8 Pages Posted: 2 Jun 2017
This case and its companion case, “TMC: Hydra Division” (UVA-QA-0787), 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 updated versions of “Akron Foundry” (UVA-QA-0398) and “RMC: Hydra Division” (UVA-QA-0399); the contract is for December 2011 and the aluminum price data are for 2010 and 2011.
Apr. 30, 2012
The instruction that Pat Mihelic had just received from Dayton Foundry's manager of nonferrous products was quite clear. The operating margin on the potential TMC contract for December 2011 had to meet or exceed Dayton's corporate operating margin target of 24%. Although the TMC business provided a useful means of enhancing capacity utilization, it was not essential to Dayton's strategy, and senior management was no longer willing to let margins erode.
Dayton 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, Dayton supported a specialty castings business that focused on nonferrous castings in aluminum and brass. Dayton 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, Dayton had supplied TMC'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. TMC was a $ 10 billion conglomerate, and the Hydra Division represented less than 5% of its sales. Dayton's business with TMC 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, Dayton had always been able to schedule the TMC production without interfering with the demands of other business activities for plant capacity.
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Keywords: zopa, negotiation, negotiations
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