Early on a fall morning, Lisa Westbrook was speaking on the phone with the owner of a farm supply outlet about fertilizer prices. They had called to see how she felt about the markets and whether now was the right time to buy. “If I knew that, I would be sitting by the beach instead of working here!” she joked. She knew her customers trusted her opinion on the markets, but no one could ever know for sure.

Lisa had been working at Ferticorp since she graduated from university where she studied Agricultural Economics. She enjoyed working there, starting as a market analyst, then sales and finally working her way up to be the purchasing manager. Her job was to purchase fertilizer in large quantities, usually a bulk carrier ship at a time. Fertilizer was received at their port terminal location and then sold by the truck or rail-car load to farm supply outlets throughout the area. Her customers were loyal but she understood they needed to have competitive prices when farmers called the farm supply outlet. Buying at the right price was the first step.

In order for Lisa to have a price that would keep her agribusiness customers loyal, she needed to manage price risk on the Chicago Board of Trade, this would allow her to not be caught in an uncompetitive position. She earned a considerable discount by buying in large quantities. The orders were often 30,000 Tonnes at a time! Purchasing such quantities also carried the risk of the world market price might be reduced by some economic or geopolitical factor after she committed to a purchase. Not being hedged in such a situation could leave her and her company needing to choose between losing money to sell the fertilizer at competitive prices or struggling to sell the fertilizer at a higher price than their competitors may be able to offer. Lisa used a combination of futures and options contracts in order to be able to commit to supply and take advantage of the markets.

Just then a representative from fertilizer manufacturer XYU called. Lisa answered, asking the sales manager Roger Goodhue about his plans for the upcoming Holiday Season. The fertilizer business is big but there were relatively few players at Lisa’s level and she had established trusting relationships with many of the suppliers. Following their cordial conversation, he offered a favorable contract on a full vessel of Urea. The world price was currently trading at $229 US/ Tonne, much less than a few months ago and well below the 5 year average of $265. Including the exchange rate, basis, and shipping that worked out to $335 CAD/Tonne. Lisa knew she could offer a competitive price in the local market at that price. She thanked him for the call and said she would get back to him within the hour.

Lisa called another manufacturer for a competitive price. She knew the market price was historically good and she had to act soon. She called a supplier she had just met at a conference in Chicago. Calvin Gebhart from H.G White Industries answered, delighted to have a potential customer call him. He offered Urea delivered to Ferticorp’s terminal for $327 CAD/ Tonne. Calvin said, “That’s not all, we know how diligently you work to provide your customers with good value, you probably need a rest! If you commit today, we will send you and a guest for a week at a five-star all-inclusive resort in the Caribbean.” Lisa was taken aback, this new supplier offered her a better price than her usual supplier and they had offered a nice trip as well. “Well, thank you for your bid, we hope to make a decision before the end of the day,” Lisa said and hung up the phone.

Lisa now had two offers that would allow her decent margins while keeping her loyal customers happy, but which would she choose?

Answer each of the following questions

5.1 Situation Analysis/ Size-Up/Assumptions 

P#1 - Key decision-makers in case, their title, name of firm, etc.

P#2 - Summarize the facts of the case

P#3 – Identify symptoms occurring

• P#4 - Critical inferences based on facts related to symptoms

5.2 The Problem Statement 

• A broad statement of the root cause

Follow the 4 rules of thumb

What can_______________ do in the short-term to______________________________________________ and in the long-term

to_____________________________________________________________________?

5.3 Analysis 

Qualitative analysis of the customer, competition, issues related to the Agri-Business

5.4 Alternatives 

• At least 2 tactical alternatives offered
• At least 2 advantages and 2 disadvantages for each alternative
• Alternative #1:

Details:

Advantages:

-

-

Disadvantages:

-

-

Alternative #2:

Details:

Advantages:

-

-

Disadvantages:

-

-

-

5.5 Recommendation and Plan of Action 

We recommend Alternative #____

Provide criteria reasoning for your selection

Explain why other alternatives were not selected

Not Alternative #___ because

Not Alternative #___ because…

Preferred Alternative #___ addresses the problem statement by:

-Short-term:

5.7 Concluding Comments 

• Summarizes major issues/problems

Summarizes recommendation

The reasoning for acting on the action plan

Positive ‘Call To Action’ ending