Charlestown Chemical Products, Inc.

Muriatic acid purchasing case

B2B (Section A) Group : (11DM-005) Abhinav Mishra (11DM-007) Parvez Agaskar (11DM-014) Akhil Gupta (11DM-042) Nidhish Gupta (11DM-045) Hemank Chandak

Charlestown Chemical Products, Inc

Company Background - Based in New Orleans, Louisiana - Chemical plant in Tulsa (Oklahoma) - Director of Purchasing Todd Mr. William Product - Commodity chemical, chemical intermediaries and specialties - 700 products - 40% of sales consists of commodity chemical

- 30 plants and 7000 employees Business - Sales revenue US$ 600 million in 1974 - PAT of US$ 30 million

Muriatic Acid - 20 Baume (31.45% HCL)

- US and international market

- Stringent specification (35 APHA, Fe 1 ppm max, HCL 31.45 32.56%, SO4 50 ppm max, As 0.2 ppm, Pb 1 ppm
- Tulsa plant uses for purification of NaCl solution fed to electrolytic cells

Puritan Chemicals
Company Background - Sales revenue US$ 4.5 billion 1974 - PAT of US$ 197.5 million Charlestown Chemical Puritan Relationship - Lot of business since past 4 years (between 1970 to 1974) - Charlestown purchases amounting to US$ 2.118 million to US$ 4.495 - Puritan purchases amounting to US$ 4.09 million to US$ 6.193 million

- 74,000 employees
- 60 domestic and overseas plants

Procurement of Muriatic Acid - Need to purchase as Charlestown discontinued in house production in Nov 1973

- Mr. Todd negotiated a contract with Puritan for 1974 for a price of US$ 48.75 per Ton
- Buyers requirement of 4,000 tons and can be exceeded with consent of Seller

- Shipment from Springfield (Missouri) ~635 km or Dallas (Texas) ~413 km in Tank Trucks - Price can be revised on quarterly basis and written notice within 15 days of quarter - Buyer can object the price increase by written notice - If a bonafide offer from alternate US based source is produced which the seller cannot meet then both are free from contract

Case Background
On Jun 15th, Puritan revised price from US$ 48.75 to US$ 66.25 per ton effective from July 1, 1975 Jun 22nd, Meeting with Puritan: - Mr. Todd mention about alternate option - Effect on business from Puritan Loose term buyers requirements* Mr. Todd had following concerns regarding offer:

Points to be considered for sourcing : - High transportation cost for Acid - Nearest supplier quoted US$ 75 which was competitive if acid was transported by Barge - Charlestown always looked for long term and settled relationship - If Tank Cars are used for transport then the modification required would cost US$ 2.50 per ton plus switching problem required for other liquid inputs - Tank Cars schedule was inflexible

Mr. Todd had to reject this hike and he had to get a backup* offer as a replacement to Puritan

1. Quality 2. Tank Car 3. Must take condition First shipment with in 4 days of signing contract* On Jun 21st, Lee Chemical offered price of US$ 55.50 to be delivered by Tank Car on terms of 3,000 tons as min quantity Lee also submitted trial sample which cleared the quality test*

On Jun 17th, Mr. Todd invites offer from Lee Chemical Company (jobber* for Muriatic acid)

Case Problem
On Jun , Mr. Todd raised quality and consistency concerns as producer was still unknown and delivery by tank Car Counter price of US$ 47.50 per ton along with problems of terms 23rd Lees Sample found to be good on Aug 10. Puritan wanted contract to be signed on entire requirement basis* for the year 1976 with in 3 days of offer at US$48.75. Now Todd has to weigh both the suppliers as he could not reject Lee forefront & also a long term solution.

Lee reduces offer price to US$ 52.50 per ton only with no change in terms and proposal for tank truck order for testing purpose which arrived on 28th June

Mr. Todd memo to plant manager: 1. To test the Tank truck sample 2. Credit for Puritan price rescission given to Lees offer and giving them edge for 1976 negotiations

On July 1st , Puritan revokes the price revision

Plant Manager suggestion to drop Jobber : 1. Puritan is more reliable 2. Must take condition of 3000 tons 3. Lees supply wont be sufficient

Case Argument
Puritan Chemicals Reliable supplier and always Charlestown Chemicals first choice Price rescission to US$ 48.75 Delivery with Tank Trucks Want to sign contract for 1976 entire requirement basis at US$ 48.75 per ton Increase in dollar volume purchase by US$ 0.5 million in 1976 Points to be considered Provision of price revision in contract Loose terms about requirement Need to develop an alternate source and not just recognize it Further negotiation for 1976 contract as Charlestown has backup offer for an eligible vendor Puritan is a customer Puritan would be first choice if price and terms are negotiated

Lee Chemical Company (Jobber) A jobber supposedly buying from National Chemical Corporation (St. Louis, ~635 Km) Initial hesitation about consistency in quality* Capacity might not be enough to fulfill the requirement Delivery by
Tank Car : $US 48.75 per ton Tank Truck : $US 51.25 per ton

Points to be considered High on price Must buy conditions dropped but still doubt about capacity National Chemicals can be a prospective vendor Lee Chemicals can be used to negotiate very low prices from Puritan and vice versa

What Charlestown Chemicals can do?

- It should not sign contract at currently mentioned terms

- Make Puritan drop prices using Lees offer and sign a contract (100% sourcing from Puritan)

- Negotiate good pricing from Lee for Tank trucks which could match with Puritan and part purchase from Lee (Signing of contracts with both respectively) - Puritan would be a main supplier but Lee is used just to develop a backup

- National Chemicals can be developed as a vendor (if no conflict exist with Lee)
- If it is Lees source then direct purchase from source would reduce cost - Then it will be a competition between Puritan and National Chemicals - Purchase from Lee would be a rare case unless Puritan fails to meet the prices which would be a rare case but it is possible if terms with Puritan could not be agreed upon - Tank Car option ruled out as it would need further development of plant facility

THANK YOU