Introduction
The modern business world has not changed from what it used to be several centuries ago. Goods and services used to flow from the suppliers and manufactures to the consumers as they do today (Jobber 2001, pp.11-12). Raw materials also used to flow from individual suppliers who produced them as well as suppliers who collected them from elsewhere and made them available to companies or individuals who used them for the production of goods that were eventually availed in the market for purchase by consumers. At the level of a supplier of raw material who buys them from somewhere and then avails them to a manufacturer who uses them to produce finished goods, a classic case of business to business relationship is established. There are several cases of business to business relationships including that of an individual who produces the raw materials himself or herself and then sells the raw materials to a manufacturer who makes use of the raw materials in the production of goods and services (Churchill 1995, pp.19-21). The case of Victorian Fine Furnishings and the other businesses that are involved in different ways with it are all engaged in a business to business relationship. This report will look at the problem facing Victorian Fine Furnishings; provide an analysis of possible solutions to the problem and make recommendations to the managers of the company. A brief conclusion will be made at the end of the report.
The Problem Victorian Fine Furnishings Is Facing
Victorian Fine Furnishings has managed to secure a lucrative business deal with Snoozarama, a furniture seller in Australia with a national coverage in terms of its branches and stores. Victorian Fine Furnishings agrees to make a first supply of a small number of specific items of furniture in a period of eight weeks followed by a completion of the total supply three days thereafter. Ken Lambert and Gerry Watts have managed to negotiate for a good deal in the supply of timber from Ashley Timbers. The total timber to be supplied is about 55 cubic meters at a cost of $ 2,550 per cubic meter. This will leave a comfortable profit margin for Victorian Fine Furnishings at the end of it all. Where then does the problem come in?
A fire at Ashley Timbers makes the plan impossible. The supplier will only be in a position to supply the agreed timber after a period of four weeks, a condition that will drive the expenses up by between $ 35000 and $ 40,000. The alternatives that the company has in terms of timber supply all make the deal bad compared to what it had negotiated with Ashley Timbers. These other suppliers are the two merchants whose knowledge of the fire at Ashley Timbers has made them take advantage of the situation to hike prices and the North Coast Timer Co. whose low prices are desirable but the fact that their timber is not cut to the specific sizes and the distance to be covered in terms of transporting the timber will raise the price per cubic meter from $ 2,040 to around $2,940.There is also the option of gathering 40% of the required timber from small suppliers in town who will avail the 40% at a price that is between 30% to 40% higher than the Ashley Timber deal. The last option other than withdrawing from the deal is to wait for a whole month for Ashley Timber to recover from the fire and then access the agreed timber. But this will mean that more than one thousand overtime hours will have to be created so as to be able to finish the work within the agreed deadline. The overtime will raise the expenses of producing the agreed pieces of furniture by between $35,000 and $ 40,000.
The selection of the best option among all the four or five if withdrawal is to be included is what Victorian Fine Furnishings is supposed to do. Which is the best deal?
The Available Solutions
In determining the best solution, there is need to examine the reason for getting into business. There is no investor who commits his or her shares with the aim of making losses (Ford1993, pp.23-24).Businesses are established under rational considerations of maximizing gains and minimizing losses. This is what Ken Lambert and Gerry Watts are out to do in their business with Snoozarama and the other possible players in the business.
If making profits is a major option in doing business, and indeed Ken and Gerry have made it clear that some deals will lower their profit margin to nearly zero, then it is important to calculate the cost of each deal. The first thing to determine is the cost of the first deal with Ashley that would have been effected were it not for the fire issue. This will be followed by the other deals and then the cost is compared. Other factors that are important such as time are also supposed to be considered since the production of the items is urgent.
Mathematical Determination of Cost
Note: In all the calculations, the upper limit of each item will be used including the upper limit in terms of cost. The rationale for this is that it is better to have some timber remaining than to have a deficit in the required items. The same applies to finances whereby it is better to have more than required for the purchase of timber than to get to the market and find that the prices are slightly higher than what you had budgeted for.
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- The initial deal
Total timber needed is fifty five cubic meters.
The cost of one cubic meter of timber is $ 2550.
Cost of 55 cubic meters of timber: 55x 2550= $ 140,250
Therefore, $ 140,250 is the total cost of timber in the first deal that was interrupted by the fire.
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- The cost of the deal if timber is to be obtained from the two Sydney merchants is as follows:
The price of the merchants is 25% more than the Ashley price. This is calculated as follows:
100%= $ 2550.This is the Ashley price.
100%+ 25%=125%. This is percentage of the Sydney timber merchants in relation to the Ashley Timber Price.
125% /100 x2550= $ 3187.5.
$3187.5 is the price of timber per cubic meter (M3) from the Sydney merchants.
What about 55 cubic meters of timber?
$ 3187.5 x 55= $175312.5
$175312.5 is the price of obtaining 55 cubic meters of timber from the Sydney merchants.
The time period for obtaining timber from the two merchants will be three weeks. This is one more week when compared to the original plan with Ashley Timbers.
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- What is the price of obtaining timber from the North Coast Timer Co.?
The North Coast Timer Co. has agreed to supply timber that is not cut according to the required specifications. By taking the higher limit, they will produce 62 cubic meters of timber at $ 2,040 per cubic meter.
$2040 x 62 = $ 126,604.
$ 126,604 is the price at which the North Coast Timber Co. will sell 62 cubic meters of timber to Victorian Fine Furnishings. This looks like a good price. The problem comes in when the money for cutting the timber to the required size as well as transportation is added. This is a total of $ 900 per cubic meter.
Therefore,
$900 x 62 =$ 55,800.
The total price of obtaining timber from North coast Timber Co. and making it ready for use will be a sum of the two figures.
$ 126,604 +$ 55,800=$ 182,404.
The time frame for obtaining timber from the North Coast Timber Co. is immediate supply of half the required timber and the other half within a ten days period.
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- The price of obtaining timber from the smaller merchants is %40 more than the price at which Ashley Timber would have supplied. The upper figure is given as $ 3,600.
Therefore for a total of 55 cubic meters of timber,
55 x $ 3,600=$ 198,000
$ 198,000 is the price of obtaining timber from the smaller merchants.
There is an added twist to this choice that must be mentioned here. The twist is that over the next few weeks, these small merchants can only avail 40% of the required timber. This is a great source of inconvenience to the production of the required pieces of furniture.
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- The other option that is due for consideration is to wait for one month for Ashley Timber to restore its supply. Out of this, the Victorian Fine Furnishings will have to create 1200 overtime hours at a cost of $ 40,000 so as to be able to beat the production deadline. In sum, the total price of producing the required furniture within this programme will be the initial $ 140,250 + $ 40,000=$ 180,250.
Selecting the Best Option
The Best Option
Going by the above tabulation of the cost of procuring timber and producing the required pieces of furniture, the option marked B comes out as the best. This is because of the following reasons:
- Reasonable time frame: The two merchants will take only three weeks to avail the required timber. This is only a week more than the original plan with Ashley Timber. The Ashley Timber plan that was disrupted by fire was to take two weeks. When compared to waiting for four weeks for Ashley Timber to restore supply, three weeks is a reasonable time frame.
- Low cost: Price is a significant element in any business transaction (Konrath 2005, pp 76-77).Despite the fact that these two merchants have decided to take advantage of the fire that affected Ashley Timber’s supply business, the cost of obtaining timber from them and using it to produce the required items is lower when compared to purchasing uncut timber from North Coast Timber Co. and the small merchants. When compared with the North Coast timber company, the cost of getting the timber from the two merchants in Sydney is lower by $7,091.5. When it is compared to the small merchants, the small merchants are higher by $22,687.5.If it is compared to waiting for Ashley to restore supply, the late Ashley supply is expensive by $4937.5. This makes the two merchants a fair source of timber as far as pricing is concerned.
Next Best Option/Option number two
In the event that the two merchants do not supply the required timber, Victorian Fine Furnishings will have to look at the next best option in terms of timber supply (Hlavacek & Reddy1986, pp.8-11).The elements to look at include time and cost. The business benefit of procuring the timber from any of the sources can also contribute towards the decision.
Going by the element of cost, waiting for four weeks for timber from Ashley looks like the next best option. Upon the acquisition of the timber, the personnel will then be directed to work on the project at overtime so as to beat the deadline. It will be a sign of confidence on Ashley if Victorian Fine Furnishings waits for its recovery so as to procure timber from them (Bly 1998,pp.101-102).But this is only tenable if the first option of the two merchants fails.
Business To Business Marketing Principles
In consideration of the principles of business to business marketing, the four elements popularly known as the four Ps are crucial in the identification of the route to take when pursuing any kind of deal. This is the same for the one that is under consideration. The four Ps are prospect, promise, product and position.
If the P for prospect can be an issue for consideration in the Victorian Fine Furnishings case, there are numerous dimensions of prospect under the principles of business to business marketing. There is the prospect of Snoozarama becoming a profitable business partner for the Victorian Fine Furnishings Company. In this case, the need for dedication in the fulfillment of the promised deal is a necessity for Victorian Fine Furnishings. It is not necessary for companies or individuals to invest too much in deals that will not raise the prospects of gain (Fletcher & Hart 1990, pp.98-99).For example if Snoozarama had not made any commitments, there would be no need for Victorian Fine Furnishings to hurry up the production of the pieces of furniture.
Prospect also features on the possibility of securing materials from any of the said sources. There are some sources whose supply ability is questionable and therefore they are not prospective business partners. The small merchants are an example given that they can only be able to supply only 40% of the required timber and at a very high price. The prospect of striking a business deal based on these small merchants is close to nil.
Under promise, it is necessary that the partner in business to business deal show promise in ability and willingness. The north Coast Timber Co. has enormous promise in terms of ability but the problem is that the pricing is way above the two Sydney merchants and the cost of waiting for Ashley to recover from the fire and resume supply. Under the promise theory in business to business marketing and trade, the merchants have the ability to supply the required timber despite their decision to take advantage of the situation. They are therefore an option so long they do not decide to raise the price even further (HĂĄkansson, Johanson, & Wootz 1976, pp.319-321). In the event that they do so, the other option comes in. This is clearly reflected elsewhere in this report whereby the first and second best options were analyzed as per pricing and time.
The next element in the four Ps is product. This is the most important element in this theory since without the product the business to business deal has no foundation (Hunter & Tietyen1997, pp.43-44). The deal in question has various categories of products. The timber that is being sought by Victorian Fine Furnishings is a product. It is however important to clarify that it is a product to the potential suppliers such as the two Sydney merchants, the small merchants, the North Coast Timber Company and Ashley Timber Company. In the hands of Victorian Fine Furnishings, timber is a raw material that will be used to produce a product in the form of dressers and other items. But it is not uncommon to find a business such as Ashley Timber Company or North Coast Timber Company calling the timer a raw material. This is also justifiable since it is not a finished product that will be used in the processing of something else.
The presence of the product in sufficient quantities and the required quality is very important in the business to business deal marketing (Dibb, Simkin, Pride & Ferrell 2000, pp.67).It creates confidence and trust among the businesses that are involved in the deal.
Position is last of the four Ps and it represents the final standing of the businesses that are involved in the business to business transaction. If in the consideration of the deal a business realizes that it will be in a poor position, then the deal is not worth it. How does this reflect on the deal between Victorian Fine Furnishings and Snoozarama as well as the other prospective parties in the deal?
Victorian Fine Furnishings will attain a prestigious position if it manages to fulfill its art of the deal. The position will emanate from the market share it will have capitalized in Australia through the linkage of Snnozarama.It is every company’s aim to have a huge market share (Kotler, Armstrong, Saunders & Wong 2001, pp.52-53). Snoozarama on its part will obviously gain by having a committed supplier of high quality furniture. The other businesses that are involved such as Ashley and any other possible supplier of timber will also have a better standing by securing a client for their goods. There is always a chain effect in the business to business deals where when a company provides a certain advantage to another company, the effect is felt by a third party company.
Recommendations
My recommendations to Ken Lambert and Gerry Watts are as follows:
- Ken and Gerry should approach the two Sydney merchants and persuade them to provide them with the required timber for the business. The reason for this is that the timber from the merchants is the only option that is less costly. It is also the option that takes less time since it is only one week more than the initial deal negotiated with Ashley. In addition to the above, the timber supplied by these merchants is already cut. This is the same as the timber that would have been supplied by Ashley or the timber that the small merchants can supply.
Obtaining timber from the North Coast Company may be faster in terms of time but it will take more money to transport it to the right place and reduce it to the required size. This makes the two merchants the best option.
- In the event that the two merchants do not yield, I recommend that the Victorian Fine Furnishings Company begins to prepare its employees for a long period of overtime so that the Ashley timber supply that will resume after one month is taken as the next best alternative. In addition to costing less compared to the timber supplied by the small merchants and the North Coast Timber Company, this timber is already cut into the right size and there is no problem with transportation. The other advantage is that the business to business confidence with the long time supplier, Ashley Timber, will be maintained or even boosted to higher levels.
Conclusion
It is evident that the two Sydney merchants provide the best alternative for Victorian Fine Furnishings. The low cost of obtaining timber from them is one of the reasons. Other reasons as to why it is the best include the readiness of the timber and the lack of the inconvenience of having to meet extra transportation expenses such as the one to be met if timber is to be obtained from North Coast Timber Company. Also, the period of three weeks is reasonable for Victorian Fine Furnishings to produce the require items and hand them over to Snoozarama so as to keep the deal alive. If the two Sydney merchants fail to cooperate, the next best alternative is waiting for Ashley Timber Company, the long time supplier to recover and then provide the needed timber. All these considerations are in line with the four Ps and other business to business marketing strategies.
References
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