Case:
A textile company in Pakistan decided, after a careful business analysis, to keep only one permanent supplier of cotton yarn instead of different suppliers for saving the time of its procurement department because of a heavy workload of other activities. This was a short term policy for the current year to procure raw material, i.e. cotton yarn, only from one supplier firm at a fixed price as it was expected that the yarn prices would remain stable. The supplier firm was selected after a careful and lengthy process of advertised tender and open bidding. The supply contract was finalized on alegal paper and the fixed price of cotton was also written on it. It was also decided that the materialwill be delivered within a lead time of twenty four hours by the supplier. As a result of this contract with a single supplier, both the top management and the head of procurement department were happy and relaxed as they were sure about the timely delivery, price and quality of the yarn.
The supplier firm provided a smooth supply of raw material for almost three months beforethe time when there was a sudden increase in the market price of cotton yarn up to twenty five percent. The management of the supplier firm felt that they would have a huge loss if they continue supplying the yarn on the same price. They already had a very little profit margin and this raise in price could severely harm them as they used to buy the yarn from the open market. The manager of that supplier firm was very worried in this situation as the prices of cotton had been increasing in the market on daily basis mainly because of the reason that heavy floods damaged the cotton crop of the country. The cost of supplier firm increased considerably and the loss started occurring.
Now, the client i.e. the textile company’s management is also worried because they are facing unexpected delays in the supply of raw material from the supplier firm and are also aware of this pricing issue. The supplier firm is bound to act upon that supply agreement because they had already deposited a security fee of Rs. 500,000 which would not be returned to the supplier firm if they will unilaterally break this supply contract. They have no other option except to take the management of that textile company into confidence for a mutual understanding of price increase. They can not increase the price of cotton yarn by themselves as the agreement states that whatever will be the market price of material (yarn), the supplier will provide it on that mutually decided price which is finalized at the time of making that contract. This situation is getting extremely difficult and tense for the supplier firm because the management of that textile company is not ready to accept that subsequent increase in the yarn price and they (the supplier) can not adjust this price increase with the client’s price and will have to bear a loss.
Now in this scenario, there is a chance of potential conflict as interest of both the parties is different.
The supplier firm wants to increase the price for adjusting the price with the increase in the market price of yarn but the textile company is not ready to accept that subsequent increase in the price. The only option that seems feasible for both the parties is to have a detailed negotiation for keeping a successful and long term business relationship but the option of litigation for the client is also there
The supplier firm wants to increase the price for adjusting the price with the increase in the market price of yarn but the textile company is not ready to accept that subsequent increase in the price. The only option that seems feasible for both the parties is to have a detailed negotiation for keeping a successful and long term business relationship but the option of litigation for the client is also there
Questions:
Answer the following question after a careful analysis of this case and by applying your knowledge that you have acquired from Conflict Management.
1. Is it possible to avoid this potential conflict through the negotiation process? If no, discuss why; if yes, then which of negotiation styles can be more useful for the supplier to effectively resolve this matter? (7 marks)
2. Suggest a “Best Alternative to a Negotiated Agreement (BATNA)” from supplier’s point of view? (8 marks)
Other Important Instructions: Please read the following instructions carefully before preparing the assignment solution.
Read more: HRM624 Assignment No 2 Solution & Discussion Due Date: 03-01-2012 - Virtual University of Pakistan http://vustudents.ning.com/group/hrm624conflictmanagement/forum/topics/hrm-624#ixzz1iOOwosQN
Is it possible to avoid this potential conflict through the negotiation process? If no, discuss why; if yes, then which of negotiation styles can be more useful for the supplier to effectively resolve this matter?
ReplyDeleteYes with the help of negotiation process this potential conflict can be resolved. In my point of view compromising style will be most suitable for this process.
Compromising Style:
This technique is often known as the “middle ground” approach.
Compromise is a negotiation process in which both parties give up something they want. Whatever one side gets, the other side loses. Neither side gets what they want but both sides make concessions in order to reach a conclusion that is equally acceptable to both.
Current Scenario:
In this current scenario, as such both parties are compel to fulfill the agreement because Supplier Company have fear to lose their 5, 000, 00 Rupees security and on the other side, Textile Company is compel to keep this supplier because of time shortage and heavy workload activities. (Snow) If Textile Company will try to does new agreement with new supplier than it will get material at currently high expensive prices instead of old fixed prices. So both parties should makes cooperation with each other and renegotiation on final decision.
Suggest a “Best Alternative to a Negotiated Agreement (BATNA)” from supplier’s point of view?
If we analysis the situation than the following Alternatives can be generated from the following situation.
Supplier firm can leave the contract.
Both parties can go to Litigation.
Supplier firm can bear minor loss after price adjustment.
Textile Company agreed on increased prices of cotton yarn at current market rate.
Both parties can cooperate with each other and renegotiate the agreement.
Best Alternative to Negotiated Agreement:
However, from the above alternative last one is the best strategy to resolve this conflict because both parties are interested and compel to fulfill this agreement. So for this purpose they should make a renegotiation and Textile Company should agree on increase prices which should be lower than market price so that Supplier Company can achieve its breakeven point. With the help of this situation Textile Company will have got the prices which are less than the current market price and Supplier Company will sacrifice its profit but achieved its loss recover and stand at breakeven point.
Read more: HRM624 Assignment No 2 Solution & Discussion Due Date: 03-01-2012 - Virtual University of Pakistan http://vustudents.ning.com/group/hrm624conflictmanagement/forum/topics/hrm-624#ixzz1iOPCLyRO