NEGOTIATION

Negotiation

MCC Case study

Introduction

This report focuses on the the case study for MCC and following issues are consider in addressing the case: understanding the costs and its impact the value, customers value in the this product/contracted service, lead times, and their impact on the programme, cost added from the 'typical' risks, external supply chain adds most value, risk to 'value' delivery, Non-productive time, etc. However, all these points will be rather addressed in an essay form instead of individual point. We will focus on the MCC case study resolve its issues in this essay. Commodity industrial products are no longer self-selling ticket items for manufacturers. Such manufacturers need to assess their value chain from a total cost ownership perspective for both their outsourced and in-house parts needed to assemble the commodity product in order to better compete in the market place. The key question becomes what procedures should manufacturers follow to understand cost and mark-up behavior patterns and their documentation procedures for such parts? In order to identify and eliminate waste at the inter-firm and intra-firm levels a case study using value analysis was conducted for a commodity product manufacturer that outsourced its component parts to independent suppliers. Using simple value analysis and affinity diagram approaches a list of questions and methodology were prepared for the analysis. Three models of the manufacturer's product that required similar components but slightly different designs were selected for comparison purposes, and their key cost drives were determined. Problems in the manufacturer's cost differentiating strategies were identified and practical solutions offered.

Analysis

Using a purchased chemical product can incur many other costs, direct and indirect, for the customer. Changes in total cost of ownership (TCO) of companies' chemicals can have a significant impact on their revenues. Consequently, when the TCO of a chemical suddenly increases, risk is that MCC become uncompetitive. Therefore, understanding and considering the TCO, when developing, producing and selling a chemical is crucial. Reversely, developing a more expensive product which allows customers to save on other costs can be a great commercial success. Porter (1985) suggested that competitive advantage should be addressed from both the firm's entirety and its discrete activities and cost structures. Therefore, a firm needs to understand the entire supplier and customer cost structure for each product being exchanged in order to deliver superior value at minimal cost through the supply chain. These cost structures include the initial cost related to supplier selection and the resulting procurement costs, the internal cost of using the items purchased, and the internal and external costs associated with salvage value and material failure (Ellram and Siferd, 1998). All these tasks necessitate the understanding of Total Cost Ownership (TCO) for items purchased from both the suppliers as well as the firm's different profit centers. TCO is comprised of acquisition, conversion, and post ownership costs. The purchase price (acquisition cost) is often the major ticket item of total cost ownership for the procurement department, especially for commodity products (Burt, Dobler, and Starling, ...