Region Negotiation plan

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Negotiation Plan Example.doc.doc
Geni Cabre (geni@straudico.com)
1/2
Department – Region Negotiation planexample written by Geni Cabre April 11th 2003
My name
CONFIDENTIAL
To: My boss via other boss
MATERIAL
OTHER PARTY NEGOTIATION PLANNING GUIDE
OTHER PARTY supplies MAIN MATERIAL to Xxxxxx and has just started to produce the XL MATERIAL. The current MATERIAL for
PRODUCT A and PRODUCT B is composed of 2 layers, which should be replaced by 2 MATERIAL layers as of July’03. Several
additional cost savings projects, all related to the new OTHER PARTY MATERIAL, can be achieved in FY 03/04 totalling global
annualised potential savings of 3.8 Million €. Other cost saving projects have been proposed by OTHER PARTY but have also been
rejected by MY COMPANY as would not providing the properties required by the material. Over the past 10 years, OTHER PARTY
has proved to be a good material quality supplier.
UNDERLYING MOTIVATORS
OUR MOTIVATORS
THEIR MOTIVATORS
! Assure supply for MATERIALS in REGION 1 and REGION 2
! Minimise cost by price reduction (all plants) and freight
cost (NA)
! Avoid upcharges for remaining OTHER PARTY supplied
materials if NA volume moves away from MATERIAL.
! Minimise long term commitments as MATERIAL technology
is planned to be phased out by ~ CY2005
! As timing until technology change is too short, most cost
saving projects may require too much resources for a short
life cycle (eg. replacement of RAW MATERIAL).
! Due to the 2 Million$ penalty paid in cash to OTHER PARTY
in CYs 2000 and 2001, and the business we have given
them in over 5 years, we believe that OTHER PARTY would
have depreciated its lines by Dec’03.
! Maintain a good commercial relationship with the OTHER
PARTY Group
! Keep the business as MY COMPANY is OTHER PARTY’s
main customer
! Get a long term commitment to ensure business continuity
! Get business to fill up capacity in Italian plant by increasing
# of shifts
! Start up the FACTORY line (REGION) and move MY
COMPANY FOR THIS REGION volumes there to free up
capacity in COUNTRY X for other customers
! Provide savings in material via technological changes only
and not on OTHER PARTY’s operating costs
! Maintain a good relationship with MY COMPANY across
BUSINESS UNITS
COMMON GROUNDS / SHARED GOALS
! Identify business opportunities with which MY COMPANY can minimise the MATERIAL costs
! None of the parties is willing to walk-away as (a) MY COMPANY needs the MATERIAL until ~2005 and timing is too short to
qualify an alternative, (b) OTHER PARTY needs volume to ensure business continuity until it has found enough volume from
other customers.
NEGOTIABLE ITEMS
NEGOTIATING RANGES
NEGOTIABLE ITEMS
OPTIMISTIC
REALISTIC
BOTTOM-LINE
Main material pricing as of January 2004
” More costumers, split the fixed costs
” Start up of FACTORY
” MY COMPANY has paid 5.6 Million $ cash
and contracted volume for over 5 years.
Shouldn’t investments have been repaid?
6% price decrease due
to non-technological
changes vs. current
pricing for corresponding
silo
2% price decrease due
to non-technological
changes vs. current
pricing for corresponding
silo
Current pricing for
corresponding silo
Length of the new agreement
” How much is this 1-year contract worth to
you?
” We have to show the technical team that it
is worth keeping materials rather than
changing technology
1 year
1 year (with option of
extension)
1.5 years (with option of
extension)
Additional BUSINESS UNIT business
Additional business =>
extra reduction in pricing
Linking to R&D for
potential upstream
collaboration
No additional interest in
OTHER PARTY from MY
COMPANY
MAIN MATERIAL pricing
0.10 €/m² price
reduction (Amount of
Feedstock ABC in
MATERIAL must be
reduced by TECHNICAL
DEPARTMENT)
~ 0.08 €/m² price
reduction (new
Feedstock ABC is too
expensive, must reduce
scrap from 10% to 8%,
optimised use of
MATERIAL line)
0.05 €/m² price
reduction (already
achieved with last quote)
Increasing volume / silo
>3% price reduction (as
in current contract)
3% price reduction (as in
current contract)
3% price reduction (as in
current contract)
Negotiation Plan Example.doc.doc
Geni Cabre (geni@straudico.com)
2/2
Last month benefit
” Better efficiency of the line & fixed costs
3% price reduction
None
None
OTHER MATERIAL – Price adjustment
” Seems quite high if take out Raw Mat’s
” Would like to understand what is driving
this cost
” Part of the success of this new product in
the market is its pricing
” The technical team is already working on
alternative materials / technologies to drive
costs down
0.16 €/m² (~ Converting
Costs as products A&B +
additional 6% price
reduction)
0.10 €/m² (~ Converting
Costs as products A&B)
Current pricing for
corresponding silo
VALUE-ADDED OPTIONS
VALUE-ADDED OPTIONS
BENEFITS / OBSTACLES
! MAIN MATERIAL business volume
! OTHER MATERIALS volume
! Length of the contract
! Agreement to source REGIONAL volumes from FACTORY
=> freeing up capacity in COUNTRY X for other customers
! Linking to R&D for upstream projects
! OTHER PARTY is proposing technical changes only (“Ball in
MY COMPANY camp”)
! Most proposed ideas are not viable due to short life of
MATERIAL
! OTHER PARTY’s non-feedstock costs are not competitive
! “If starting up FACTORY, operators will need to get on
boarded, FACTORY volume would not be enough to fill up
capacity”
! “Having more customers does not necessarily meant
savings by splitting up fixed costs as more volume means
more shifts => more operators and training”
ASSUMPTIONS / QUESTIONS
! Would OTHER PARTY be able to start up FACTORY by January 2004? By when should we expect the confirmation?
! We would like to understand the drives of the cost
!
1. OPEN THE DISCUSSION / 2. EXPLORE MOTIVATORS
1. Show OTHER PARTY that our Objective is his objective
” we want to get the best deal to show internally that it is not worth moving to other technologies / suppliers
2. Watch-out is OTHER PARTY not proposing a competitive deal and end up the meeting with many follow-ups to do. Change in
buyer will not help.
3. High pressure from market to reduce pricing: consumers find the PRODUCTS too expensive, REGION 1 is considering stopping it
fully this year, REGION 1 is working to find a cheaper replacement.
4. Major items to be discussed:
” Proposals provided during last meeting – follow up with R&D
” CY 2004 business opportunities
” MATERIAL savings
” Length of new agreement
” Price of MATERIALs

MY NAME
Cc: IMPORTANT PEOPLE TO COPY

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