Channel Management 461 Case 13.4 Kinetic Engineering Company (KEC)* THE PROBLEM IKEC promises its dealer Star a percentage commission on the ordet for spares he is abe to get from a major customer. The dealer also puts forth a requirement that the value benefit ftom any price negotiated in encess Jof the quote from KEC would be to the account of the dealet—KEC does not give a clear answer to thi request. The dealer Star manages to get a higher price and now the company KEC wants a 30% share of this Jexcess. The dealer does not agree—a conflict has arisen, ‘The dealer is quite influential with the major client and can affect future orders. I however, his conten. tion is now accepted, he could resort to fresher demands everytime a new order comes up. |THE COMPANY, KEC HKEC was established in India by a technocrat about 25 years back. Mr Krishna had just retuned to India afer a successful stint in the US working with leading engineering majors. He established KEC to make and cell world-class compressors, dryers and filters for air, water, gas and liquid applications in industry: KEC started with a collaboration with a leading European company but aftr 10 yeats of this partnership hecame! independent. Over the 25 years ofits existence KEC became a recognised name in several industry verticals and| eurrently had over 1000 customers on its list many of whom were the leading players in their respective industries; The current turnover of KEC was about $10 million. It was sila small eompany extremely well managed by the founder Mr Krishna THE PROJECT There was a major refinery project coming up in one of the larger states in India for which a US based EPC] {engineering project consultants) was working closely with the Government. This EPC was scouting for seed project companies and gave the contract for the entze engineering ofthe project to one of the biggest Jesinecting companies LT (Latest Technologies in India. The project execution by LT also had a major component of compressors, dryers and filters ofthe kind which KEC was a well-known manufaceurer |THE CONTACT Star Engineers was a dealer of KEC though not exclusive. It had been setup a few years hack by an influen- tal retired Government officer. Through his good contacts, Star was able to get fll details ofthe require, | [Ments of LT in compressors, dryers and filers for this projeet. KEC entered into an oral agreement with Star that if he were to use his influence co gt the orders for the compressors, deers and filter on the project cotally worth about $2 million), KEC would give a commission of 5% of the order value (50% on getting the| order and balance 50% on completion of the supplies and receipt of the payment from LT). [THE CONTRACT The cechnical quote and the credential of KEC finally helped it to get the order forthe supply of equipment forthe project worth $2 million to be executed in 6 months tite. Star was paid 50% ofthe agreed commis “*Reyrodaced wth pemison rom: Nework 7 Management CnstansA462 Sales and Dicribation Menagement ion, Apart from hoping to exceute the project on time, KEG war ako ‘eager to be the preferred vendor fy the supply of spares on the equipment worth about $100,000 every 6 months. SUCCESSFUL COMPLETION HKEC successfilly completed its part ofthe project in cupplying the equipment covered by the ordet. The LT eaten apace the equipment in the KEC works before they reac dispatched to the refinery site for [Szalaion and commissioning, KEC engineers were present in ae ne when LT did the installation anal SPARES ORDER fie 7 months, LP oated the requirement for maintenance spare for ‘many of the equipment including Sloe supple by KEC. The valu of KEC components ofthe en ane estimared at $100,000 as expected aia ng to get the order for himselé The Sales Managers Anese ‘came to know about this and per, aaied Star to rightfully get the onder in the name of KEG: The dese oe suddenly started driving a hard Perein, He apred to gt the onder in the name of KEC on the he i conditions { KEC should give him 8% commission on the value of the onder Or epee alate cies ghee dan Fis eee Sy itn ng any amount in excess of $100,000 would be taken by Star ‘Amrit spoke to his CEO Mr Krishna and fnally agreed to the 8% ‘commission. On the excess Si managed to use his influence and get the order value ined 0 $110,000. He told KEC thae he| had tobe pid his commission of 8% ($8000) and he would sen keep the excess $10,000. KEC found chat the dealer was making a much higher marin on ths wsvenecc than KEC itself. KEC told the dealer Star 2s follows 1 We mil pay you 8% of $100,000, which isthe value accruing to us * You wif have so share wth KEC 50% ofthe excess realotin in pice of 10000, CONFLICT DEVELOPS Fence he should share the exces value, The sles manager Anat at favour ofthe dealer stand but he als had to keep the company welfare in mind Ce iommo e euen would gee all future ares orders in bis own name and ge it supplied by other vendors whe he nt easly develop. * How do you think that this crisis can be resolved? = ir eal eke tocar stators cloacal te ce future?