RFL versus Boxhouse - Seller's Information

James Murphy, Sales Manager and Scott Campbell, Sales Representative for Boxhouse Ltd were developing a strategy for a negotiation session to be held with Angela Reid Supply Manager and John Stewart, Buyer from Regier Foods Ltd. (RFL)

Boxhouse Ltd. had submitted the quotation for the Mustard they had been supplying Regier Foods Ltd. (RFL) with for the past 10 years in request to a quotation for 500 drums per month for 12 months. Each drum contained 200 liters.  Boxhouse Ltd. understood Regier Foods Ltd. was looking for areas to cut costs in order to remain competitive in the food industry and would be looking for a reduction in the cost of Mustard.

GENERAL COMPANY BACKGROUND

Boxhouse Ltd. has been in business for over a century.  They have set themselves apart for their known versatility and quality of products.  The can provide industrial sized products or can develop a unique high-end private label mustard.  Their industrial / bulk sizes are ideal for manufacturers of sauces, dressings, and hot sauces.  Industrial sizes include 20 liter pails, 200-liter drums, 8000-liter totes and even tankers. Boxhouse can also supply bulk vinegar in any quantity. Their factory is HACCP and SQF certified.

THE SALES AREA

James was responsible for sales and reported directly to the CEO.  He had a marketing manager, marketing coordinator and 3 sales representatives under his supervision.  Their products could be classified into 3 different types: retail, food service and industrial.  The retail division carries Boxhouse's own brand of mustard and horseradish and offers a wide variety of private label options for company's own brand.  In the food service division, they specialize in bottling gallon bottles of any types of mustard or horseradish you could imagine. They also produce gallon bulk packs of mustard that are perfect for concession stands.  The industrial division has sizes that are ideal for manufacturers of sauces, dressings and hot sauces.

ESTIMATED MATERIAL AND LABOUR COSTS

Working with production and purchasing, James and Scott developed an estimate of materials and labour costs in providing drums of mustard.  See Exhibit 1

 

Exhibit 1

Material and Labour Costs for 200-liter Drums of Mustard

Material	Cost Per Liter	Percentage Composition	Total Cost Per Liter
Spice Blend	$0.14	60%	$0.084
Water	$0.025	20%	$0.005
Vinegar	$0.1875	20%	$0.0375
Cost of Drum	$10 / drum - $0.05 / liter		$0.05
Labour and overhead			$0.1018
Total Costs			$0.2783 / liter

 

Estimated costs to produce the mustard are $0.2783 / liter or $55.66 per drum.  A profit percentage of 15% was added ($8.35). James, Scott and the Cost Accountant decided to quote $64 ($55.66 + $8.35) per 200-liter drum.  James felt this was competitive with other manufacturers and 3.5% lower than what Regier Foods Ltd. is currently paying.

Boxhouse Ltd. would also consider providing the mustard in the 8000-liter totes and even tankers.  This may help Regier Foods Ltd. reduce their costs in not having to pay for drums or the handling costs associated with rinsing out the drums for a contractor to take them away.  It may also reduce their transportation costs.

Regier Foods Ltd. are very beneficial to Boxhouse Ltd as they were operating at 75% capacity.  Regier Foods Ltd was also a long-time customer.  The contract amounts to approximately $384,000 a year.

Playing the roles of James Murphy and Scott Campbell, prepare to negotiate a contract with Regier Foods Ltd. and conduct the negotiation with Regier Foods Ltd.

 

Create a Negotiation Plan by answering the following questions. (For Seller)

What are the issues to be negotiated?
What are the priorities among the issues in the bargaining mix?
What are the primary underlying interests?
What are my limits on each issue - walkaway points and BATNAs?  Show how you arrived at these points.
What are my target points and opening requests on these issues? Show how you arrived at these points.
Who are the important constituencies to whom I accountable?
What do I know about the other negotiator's interests, negotiating style and personal reputation?
Whast overall strategy do I want to pursue?
What do I need to assemble - research, documents, charts, and graphs to make the most effective presentation I want to achieve? What tactics will I use to present my arguments or defend against the other negotiator's arguments?