Gumpbell and JTC Negotiation - Case Study Example

Gumpbell and JTC negotiation Gumpbell and JTC negotiation Phase Product specification is part of the manufacture of the product. Product specification includes the formula used in production, canning, labeling and packaging. JTI insist on a given formula to be used in production of the goods. Having identified a market for the given flavor of the product, production formula is relevant to market penetration as it has to be exactly what is required in the market. Gumpbell’s ability to manufacture the exact formula required by GTI is a good start for the two parties to reach an agreement. Consistency is important for products in attracting customers since customers are always assured of the same quality of the product thus creating customers loyalty. Loyalty is one way of getting a customer base in the market. JTI specification on canning is already fulfilled by Gumpbell thus no need for further negotiation on that. The use of the two piece can in canning the product is preferable to the three pieces due to the chances of leakage by the three pieces. Therefore the two pieces canning by the Gumpbell should be upheld in the products to be supplied to JTC. Labeling and packaging is what attracts the customer to the product when it is displayed in a store. The outward appearance of the product promotes more sales through attracting impulse buyers who are impressed by the labeling and packaging of the product (Robertson, 2012). First impression of the expected quality of the product is in the labeling of the product, thus JTC insistence on a good five color label for the product which is of high quality. JTC also requires the use of full cardboard box for the packaging of the product. Both of the requirements by JTC are good for marketing the product from appearance, but require additional cost to meet the two requirements. For the two parties to reach a substantial agreement, the additional cost will have to be shared so that no party has an added advantage over the other. Since the labeling was already being outsourced by Gumpbell, it is easier for GTI to cater for the expensive labeling due to the involvement of a third party thus Gumpbell does not gain any additional income from the labeling. With packaging occurring from within Gumpbell, it can undertake the use of the full cardboard to package the product. Quantity of the product to be produced is essential to both parties. JTI needs to ensure that Gumpbell can supply the required quantity as soon as required while Gumpbell wants to be certain on the quantity to be supplied to plan in advance on its production. Having a fixed quantity is advantageous to the supplier but disadvantageous to the buyer since the buyer is not certain on the actual market demand. The current demand expressed is just an assumption of the expected market demand for the new product. On the other hand, the supplier cannot be guessing on the quantity to supply due to lack of a sure market demand. Therefore, an agreement to have a range with the minimum and maximum quantity specified is a good agreement for the two parties. Production forecast and purchasing procedure is the last part of the first phase. Production forecast is meant to guide the supplier on the amount of goods to produce in anticipation for demand by the buyer. Though the actual market demand is not yet certain, JTC can use the current market demand to predict future demand. The rate of acceptance of the product by the consumers is also important in predicting the future demand. An agreement to have JTC provided quarterly estimates is therefore suitable for both parties. This is because it is not a long term forecast thus JTC is within the expected market demand and has the freedom to change the quantity forecasted in the next quarter; while Gumpbell is also sure of the amount to produce. Purchasing procedure is developed to ensure prompt payment for goods and sure delivery of the goods paid for. The parties are more careful in dealing with each other since they have never been involved in business together before. To ensure both parties are confident with the purchasing procedure, the parties involved other trusted parties in this process who would serve the interest of both the buyer and seller without favor or prejudice. Banks for the respective parties fitted the description of the third party in the negotiation. The purchase procedure was developed as below: i. JTC sends purchase order to Gumpbell ii. JTC sends letter of credit to Japanese bank iii. Letter of credit gets sent to American bank iv. Bank sends LTC notification to Gumpbell v. Gumpbell ships goods to JTC vi. Gumpbell sends shipping documents and time draft to American bank vii. American bank sends shipping documents and time draft to Japanese bank. B/A created viii. Japanese bank sends shipping docs to JTC ix. JTC sends payment of B/A to Japanese bank x. Japanese sends B/A to American bank xi. American bank sends B/A to Gumpbell Phase two The second phase involves the quality standards and control, product warrant and inspection procedure. JTC has two options in quality consideration; to pick the best quality at a higher cost or to compromise quality for lower price. Since JTC is more interested in the best quality, it has opted to negotiate with Gampbell for supplies instead of their competitors such as the Slick Willie who are cheaper but do not give guarantee on quality. The buyer also desires to have quality control done outside the suppliers premise by Specialty food at the cost of the supplier. For the supplier, this is an additional cost since it already has the capability to carry out the control within its facilities. Independent quality control is necessary to ensure consistency in production; for example the use of the independent quality control in pharmaceutical products (Joseph, 2000). JTC has the option of paying for the inspection outside the premise however, on condition that any product that does not meet the quality will be rejected and their percentage cost of inspection catered for by the supplier. The additional cost of inspection is borne by the buyer for requesting for outside quality control when the supplier can do it. For the rejection of goods, the buyer has the right to reject any goods within a given period of time. The time limit is aimed at avoiding rejection of goods after being shelved for long thus reducing on their quality. The seller will have to recover the goods from the buyer to avoid having the buyer benefit from goods that they will nt pay for due to rejection. Though there is no direct warranty for the product, there is implied warranty in the product by the supplier that it is human food fit for human consumption. Warranty whether implied is important for protecting consumers against harm from the product and consumers can seek compensation in case the product turns out to be otherwise. The warranty from the seller protects the buyer from bearing cost of compensation to consumrs in case the product is not fit for human consumption. JTC has the right to sue Gumpbell for compensation in case the product does not fit its description. Phase 3 The third phase is more concerned with delivery of the product, transfer of title, risks of loss in transit and transportation cost. The delivery process begins with the payment process discussed above. Gumpbell only ships the goods after receiving LTC notification from the bank after which the shipping documents are sent to the bank. The payment occurs after the Japanese bank receives the shipment documents confirming that the goods are already in transit to JTC. This mode of transaction eliminates default by parties in payment and delivery since payment only occurs when goods are shipped while shipping only occurs when bank notification is received. The banks involvement in the transaction ensures confidence in the parties in transacting due to the trust relationship between the bank and their clients. The supplier will, however incur shipping costs as negotiated by the parties. The cost of shipping the product is very high, thus no party would like to be responsible for it. An agreement to have the supplier cater for the cost of transport from their premise to the port is therefore favorable for the buyer. This reduces the transport cost to be incurred by the buyer. JTC only takes up the transportation from the port to their premises. The other option is to have the buyer cater for the shipment cost. Having the buyer pay for this cost may make the buyer reconsider their intention of importing the product due to the high cost involved. JTC, as stated in the case study suffers from a shortage of raw material for the production of the goods. Therefore, the cost implication for shipping the goods to JTC is to be considered. If the costs combined with the cost of the goods turns out to be higher than the cost of importing raw material and production, then importing the goods will be cancelled. Transportation cost involves the freight insurance for the product at the sea. Insurance cover is important because of the high chances of loss and destruction of the product at the sea. Therefore, when the seller bears the cost of transport, they will be more careful to package the goods in a manner that reduces chances of loss to minimize on the insurance premium payable. Insurance premium is mostly calculated in terms of the risk involved thus minimizing risk also cuts the cost of premium. Therefore, the agreement to have the seller pay for shipment cost and buyer take over at Tokyo port is convenient to both parties. Moreover, the shipment costs have already been considered in the pricing thus the seller still maintains the same margin after the cost. Transfer of title occurs at the point where the goods are tenured by JTC’s carrier. It practically occurs when the goods are in the possession of the buyer through their carrier. Malicious destruction of property is eliminated since the holder of the goods is the owner thus destruction will cause loss to the owner. The transfer of ownership ensures that the parties are responsible for the goods in their possession. Phase 4 The fourth phase is concerned with pricing and price adjustment, invoicing and payment. JTC wished to have a fixed price for the product for a three year contract. The contract was aimed at giving JTC enough time to introduce the product in the new market and develop a good customer base before changing its prices. However, this may not be possible since Gampbell is not so willing to have a long term binding contract due to changing costs. The employees of Gampbell are unionized thus had a prior negotiation for a price increment, which will in turn increase the production cost of Gampbell. Though employees of their competitors are not unionized implying no additional cost of wages, their performance at work cannot be compared with that of the unionized employees; unionized employees are more competent due to their long experience at work. The higher price of products from Gumpbell is justified due to its higher operating cost. The best agreement in favor of both parties is to have a fixed annual price for the goods with the price of the goods adjusted at the end of the year according to changes in wages and other predetermined incremental costs. Negotiation to have the annual fixed price is good for JTC to plan its market pricing strategy annually. The annual adjustment will enable Gumpbell adjust prices according to changing cost. Reduced frequency of price adjustment is advantageous to JTC who can plan for its purchases and marketing expenses among other expenses for the whole financial year. Payment for the goods occurs when goods are on transit to the buyer. After the goods have been shipped, a notification is sent to the American bank, which forwards if to the Japanese bank for the payment order by the buyer to be executed. The payment of goods shipped through the bank is the most convenient for international trade (Vyuptakesh, 2012). Other methods of payment available to the parties include cash on delivery and credit sales. Credit sales is not convenient to the seller due to the lack of past experience in dealing with JTC thus cannot rate their credit worthiness. The high cost of transport is also a reason against credit sales since recovering the goods from the buyer for failure to pay for the goods is as costly as shipping the goods to the buyer or even more costly. Lawsuits are also costly and time consuming thus the preference for payment of goods in transit. Cash on delivery may also not be applicable due to the distance and complexity of the transaction. The involvement of two currencies requires intervention on the bank in payments for proper handling of the exchange rates, especially where huge sums of money are involved. Security is other concern for cash on delivery, thus prior payment is best for both parties. Phase 5 This is the last phase of the negotiation. It is concerned with the proprietary, distribution and intellectual property rights. As a distributor in a new market, JTC should be given the mandate to sell the product as they wish in the new market. Freedom of the distributor is important for penetration of the market by the distributor, unlike when the supplier controls the sale of the product. By having the right to the product through making payment, JTC should have control of their actions in the market place to enable them to make a profit from its sale. Though Gumpbell has tried selling its products in the Asian market, it has not been successful under its own brand name. Using the JTC brand name to distribute its products in Asia through JTC is advantageous to both parties. JTC will retain its brand name while Gumpbell will have its product accepted in the Asian market. Protection of the proprietary right to the production formula is to be maintained by JTC. Though the buyer is not able to carry out production now due to lack of raw material, in the near future it may consider production when it has access to raw material. The protection of the right should also be done in case of contractual fallout between the parties so that JTC is forced to contract another seller. The formula for the product is to be registered as belonging to JTC thus protecting it from unlawful exploitation by Gumpbell. Protection of the formula is important to both parties for continued business. The other option is failing to register the formula for the recipe. This will lead to exploitation of the formula by other firms. As a result, the product will be widely available from several suppliers, creating competition in the market. Competition may result in a price reduction in the product thus reducing the profit margin of the JTC and Gumpbell. Due to the high cost of transport, JTC may be faced out by its competitors from within Japan using its own formula just because of failing to patent the formula. Thus, patenting the formula is necessary for JTC to protect the formula against production of counterfeit. (Chaudhry & Zimmerman, 2013). References Chaudhry P., & Zimmerman A. (2013). Protecting your intellectual property rights: Understanding the role of management, governments, consumers and pirates. New York, NY: Springer. Joseph N. (2000). Good Manufacturing Practice in Phamaceuticals; A Plan for Total Quality Control from Manufacturers to Consumer. Fifth Edition. Robertson G. (2012). Food Packaging: Principles and practice. Third Edition. CRS press. Vyuptakesh (2012). International Finance Management. PHI Learning Pvt Ltd. Read More