Case Analysis - Negotiations

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Pacific Oil Company

I. Introduction

a. Summary of the Problem

• Pacific Oil Company, previously known as the Sweet Water Oil Company, started out in 1902 as a pioneering venture of an oil business in the north central Oklahoma, USA. It went through a series of expansion and acquisition first in 1920s and 1930s, Hutchinson renamed it Pacific Oil Company. Pacific is also a leading manufacturer of industrial petrochemical raw materials, with some of these products being made by very few companies around the world, making the market a supplier’s market through which Pacific had gained considerably over the years. One of Pacific’s major industrial chemical lines is the production of vinyl chloride monomer (VCM). Jean Fontaine, Pacific Oil’s marketing Vice President for Europe and Paul Gaudin the marketing manager for VCM have started the discussion of the renewal of the contract with Reliant. Their data according to them showed that there was a demand for VCM and that the demand was continuing to rise. They agreed to approach Reliant with an offer to renegotiate the current agreement. Suddenly a change perspective in December 1984 made them reconsider the contract with Reliant because it showed a less clear and long term relationship with them. As a result of the evaluation Guadin and Fontaine decided to contact Frederich Hauptmann the senior purchasing manager for Reliant Chemicals in Europe and Egon Zinnser the regional vice president of Reliant’s European operations. During the meeting Fontaine and Guadin stated that they appreciated the relationship that existed between Pacific and Reliant and that they would like to continue the relationship and start talking about the contract extension past December 31, 1987. Fontaine and Guadin realized that it was important to start the negotiation soon in order to deal with negative items that may come into effect.

b. Recommended Solution

• Guadin and Fontaine have to come to an agreement with Reliant in order to continue their business relationship. They must provide data of the supply and demand situation when it comes to the product VCM. They must agree to some of the terms that Frederich Hauptmann from Reliant comes back with. Their main goal is not to let the contract expire. Pacific has been providing the VCM product to Reliant for many years and they do not want to lose their business, no matter if they have to loose money. They have to show Reliant that they appreciate their business all these years and show that they are priority to their company.

II. Analysis

a. Problem Recognition

• Pacific Oil contract was going to end with Reliant and due to projected changes in the market it made Pacific’s position more unstable to any upcoming threats. • Pacific Oil had new competitors installing new facilities therefore putting pressure on them being the only provider for Reliant to use. • Zinnser with Reliant had already discussed other options with two other major chemical firms that were planning new VCM manufacturing facilities in the next 24 30 months. • Reliant did not want to sign a contract that trapped them for another five years if the price of VCM was to drop in the foreseeable future. They wanted a three year contract. • Reliant did not want to get stuck with a minimum requirement per year during their agreed contract. Reliant felt that it would be appropriate to freeze the minimum quantity requirements to a set number. • The negotiation from Pacific’s point of view was taking too long and they needed to wrap up the contract. They had been negotiating back and forth for almost a year. • Zinnser stated to Pacific that they were concerned in the way the delivery pipeline was being metered. He wanted spot checking because it seemed that they were not receiving all that they were being billed for. • Reliant wanted to make sure that in case the decline in market and price for VCM in the future endangered its own position in the market,...
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