NORMAN INC. Seller Information

In August 2019 Jack Caldwell owner of the custom molding firm, TMA Inc. and Emma Blake, sales representative for TMA Inc. were reviewing their proposal of supplying special packaging for a new facial cream to Norman Inc. The special package allowed for precise measurement of the quantity of facial cream dispensed. Jack and Emma knew the packaging buyers Paul Draper and Rebecca LeBeau from Norman Inc, in London Ontario would be wanting to negotiate a better price and terms and conditions for the special packaging. Jack and Emma needed to be prepared for the negotiations as they knew the managers at Norman had flatly rejected their original proposal as too expensive.

Current Situation

This custom molding firm, TMA Inc., was owned by Jack Caldwell, an engineer who had purchased the firm several years earlier when the previous owner wished to retire. TMA Inc. had its own tool and die manufacturing operations as well as its own molding shop. It depended heavily on automotive contracts, a situation Jack wished to correct by acquiring more non-automotive business. In conjunction with Normans engineers, Jack had worked out a mold design for the cream dispenser and included several suggestions for minor improvements. The cost of the mold was $56,000, an investment Jack was in no position to make and that Norman would have to absorb upfront. Jack quoted a unit price of $0.27 based on purchased quantities of 30,000 units at a time and an annual volume estimated at 300,000 units. He had submitted a cost breakdown of this quote as follows:

Resin 16 cents

Labour 3 cents

Overhead* 8 cents

27 cents

*Overhead breakdown:

Power 1 cent

Depreciation 1 cent

Interest 3 cents

Space, insurance, light

And heat, taxes, supervision 3 cents

Information on Norman Inc.

Norman Inc., a medium-sized company, had over the year specialized in prescription skin-care products, a market niche in which it had developed an excellent reputation. In December 2016, after extensive testing, Norman had introduced a new facial cream in a special package that allowed for precise measurement of the quantity dispensed. The container, manufactured by a French firm for a different application, was fairly expensive at an FOB Normans factory cost of $0.36. Norman Inc had experienced quality and delivery problems with their manufacturer. Communications with the manufacturer were difficult and Norman had the impression the manufacturer did not seem to care much about Normans business.

Normans engineering, production, and quality control personnel had searched for a new supplier for this special package and had found TMA Inc. TMA was a local minority supplier who felt they were capable of meeting Normans requirements

Normans response to TMA Inc.s quote

When Jack and Emma had submitted this quote along with the request for a $56,000 mold investment up front, Norman turned it down, arguing the 24 month payback on the mold was far too long and that the company had better investment opportunities with a 12-month payback.

Jack and Emma knew if Norman Inc. could use the same packaging for other products the higher quantities would result in reducing the payback period of the mold.

New Information

Jack and Emma did some research on Normans products and knew that the package was ideal for another Norman product to be introduced shortly with estimated annual sales of 100,000 units. Jack and Emma also knew that Norman had concern with their current French package because of the difficulties encountered with it. Jack and Emma knew that TMA would be an attractive alternative due to being domestic they just need to persuade them that they would be reliable.

Jack and Emma knew that if Norman could increase their lot size from 30,000 packages to a 40,000 lot, TMA Inc. could get a 5 percent lower price from the resin supplier.

Jack and Emma new this information would affect their original proposal. Jack and Emma had originally told Norman Inc. that they were adamant about their $0.27 quote. Jack had said: I know I am classified as a minority supplier, but I dont want to hide behind that fact. I want no special favours from any of my customers. I am in not position to make special gifts to anyone. I have had to borrow a large amount to buy this company. Now I have to make it pay off. My $0.27 price is as low as I can go, as far as I can see. However, Jack and Emma were willing to negotiate based on the new information they had discovered.

You and your partner are Jack Caldwell, owner of TMA Inc, and Emma Blake sales representative at TMA Inc. Conduct the negotiation with Paul Draper and Rebecca LeBeau, packaging buyers for Norman Inc. You are trying to get negotiate a deal that will get you the non-automotive business however you still want to make money. You may share as little or as much information with the seller during the negotiation as you desire. Be sure to record any agreement you reach in the form of a contract.