Analysis Charlestown Chemicals
...on of Charlestown, giving them the possibility to negotiate more aggressively with Puritan regarding the high price. But although they have a little trump with Lee in their hand, Puritan buys large amounts of chemicals from Charlestown. An end of these contracts really would hurt Charlestown. In September the Lee Corporation is very excited about signing a contract with Charlestown even of there is no must-take condition and the price is $51.25, which is a drop of $4.25 from their initial offer. This is an indication for me that their level of power is rather little than great, because the initial offer is significantly higher. In addition the contract would include a trade term, tying Charlestown to a minimum purchase. The director of purchasing, Mr. William Todd, doesn’t accept the tremendous price increase of Puritan Chemicals. After receiving a new price he directly begins to search for alternatives. His goal is to either influence Puritan to such a degree that they lower their price significantly or to find another supplier for Hydrochloric acid. Todd’s preferred outcome is however definitely to maintain the good relationship to Puritan Chemicals because they are a supplier of quality-chemicals on the one hand and are also a quantity buyer at Charlestown. With clever negotiations, getting a good bid by Lee Chemicals, the only competitor for Puritan in this region, Puritan ultimately offers its chemicals to the old price again indicating that they were unsure about the possibilities of Charlestown. With his negotiations Todd risks to loose a very reliable quality supplier and a good customer in one person. Finally Todd’s benefits outweigh the drawbacks, because he gets an offer of Puritan saying that they are selling Hydrochloride Acid for the original price of $48.75 and additionally increase their orders of several commodity chemicals by approximately $2.5 million. The function of Lee Chemicals therefore clearly is to enable Charlestown to enter into aggressive negotiations with Puritan and to put them under pressure. Both models for procurement and support have their advantages and disadvantages. Listed below are some of the issues associated with both: Procurement and Support Advantages Disadvantages Centralized - Better IT asset management - Longer RFP cycles - Ensure quality standards - Longer support cycles - Better accountability - Everything is in one place Decentralized - Shorter approval - Unnecessary asset duplication - Faster support - Technology compatibility issues - More secure and fault tolerant - Difficult to manage In spite of this, there is also the possibility of outsourcing the procurement issues in order to reduce overall costs or maybe to tighten the company's focus on its core competencies. There are several levels of procurement outsourcing. As shown in Figure 1, the most basic involves a migration of infrastructure: people, technology, systems, and s...