best known for highly engineered iron castings for the automobile industry, including crankshafts, spindles, hubs, brake calipers, and differential housings. It also produced iron castings for components of refrigeration compressor systems and agricultural equipment. In addition, Toledo supported a specialty castings business that focused on nonferrous castings in aluminum and brass. Toledo had the capacity to produce 8,000 to 10,000 castings per day and was currently operating at 90% capacity.
For the past several years, Toledo had supplied WMC's Hydra Division with aluminum castings for water-pump housings. Hydra performed the final milling on the castings, joined the housings with the other components of the pumps, and installed the pumps in a wide range of fluid handling equipment for agricultural and automotive products. WMC was a $ 10 billion conglomerate, and the Hydra Division represented less than 5% of its sales. Toledo's business with WMC had been sporadic. There had been a couple contracts each year, but with no discernible pattern to the timing. Although the contracts generally had a 30-day delivery date, Toledo had always been able to schedule the WMC production without interfering with the demands of other business activities for plant capacity.
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Keywords: negotiation, negotiations, zopa, supply chain
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