ELECTRICAL EQUIPMENT LTD

In February 1990, Suresh Kumar, Regional Marketing Manager- Eastern Region (RMM-E) of Electrical Equipment Ltd (EEL) was reviewing the company's offer with his sales engineer, Pradeep Dasgupta, before meeting General Manager (Materials) of Voltas Ltd. EEL had earlier submitted a quotation for the supply of 10 numbers of flame-proof motors to the Kolkata branch of Voltas Ltd. Voltas had secured an order for supplying and installing 10 numbers of pumpsets from Eastern Coalfields, against a tender at a competitive price. Voltas had also agreed for a penalty clause for delay in supply and installation of pumpsets beyond May 31, 1990, at the rate of 0.5 per cent per week with a ceiling of 10 per cent.

PREPARATION FOR THE MEETING

Pradeep Dasgupta informed Suresh Kumar that General Manager- Materials (GM-M) of Voltas was known as a tough negotiator. Suresh Kumar realized that apart from competitive price, faster delivery, and past performance, supplier-buyer relationship would play an important role in bagging the order worth Rs four lakh. Pradeep Dasgupta had established a good relationship with purchase, finance and project people working at Kolkata office of Voltas, considering the fact the Voltas was an important (major) OEM (Original Equipment Manufacturer) customer to EEL for electric motors, with a sales potential ofRs 50 lakh per year. Pradeep had met Murli Bhasin, GM(M) of Voltas only once earlier as Mr. Bhasin was transferred to Kolkata from Delhi office of Voltas in January 1990.

Pradeep informed Suresh Kumar that against EEL's offer of 10- weeks delivery, Voltas may insist on eight weeks. Regarding the specifications of flame-proof motors and the past performances, all the suppliers were almost on par. The competing firms were Siemens, ABB and Kirloskar, all of whom had a good reputation on quality and performance of motors.

EEL had quoted the basic price of Rs 50,000 for a 40 HP, 1,400 rpm, flame-proof motor, to work in underground coal mines, coupled to the centrifugal pump of Voltas. The pumpsets were to be installed before 31.05.1990, before the onset of the rains, for removing the accumulated water in the underground mines. The designs of flame-proof motors were made special to avoid any explosion that might take place if the inflammable gases came in contact with a spark. These motors were to be designed and manufactured as per relevant Indian standards. The market for flame-proof motors were served by the reputed manufacturers such as EEF, Siemens, ABB and Kirloskar. There was no competition from small-scale motor manufacturers.

EEL had given a volume discount of 20 per cent on the basic price, in the quotation, to Voltas. In addition, Kumar was allowed a discretionary discount of up to 5 per cent by the Marketing Manager of EEL. Kumar felt that he might need further 7 per cent to 8 per cent discount during negotiation with Voltas and hence, he talked to the Marketing Manager at Mumbai. The Marketing Manager agreed to give further 7 per cent discount and assured to improve on delivery from 10 weeks to 8 weeks despite the application of the penalty clause.

NEGOTIATION

Armed with the necessary authorization from the Head office, Kumar and Pradeep arrived at the Voltas office five minutes before the appointed time for the meeting with the GM (Materials) who was accompanied by the Project Manager and the Purchase Executive.

Kumar sent in his visiting card and after receiving the nod from Murli Bhasin's secretary, he entered the meeting room along with Pradeep. With a smile on his face, he said "Good Afternoon, Gentlemen, I am Suresh Kumar from Electrical Equipment Ltd and this is my colleague, Pradeep Dasgupta". Murli Bhasin extended his hand to welcome Kumar and Pradeep and introduced his Project manager and Purchase Executive, "Well, you have been one of our regular suppliers of electrical equipment, and we value the long-term relationship between our organizations. This is the reason we have called you first amongst the various suppliers of flame-proof motors. We have received the order for the supply and installation of 10 numbers of pumpsets from Eastern Coalfields, despite a stiff competition on price and delivery. I would like to know what best can you offer, which could be better than your quoted price and delivery", said Murli Bhasin coming straight to the point. There was a pause after which Kumar responded, "Thank you for considering EEL as one of your regular suppliers. We too value our long-term relationship and we assure you to work together to resolve the problems, not only for this order, but also for all the future orders, so that both the organizations are benefited. Now, coming to the present issue of Eastern Coalfield order, I would like to know what are your expectations on price and delivery. However, before we come to the important issue on price, may I suggest we discuss other matters related to delivery, freight, transit insurance, installation, warranty, and after-sales service".

Murli Bhasin looked at his Project Manager and after getting his nod, remarked, "OK, let us first discuss other issues and then come to the pricing matter. We want delivery to commence in four weeks from the date of the order at the rate of two or three motors per week, and completion in eight weeks, failing which penalty will be applicable at the rate of 0.5 per cent per week. The freight is to be borne by you from your Mumbai factory to our factory at Kolkata, and transit insurance will be covered under our open policy. Is this acceptable to you?" Kumar responded, "Well, we shall meet your delivery completion date of eight weeks and also penalty clause of 0.5 percent per week with a ceiling of five per cent on undelivered value of the order. Delivery will commence in six to seven weeks and we will deliver all the 10 motors in one or two full truck-load to avoid any damage or delays that may take place if we dispatch part truck-load consisting of two or three motors only. I hope you appreciate the problem of part truck-load and the long distance between Mumbai and Kolkata. As regards bearing the freight cost, we have to incur an additional cost that would be about three per cent to four per cent of the sales revenue. We agree to your proposal of bearing the freight cost, but keeping in mind its impact on the price. I hope, you understand our point of view".

"Yes, yes, we understand and appreciate your points, but at the same time you should also appreciate that we have bagged this order in the face of tough competition at a very low price and low margins. Now, tell us about warranty period, after-sales service, and the installation service arrangement for the motors", said Murali Bhasin. Kumar observed the body language of the GM paused for a moment, and responded slowly, "Well. We are aware that your margins are low and we would like to assure you that we will also keep our margins thin, so that both of us make some profits in this order. We shall give you 12 months warranty from the date of installation or 18 months warranty from the date of dispatch of motors, whichever is earlier. If you need any help in installation, we shall give it free-of-charge, although we quoted for only supply of motors. During the warranty period our service will be free, but later on, Eastern Coalfield will have to pay for any services or repairs. I hope this is okay".

"Yes, it is acceptable to us", said Murli Bhasin, "and now let us discuss how much discount you can give us. You have already given us 20 per cent discount on the basic price. We need further 15 per cent discount to make your prices competitive. If you agree to our proposal, I will finalise the order now on you. If not, I shall negotiate with other reputed motor manufacturers and then take appropriate decision." Kumar looked at Pradeep and then requested the Voltas team to give a break for about 15 minutes to discuss the matter before conveying their decision. The Voltas team agreed.

Kumar asked Pradeep's opinion on the discount particularly because he had the approval of his boss to give a maximum of 12 per cent discount, whereas Voltas has asked for 15 per cent. Pradeep said he was not sure whether the GM (Materials) was telling the truth. However, Pradeep was keen to get this order in view of long-term relationship with this important OEM. After the break, Kumar informed the Voltas team that EEL could give further a maximum of 12 per cent discount if the entire order for 10 number motors was placed on them. Murli Bhasin remarked, "Well, you are forcing us to negotiate with others. We shall inform you about our decision in about 3 to 4 days. Thank you for coming over and the meaningful discussions." Suresh Kumar and Pradeep shook hands and thanked all the negotiating members of the Voltas team.

While driving back to their office, Kumar wondered whether they would get the order, and remarked to Pradeep whether they could have employed any other alternatives while dealing with a major account like Voltas.

Please answer the following:

1. What are your comments on the strategy adopted by Mr. Suresh Kumar during negotiations
2. What alternative strategy Mr. Suresh Kumar could have adopted?
3. What style of negotiation Mr. Murli Bhasin was adopting and why?

4. Do you think Mr. Suresh Kumar was right in allowing only 12% additional discount while Voltas Ltd. Was demanding 15%