3. Aztec Component Supplies
The senior management team at Aztec Component Supplies knew that they were facing a decision crucial to the future of the company. A plastic injection mouldings manufacturer, they had for the last twenty years specialised in providing industrial mouldings for domestic appliance manufacturers. They were especially adept at moulding relatively large components, such as the outer casing for carpet cleaners. Large components were difficult to make to the high levels of tolerance and finish which customers demanded. Because of this ability they had increasingly focused on the few large customers who were willing to pay their prices. Five years ago, twelve customers accounted for around 80 per cent of Aztec’s sales, now three customers accounted for over 90 per cent of sales. The decision concerned an approach which had been made to them by their largest customer, the Desron Corporation. One part of Desron was already their largest customer with around 65 per cent of their output. Desron now wanted Aztec to become a sole supplier for a wider range of their larger components. It would, in the first instance, be a three-year deal whereby Aztec would devote manufacturing cells for each component type exclusively to supply Desron. Although Aztec would not be prevented from dealing with other customers, the amount of business Desron were promising would initially be 5 per cent more than their current total sales and (according to Desron) could double within five years. Because Aztec would be manufacturing parts currently made by other suppliers, the total variety of parts would increase by around 40 per cent. Prices would be held at current levels in the first year but then would be reduced by 5 per cent per year.
Aztec would be responsible for reducing costs in line with price reductions (average cost savings at Aztec had averaged between 2 and 3 per cent per year in the last few years). If Aztec accepted the deal it would also mean them...
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