Based on the TRAEGER PELLET GRILL CASE STUDY, analyse and explain in detail the various negotiation strategies that can be suggested to Traeger Grills to adopt over the next 3 years in order to become more powerful in negotiating with vendors such as Wei Chen. Give suitable examples.

It was spring 2018, and Mark Kosiba, chief supply chain officer of Traeger Pellet Grills, LLC (Traeger), looked out the window of his Changzhou hotel room so many times now that he almost felt like he was home in spite of the thousands of miles between him and his family and the Traeger corporate office in Salt Lake City, Utah, United States.

It was the middle of the night but Kosiba could not sleep. A situation with one of his suppliers was keeping him awake. He was meeting with the owner the next day but had not fully made up his mind about how to manage the meeting. The factory was responsible for a large portion of supply but the owner was positioning himself as a competitor, knock-off1 products that were then directly marketed United States. Kosiba had confronted the owner of the factory about the knock-off grills earlier in the year but the man had denied any involvement. Still, Kosiba knew the tooling and styling were impossibly similar to genuine Traeger grills, and Kosiba had done his research: there was no other facility in that area of China with the capability to make look-alike grills at that level. Now it fell to him to decide how to deal with the rebellious supplier.

MARK KOSIBA : BACKGROUND

After graduating from Purdue University with a masters in industrial engineering in December 1991, Kosiba started his career with a series of Fortune 500 multinationals. He worked for Ford Motor Company, Bell Labs Innovations/Lucent Technologies, Inc., and Hunter Douglas N.V. Following a successful early career, Kosiba sought an opportunity with Tyco International (Tyco). In addition to building world-class operating procedures in a company that needed help formalizing its processes, Kosiba had the opportunity to work with the former Tyco team on an optical-networking chip start-up, Multilink Inc. He helped that company grow from US$10 million2 revenue to $100 million ahead of a 2001 initial public offering (IPO).

After feeling the excitement of start-up life, Kosiba was eager to do it again. When the opportunity came to join Skullcandy Inc. (Skullcandy) as "employee number 25" in July 2008, he changed jobs again. At Skullcandy, Kosiba was responsible for building out the US China supply chain and operations to service more than 50 countries worldwide.

During his time at Skullcandy, the company grew from $30 million to $300 million in revenue and went through an IPO in 2011. Kosiba also got to know Jeremy Andrus, chief executive officer and president. When Andrus moved on from Skullcandy at the end of 2013, Kosiba joined him in a new challenge: in January 2014, Kosiba joined Traeger Pellet Grills and was given a mandate to completely overhaul its supply chain and operations.

KEY EXPERIENCE AT SKULLCANDY

The history of Skullcandy had served as a primer for what Andrus and the team had in mind for Traeger. When Skullcandy began its meteoric rise, the popular headphone market did not really exist. Several companies sold headphones but it was largely a secondary effort to support the sales of portable music players. The headphones came in black, grey, and eventually white (thanks to the iPod). Skullcandy erupted onto the scene with not only a variety of colours but also a variety of materials, patterns, and textures. The company built the Skullcandy brand through grassroots efforts and targeted marketing. It took the approach that headphones could be an accessory - a lifestyle representation - and reached out to specific demographics along specific product lines. In doing so, Skullcandy upended the industry and captured a huge market share before the incumbents even started to wake up and respond. With Traeger Grills, Andrus and Kosiba saw the chance to do the same thing.

FROM SKULLCANDY TO MOUTH CANDY

This time, Andrus wanted to buy a brand, rather than build one. He also wanted an opportunity where he could employ Skullcandy's particular type of disruption within an established, slow-moving industry.

Andrus was approached about Traeger and was initially uninterested. About four months later, the private equity firm approached him again, and he gave them a chance to make their case. He soon realized that Traeger was an excellent opportunity as the grilling industry had not had any appreciable innovation since the 1970s when the propane grill was invented, and the market was largely split between just two major players - Char-Broil and Weber. Of the roughly $5 billion industry, Traeger controlled only about $70 million. It was such a small player that it was completely off the radar for most grill buyers.

Surprisingly, Traeger was an established brand in spite of the fact that few people had heard of it. However, in spite of being relatively unknown, it had a net promoter score which measured how likely a customer was to recommend the brand to another person of 80. To put that in perspective, a score of 80 at that time beat companies like Apple Inc. and Costco Wholesale Corporation, and the only company with a higher promoter score was Tesla, Inc.

Andrus put together a private equity deal and bought the company with the intention of taking its cult following and making it a household name.

TRAEGER PELLET GRILLS,LLC

Traeger was originally founded in Mount Angel, Oregon, in 1987 by Joe Traeger, whose family owned a heating company. The science behind pellet grills ensured an even, consistent cooking experience, time after time (see Exhibit 1 for more detail).

As Kosiba took over operations alongside Andrus, it quickly became clear that Traeger's operational organization was a mess. In trying to clean things up and correct the operations, however, the team earned the anger of the existing workforce. At one point, Kosiba's team arrived to the office to find one of the company's semi-trucks on fire in the parking lot. While there was no proof to tie the wrongdoing to any one person, it was indicative of the company's caustic culture - one that refused to listen to reason and embrace change. As a result, almost the entire staff had to be let go so that the team could start over with a new culture. Of the 150 people working at Traeger at the time of the transition, only six were kept with the company.

IGNITION AND LIFT-OFF

By laying off nearly the entire staff and moving the headquarters from Oregon to Utah, the team was able to perform a hard reset on the company's culture.3 Then, using the growth strategies Andrus and Kosiba had learned at Skullcandy, the company began to grow. As orders ramped up, it quickly became clear to Kosiba that he was going to need to check in on the supply chain. His factories were in China, and he needed to meet the owners and inform them of the coming demand.

At the time, in 2014, two factories in China were producing all the company's grills. The two factories were owned by Wei Chen and Zhang Liu. Kosiba arranged a meeting with the owners where they discussed Traeger's new direction. At the end of the meeting Kosiba told them "If you stick with me and do honest business, I will make you millions of dollars."

Each factory accounted for a large portion of Traeger's production, and Traeger accounted for almost 95 per cent of the orders going through each of the factories. This left Traeger and its suppliers in a difficult situation if either supplier walked away, it could ruin the company. Traeger had built sales relationships with retailers like Costco and Home Depot, and a failure to supply inventory could be viewed as a breach of contract, which could destroy its major sales channels. On the other side, if Traeger pulled out of one of the factories, it was unlikely that the factory would be able to find enough work to replace the volume quickly enough to stay in business. The most likely result would be the factory going bankrupt. Both owners employed many of their family members and friends in leadership positions, so the real result would be the financial ruination of the owner and his social circle.

For a time, things went well. Kosiba continued to place orders, and those orders were fulfilled. He requested higher quality standards, and those requests were honoured. Traeger was on track to grow at a phenomenal rate and surpass all expectations. Then, one night in February 2017, Kosiba was doing a routine search online for pellet grills in a casual effort to scope out the competition. To his surprise, he found a grill on Amazon that looked exactly like a Traeger grill, but was not. It was a Mighty Q Grill, and the similarity was uncanny, right down to the shape and size, and tooling on the barrel of the grill.

MIGHTY Q GRILLS

No one else in the grill manufacturing industry was doing anything similar to what Traeger was doing. The big players still had not noticed Traeger, and smaller enterprises did not have the technology. That left only one option for where the grills were being made. They really were Traeger's grills, they were just being rebranded and sold online. Kosiba was disappointed but he had been watching online for just that sort of thing to happen, so he was not surprised.

With a little research, Kosiba was able to trace the grills back to Chen's factory. Liu has nothing to do with them. This was both a frustration and a relief to Kosiba. Previously, the two owners had colluded on the prices they charged Traeger, so discovering that at least one of his suppliers was still honest was a relief. However, he was frustrated that his other supplier responsible for a large portion of Traeger's production was using the company's own equipment to produce grills in direct competition to Traeger.

PLYAING THE ODDS

Kosiba had received information from within Chen's factory that he was a gambler. In 2015, Chen had visited Macau and lost everything, including $7 million and the ground his factory was built on. The Chinese government seized the factory but, because it was a recessionary period in China, the decision was made to postpone plans for a new mall and let Chen continue to manufacture grills there.

On hearing about Chen's gambling habits and the threat to Traeger's supply chain Kosiba began the lengthy process of finding new factories to bring online. Traeger grills were a highly technical product, and he did not necessarily want his existing factories to know about the new ones. After working so hard to stop Chen and Liu from colluding, Kosiba wanted his new factories to be free from their influence and free from the continued possibility of collusion. This created a difficulty, however, because it meant that Kosiba could not simply pull experts from his existing factories to train workers in the new ones.

By 2017, Kosiba had found a couple of factories and began the process of getting them tooled, trained, and ready to build Traeger grills. That process was not a short one, and cutting corners would only generate even more problems.

SLOW RAOSTING

With the southern factories still coming online , Traeger was growing too quickly to able to pull out Chen's factory as the company needed the production capacity. Kosiba therefore tried to be culturally sensitive; rather than directly confront Chen, Kosiba had some mutual acquaintances whisper that "Kosiba knows about Mighty Q". The idea was to warn Chen that he had been caught and give him the chance to be honest again.

In March of 2017, the Mighty Q Grill was still available online, although it appeared to be in decline. However, a new brand, Omega Grills, was also selling Traeger imitations. This time, Kosiba took more action and scheduled a meeting with Chen. In the meeting, Chen admitted that he had something to do with the grills initially, but that he was not involved any longer although this was impossible given the technical nature of the product. The only way for Omega Grills to have the same tooling as Traeger was for them to be built in the same place, just like the Mighty Q Grills had been. Kosiba knew Chen was lying, but he accepted that any involvement would end going forward, and business went on for the time being.

Business went on until May 2017. The website for Omega Grills was still up and its Facebook page had thousands of followers. Worse still, the imposter company was now filming commercials to advertise its grills. The commercials were not very good but the attempt at advertising meant that Chen was putting together a complete business around the grills he said he was not involved in. Unfortunately for Chen, Kosiba was getting phone calls from some of the managers in Chen's factory who were concerned that Traeger was going to pull production, and that would cost them their jobs.

HEATING UP

Things came to a head in June, just as grilling season in the United States was going into full swing. While doing some research on Omega Grills, Kosiba uncovered a web of lies. Chen had become involved with a group of Chinese nationals who were attempting to subvert the manufacturing suppliers of American companies. The basic idea of this Chinese entity was that the factory had all of the production technology; it had everything it needed to produce the product and ship it to the end consumer. Rather than going through the American company, the factory would just steal the technology and sell direct to the American consumer.

In exploring this new information, Kosiba found proof that Chen had partnered with the Chinese entity to go direct to market with Traeger's grill under a different brand name. Then using Omega Grills brand name, Chen and his compatriots were filing H1B visas to sponsor Chinese nationals to move to the United States for work purpose. Kosiba discovered this because the Visa filing were public documents, and he could see that Omega Grills was the sponsoring US entity. What's more, he could track import documentation that tied Omega Grills to Chen's factory in China.

RISK AND REWARD

The problem with Kosiba's situation was not the potential for competition Traeger had a strong brand that was growing quickly. When Kosiba and the team took over Traeger, they cut back the distribution channels and focused on establishing a premium image. To reinforce that perception, they focused their efforts through distributors that also had premium brands and avoided discounts or coupons. The result was that Traeger's brand was not in any danger, as of yet.

Kosiba's concern was around Omega Grills advertising. Putting together commercials and trying to break into a market was not a cheap endeavour, and that meant that Chen was getting a lot of capital from somewhere. In addition to the expensive commercials, Omega Grills was also running a crowdfunding campaign, buying positive-review articles from TechCrunch, and purchasing Amazon reviews and Facebook page likes all while still handling the matter of standard supply-chain costs like materials, labour, warehousing, and shipping. Kosiba knew how much all of that cost, and he was concerned about where that money was coming from.

LOSING FAITH

Ultimately, the danger was that Chen was over-extending his cashflow, and that something would happen that would ripple up the supply chain. Chen was sourcing components from the same vendors as Liu, and if those vendors were not paid in a timely manner, they might stop supplying either factory, cutting of Traeger's entire supply. That would impact Traeger's ability to deliver to retailers, and in turn , impact the whole business.

On the other hand, the new factories were nearly ready. They could neither supply the volume that Chen factory provided, nor match the quality as of yet Kosiba had already bought all of Liu's excess capacity and more but they were close to it. On either hand, Kosiba was facing the very real risk of losing a significant amount of his production capacity, and that meant facing the prospect of missing deliveries to key distributors and losing those relationships.

FEELING THE BURN

Traeger was growing rapidly and Kosiba did not want to do all the things to jeopardize that growth. Missing deliveries to his distributors would shake their confidence and make them pull back, especially given that they were at the beginning of the grilling season. Further complicating matters was the impossibility of forecasting growth for the company. Kosiba wanted all possible capacity in order to meet demand, but he also was not sure if he could afford to let Chen play both sides.

Kosiba took another look out the window at the shining nightscape of the city. As he reviewed the facts and thought about Traeger's situation, he realized what he had to do. Traeger was growing too fast to be left at risk. There were not many hours left before his meeting with Chen, so Kosiba got to work on his plan. The morning was coming on fast, and he wanted to catch at least a little sleep before the meeting.

EXHIBIT 1 :

With a traditional charcoal or propane grill, food is exposed to the cooking medium, typically by sitting on a rack directly above the coals or a burner. Because of this more direct exposure, food typically needs to be turned during the cooking process and is susceptible to inconsistent cooking due to hot spots. Charring is also a concern in traditional grills because char usually contains high amounts of carcinogens in the form of free-radical carbon atoms.

A wood-pellet grill circumvents these issues by cooking using indirect heat carried through smoke. Instead of using flame directly below a grilling rack, a pellet grill burns wood at distance and uses a fan to blow the smoke and heat into the cooking barrel. The movement of the airborne heat prevents hot spots and ensures an even cooking environment that does not require turning. As an added bonus, the smoke itself carries additional flavour to the food while eliminating the risk of charring due to direct heat.

The downside to a traditional pellet grill is that the operator must constantly load the grill with new pellets in order to continue producing heat, and putting in too many or too few pellets can adversely impact the temperature inside the grill. Traeger overcame this problem with the introduction of an automatic pellet- loading system. By using an auger to move pellets into the grill at a regulated rate, the grill can maintain a specific temperature without operator intervention. Owing to the effectiveness of its automatic pellet feeder, Traeger quickly became the top name in pellet grills but the segment itself remained largely unknown.