Fastenal Case to be used by Bill Drazkowski in Advanced Selling

Before reading the case, go to Fastenal.com and review what the company does carefully so you understand things better.

Underwater Oil Inc.

The Biloxi, MS Fastenal store has done good business with Underwater Oil, Inc. by supplying them with a variety of stainless steel and custom alloy fasteners for an off-shore oil rig. This business has ranged from $3,000 $30,000/month depending on the reliability of their primary supplier. You are a salesperson within Fastenal National Accounts and have gathered all the data from the Biloxi store while also having some preliminary meetings with their Director of Purchasing and the Director of Engineering at their corporate headquarters in Houston, TX. You intend to secure a national fastener and associated materials contract with Underwater Oil as their current contract is set to expire next month. You have provided Underwater Oil with a market basket quote of these item types as well as solid information on Fastenals engineering department and laboratory capabilities to meet their unique specification and engineering demands that result from the harsh environments of their rigs. Fastenals fastener products will be utilized to repair all of their oil rigs currently pumping oil off-shore (25 sites). Fastenals branch network would result in local service throughout their gulf coast and pacific sites, distinguishing you from the other finalist in the proposal process. A national contract at all their sites is estimated to be $50-100 million annually when the energy sector picks up to full capacity.

Because of the lucrative nature of this contract and the culture of the energy industry, you expect very tough negotiations from Underwater Oil before you could seal the deal. Their demands going into the next negotiation include: net 90 day terms, firm pricing on all fasteners for 2 years regardless of commodity price changes of steel, no inventory liability for parts not used at the end of the 2 year contract, and limits of product liability capped at $1 million. Further, as a result of their service demands, you anticipate needing to hire 50 people at all the Fastenal sites to service this account but the guaranteed spend in the first year can truly only justify hiring approximately 30. If their production picks up as stated, then hiring 50 shouldnt be a problem over time.

Answer each of the questions in great detail. Make any assumptions necessary.

1. What areas of this contract put you at risk?

2. What areas of the business provide potential significant rewards?

3. What terms would you negotiate more favorably for Fastenal?

4. What is an acceptable outcome?

5. What areas would you require concessions, or walk away?