Wmc: Hydra Division

7 Pages Posted: 2 Jun 2017

See all articles by Sherwood C. Frey

Sherwood C. Frey

University of Virginia - Darden School of Business

Abstract

This case and its companion case, “Toledo Foundry” (UVA-QA-0784), 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 “RMC: Hydra Division” (UVA-QA-0399) and “Akron Foundry” (UVA-QA-0398); the performance criterion for Akron has been simplified.

Excerpt

UVA-QA-0785

Rev. Apr. 30, 2012

WMC: Hydra Division

The letter from the corporate purchasing office came as a complete surprise to Taylor Allston, a purchasing agent for the Hydra Division of WMC. Until that moment, Allston had believed that each of the past three contracts with Toledo Foundry had been good deals; Toledo had made significant concessions during the negotiations in both its quoted raw material costs and in its acceptable profit margin. The letter from corporate stated, however, that Toledo's quoted aluminum costs were “consistently and significantly higher than the prices that we were able to secure for comparable ingot through our centralized raw material purchasing program.” Allston was advised that, in the pending negotiation with Toledo, a reduction in the aluminum cost would need to be aggressively pursued so that “it would be in line with the price quoted by WMC's Centralized Purchasing Department.”

WMC was a $ 10 billion conglomerate with business units ranging from small consumer products to major industrial equipment. The Hydra Division was a relatively small group within WMC, representing less than 5% of sales. Hydra specialized in fluid handling equipment for the agricultural and automotive markets.

For the past several years, Toledo had supplied Hydra with aluminum castings for its water-pump housings. Toledo produced the rough castings, and Hydra performed the final milling on the castings, joined the housings with the other components of the pumps, and installed the pumps in its end products. Toledo was one of five small- to medium-size foundries that Hydra used to supply the pump housings. In an effort to maintain multiple sourcing relationships, Hydra would use a different vendor each month and try to spread the business evenly among them. Contract discussions generally occurred during the month preceding the requirement. The contract would be for a specific number of units delivered during the month of the contract. The vendors seemed to have no difficulty making delivery within the designated period. Recent discussions with the vendors had focused on their problems with forecasting and controlling aluminum costs rather than with difficulties in meeting production schedules.

. . .

Keywords: negotiation, negotiations, zopa

Suggested Citation

Frey, Sherwood C., Wmc: Hydra Division. Darden Case No. UVA-QA-0785, Available at SSRN: https://ssrn.com/abstract=2975152

Sherwood C. Frey (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/faculty/frey.htm

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