Relationship of Sydney Shirt Manufacturers and Its Retailers - Assignment Example

NEGOTIATION REPORT 1 BETWEEN: SYDNEY MANAUFACTURER AND RETAILER 4 PRESENTED TO: SYDNEY SHIRT MANUFACTURER HEAD OFFICE Introduction Following a management review on the relationship of Sydney Shirt Manufacturers and its retailers, the management was of the opinion that there was a need to reassess the (non-binding) agreements between Sydney Shirts and Retailer 4, one of Sydney’s retailers. The following is a negotiation report of the agreement reached between Sydney representative: Distribution Manager, and Retailer 4 representative: Merchandising Manager. The report is based on the assumptions made, which are attached at the end of this report. Summary of the Agreement Jointly Reached and Potential Benefits Upon negotiation with Retailer 4 merchandising manager, it was agreed that the retailer was going to increase the minimum order quantity for Sydney Shirts from 500 units at a time to 550 units at a time. The agreement to increase the minimum order quantity for Retailer 4 has a potential benefit of reducing Sydney’s distribution costs by 3.5 cents per unit in the short run. This will be possible as Sydney will be able to make distribution of shirts to the retailers in bulk of extra 50 units each time Retailer 4 makes an order. In the long-run, the increase in minimum order quantity will have a potential of decrease in total carrying (holding) cost incurred by Sydney in its warehouses as well as reducing the distribution cost with more than 3.5 cents per unit due to existence of economies of scale. In addition, it is anticipated that the retailer will agree to increase further the minimum order quantity beyond 550 units. The two representatives in the negotiation agreement agreed that Sydney Shirts Manufacturers and Retailer 4 were going to undertake a cooperative advertising strategy for Sydney shirts brands. It was agreed that each of the side was going to contribute equally towards the advertising budget, but the advertisement content will be highly controlled by Sydney Shirts Manufacturers with a 75% control while the retailer would control the remaining 25%. This will mean that Sydney will feature more in the advertisements done where all its product lines and other activities such a corporate social responsibility will be featured in the advertisement content while Retailer 4 will only be feature as one of its leading retailer distribution stores. The joint advertisement strategies will be conducted monthly. Cooperative advertising strategy will results into short-term benefits for Sydney as its entire product lines as well matters of relevance to the public will be featured in the advertisement resulting into popularity of Sydney Shirt Manufacturers and its brands. Due to the persuasive nature of the advertisement, it will result in increased sales with the retailer from the current 34% to 36% in the short-run. However, the volume of sales with the retailer is anticipated to increase in the long run as the cooperative advertising carries on to 40% and hence increase in total contribution of the retailer to Sydney’s profits by to 40%. It was also agreed that Retailer 4 was going to increase the shelf and display space for Sydney shirts. Since the retailer as earlier mentioned had agreed to increase the minimum order quantity for Sydney shirts, the retailer saw it necessary to expand Sydney’s shirts shelf and display space by 5% only as opposed to the suggested 10%. However, it was agreed that both parties will contribute equally to the cost associated with placing a display trolley in Retailer 4 store. The display store will be placed either at the entrance of the retail store or at the window in order to create a clear view for the current and potential customers. This will result into attracting the customer into the store and hence there will be increase in sale of Sydney brands in the short run. In the long run, it is likely that the increase in sales will be higher as the increase in shelf and display space will have reduced access to our competition. Arguments made by Retailer 4 Retailer 4 wanted Sydney to add a special line of shirts with their store label. This meant that some of the current orders would have to be replaced. However, the argument has a potential of increasing customer attraction to Sydney brands if no cannibalism occurs. Retailer 4 required that Sydney fills its orders with in 7 days as opposed to the current 10 days. This had a potential of increasing Sydney’s distribution costs to 5 cents per day per unit. However, an agreement was reached where by Sydney agreed to fill Retailer 4 orders in 8 days instead. Retailer 4 was of the opinion that the three yearly special price promotion to four years. A price promotion is necessary for them just to keep up with competition from other retailers. An agreement was reached that Sydney will be able to increase the promotion from three to four years with the promotions being undertaken on quarterly basis per years. The retailer also argued that they wanted an increase in cash discount period from 10 days to 15 days. An agreement was reached to increase cash discount period from 10 to 12 as opposed to 15 days as suggested by the retailer. The retailer wanted Sydney to provide specially designed packaging 10% of the current volume of orders for Sydney brands at no extra cost for the next three months. It was agreed that Sydney was going to provide the specialized packaging 10% of the current volume of orders held bur only for two months instead of 3 months to save on cost on Sydney’s side. Finally, the retailer wanted to undertake a joint on-line ordering system where Sydney would contribute $100, 000 towards the system. The Congruence and Deviations of the Negotiation The negotiation process experienced a number of similarities that can be summarized as directed towards increasing sales, increasing profits, and reducing competition. There were no much differences or deviations, which occurred during the negotiation process apart from the argument that was brought forward by Retailer 4, that Sydney makes a contribution of $100, 000 towards a joint online ordering system. There was no agreement, which was reached concerning the suggestion since it meant that Sydney was to incur an addition cost of $150, 000 in reorganizing and training its staff and the possibility of any substantial benefits was yet to be determined. The retailer required a reduction in the number of days taken to fill an order from 10 to 7. However, due possible increase in distribution cost by Sydney, it was agreed that the days will be reduced from 10 to 8 instead of 10 to 7. How the Overall Agreement changes Sydney’s Position The agreement between Sydney and Retailer 4 has a great potential of increasing Sydney Shirts Manufacturer’s level of competitiveness in the market. This is because the agreement brings forward a cooperative marketing strategy for both firms whereby as much as both firms stand to gain mutually, Sydney will gain more as the advertisement content will be tailored more to favour Sydney Shirts Manufacturers. With creation of a good cooperate and public image to loyal customers, Sydney stands to increase it market share in the long run accompanied by increased sales volume and hence greater profits. APPENDIX NEGOTIATION GAME – DECISION SHEET RETAILER REPRESENTATIVE: Merchandising Manager MANUFACTURER REPRESENTATIVE: Distribution Manager NEGOTIATION: Between Sydney Shirt Manufacturer and Retailer 4 DATE: 21st November 2010 START TIME: 8.00 AM FINISH TIME: 4.00 PM DECISIONS A. Assumption Made 1. The parties in the agreement are aware of the rules governing non-binding agreements. 2. The agreement will result into mutual benefits for both parties involved. 3. There is no conflict of interest in either of the parties. B. Quantity to be Ordered Current style(s) business shirts: Knit shirts: Overall increase: 10% Minimum qty to be ordered: 550 units C. Retail margin: As per the current provision D. Advertising Frequency: Once a month Cost split: 50:50 Content responsibility: Sydney Shirt Manufacturer E. Shelf Space change: 5% increase F. Trolley Supply Number to be supplied: One Contribution per trolley: 50:50 Timing of supply: 1st December 2010 G. Order time: 8 filling days H. Price promotional Number per Year: Fours I. Payment, discount period: 12 days J. Special packaging Period of time: Three months Cost responsibility: Sydney Shirt Manufacturer K. Ongoing commitment Nature of agreement reached: The agreement is a non-binding agreement L. Other areas negotiated and decision reached N/A We hereby agree that both parties agree to the decisions outlined above: Manufacturer: Signature: Retailer: Signature: NEGOTIATION REPORT 2 BETWEEN: RETAILER 4 AND SYDNEY MANUFACTURER PRESENTED TO: RETAILER 4 HEAD OFFICE Introduction Retailer 4 is a chain of men’s wear stores that caters for the 30-55 year old professional man looking for solid quality and a touch of imagination without taking fashion risk. Our chain is very successful due to a number of semi-exclusive supply relations we have that ensures that men’s look is not like everyone else’s. Our most preferred supplier is Sydney Shirts Manufacturers whose products are of high quality and differentiated, and it has a wide product line with national advertisement brand for business shirts. After a careful review by Retailer 4 management of the relationship between Retailer 4 and Sydney shirt Manufacturer, it was indicated that there was a need to reassess the (non-binding) agreement between the two firms. The following is a negotiation report between Retailer 4 representative: Merchandising Manager and Sydney Shirts Manufacturers: Distribution Manager. The report is based on an assessment of our relation with Sydney shirts and on the assumption attached at the end of the report in the appendix section. Summary of Agreement Reached and Potential Benefits It was agreed that Sydney was going to add a special line of fashion knit shirts bearing labels for both firms. The idea was a result of in-house marketing research conducted by our firm, which indicated that product diversity would increase the store’s attractiveness to customers. The venture had no possibility of cannibalism but it will result in 2.5% replacement of the current volume we hold for Sydney initially but normality will be regained with a short period. In the end, this venture has a potential of attracting new customer to Sydney brands meaning that our sales volume will increase and hence greater profitability. In order to avoid experiencing stock-outs, which results into customers looking for substitute products for Sydney brands when Sydney brands are not available, it was agreed that Sydney was going to be filling our orders in 8 days instead of 10, which is the current situation. However, Retailer 4 was of the suggestion that Sydney should reduce the number of filling orders from 10 to 7, but after the negotiation, a figure of 8 was arrived at. It was suggested that this was to take effect as at the beginning of next month. Decrease in number of days for filling order will result into increased responsiveness to demand by our firm and avoid stock-outs. This way, we will be able to build customer loyalty in our store. Due to the current experiences in price competition between retailers in the fashion industry, there is a need to focus on special price promotions. It was agreed that Sydney was going to increase the three years price promotion to four years. This way, we will be able to keep up with our competitors. The increase in price promotion to four years will assist us to keep our competitors out for a period of four years since we will be able to offer Sydney’s brands at special price as compared to other retail stores. This will result in increased traffic in our store and hence we will be able to make more sales both for Sydney’s brands and for other brands. The promotion will be run four times in an year. The management of Retailer 4 was of the opinion that Sydney should increase the cash discount period to 15 days from the current 10-day cash discount period. However, after the negotiation, it was agreed that Sydney will increase the cash discount period to 12 days instead of the proposed 15 days. Although the proposed 15 days cash discount period would have resulted into 3.5 cents increase in profit margin for our firm for every Sydney’s shirt purchased, the agreed period will still result into a 1.5 cents increase in profit margin per every unit of Sydney brand that we purchase. Our retail store is celebrating its 25th anniversary and during this period, we need to need to offer our customers something that will attract them and something unique. The management was of the opinion that Sydney provides us with a specially designed packaging for packing Sydney’s brands for our customers. It was agreed, that Sydney will provide this packaging to us equivalent to 10% of current volume orders for three months at no extra cost. Retailer 4 recognize that this will result into additional cost to Sydney, the short term benefits are that it will ensure that we have orders from them during this celebration period. It will result into increase association in the minds of consumers between Sydney and our store and since Sydney commands a big customer share and loyalty, it will result into increased traffic into our store and hence increased sales. Arguments Brought by Sydney Shirt Manufacturer Sydney Shirt Manufacturer was of the argument that we increase our minimum order quantity for Sydney brands from the current 500 units a time to 600 units a time. However, such increase would have resulted into an increase of our costs by 3 cents per unit while it would have decreased Sydney’s distribution costs by 5 cents per unit and this would not have been favorable for us. It was therefore agreed that the minimum order quantity was going to be 550 as opposed to the suggested 600 units. Sydney was also of the argument that it was going to reduce our net margin by up to 5% but we did not agree into it and therefore our net margin with Sydney still remain as before. The proposed cooperative advertising scheme by Sydney was to be done twice a month with 50-50 share on costs but high control of context to be awarded to Sydney. The argument brought by Sydney to run the advertisement twice a month would result into increase in our costs by 2 cents per unit and the overall increase in cost would be great. It was therefore agreed that the cooperative advertising scheme would be run once a month instead of twice a month and this will only result into 1-cent increase in cost per unit instead of 2 cents. This means that we will be able to keep our monthly advertisement cot at a low level but still gain popularity, association with Sydney shirts, increased sales, and increased profits at the same time. Finally, Sydney was of the argument that we increase our shelf and display space for its brands in our store. However, this has a likelihood of making us suffer the problem of being unable to provide our customers with alternative brands. It was also of the argument that we were to contribute substantially to the cost of acquiring display trolleys and this would have resulted into more costs for us. We therefore agreed to increase our shelf and display space for Sydney brands by only 5% as opposed to the 10% they were suggesting. We also agreed to contribute equal share in acquiring just one display trolley for Sydney’s brands. Sydney only accounts for 15% of our yearly sales and the remaining 85% is accounted by other suppliers. Therefore, we did not want to take the risk of failing to offer alternatives to our customers from other suppliers who account the biggest sales volume. The congruence and deviations in the agreement were as discussed above. How the Overall Agreement changes our firm’s Position The agreement made between Sydney shirts and us has an overall possibility of increasing sales volume for us and for the manufacturer. Increased sales volume has a high potential of increasing our profits even through the increase cannot be justified at all times. Therefore, our firm will try were possible to take advantage of the agreement area such as cooperative advertising and increased association with Sydney in producing shirts with labels of both firms, and use of specialized packaging design from Sydney. APPENDIX NEGOTIATION GAME – DECISION SHEET RETAILER REPRESENTATIVE: Merchandising Manager MANUFACTURER REPRESENTATIVE: Distribution Manager NEGOTIATION: Between Retailer 4 and Retailer 4Sydney Shirt Manufacturer DATE: 21st November 2010 START TIME: 8.00 AM FINISH TIME: 4.00 PM DECISIONS M. Assumption Made 4. The parties in the agreement are aware of the rules governing non-binding agreements. 5. The agreement will result into mutual benefits for both parties involved. 6. There is no conflict of interest in either of the parties. N. Quantity to be Ordered Current style(s) business shirts: Knit shirts: Overall increase: 10% Minimum qty to be ordered: 550 units O. Retail margin: As per the current provision P. Advertising Frequency: Once a month Cost split: 50:50 Content responsibility: Sydney Shirt Manufacturer Q. Shelf Space change: 5% increase R. Trolley Supply Number to be supplied: One Contribution per trolley: 50:50 Timing of supply: 1st December 2010 S. Order time: 8 filling days T. Price promotional Number per Year: Four U. Payment, discount period: 12 days V. Special packaging Period of time: Three months Cost responsibility: Sydney Shirt Manufacturer W. Ongoing commitment Nature of agreement reached: The agreement is a non-binding agreement X. Other areas negotiated and decision reached N/A We hereby agree that both parties agree to the decisions outlined above: Manufacturer: Signature: Retailer: Signature: Read More