BAD NEWS LETTER 6
Weare grateful that you chose “Caterpillar Original EquipmentSuppliers limited as your preferred supplier of stainless steelengine bolts for the Caterpillar excavators. We promise to continuedelivering the required supplies within two days after ordering andat the most competitive price in the market. Besides, we guaranteehigh quality supplies and free replacements for faulty products orequipments that may be damaged during shipping. Our mission isretaining customer loyalty through ensuring to deliver first classservices.
Themain reason we are capable of providing high quality OEM bolts forCaterpillar excavator’s engine bolts at a low price is that we seta small profit margin. This implies that a slight revision of theprice upwards would compel us to revise the cost of the cost per unitconsidering that we make very small returns. In respect to pricevariation, we are aware that the Internal Revenue Authority is at thefinal stages of preparing a policy that is proposing imposition ofcustom duties for the Asian Steel companies that have been dumpingoff the metal in the USA market at the expense of killing the localmanufacturers (Huse, 2001).
Inrespect to the price variation, we are anticipating in steel prices,we are afraid that our sales representative underpriced the recenttender that you ordered 12.5 million units within the next eightmonths. The agent unintentionally used the calculation data that wewere using the previous year before the revised taxation rate forsteel products.
Lastyear, several steel importers were from Asian countries wereimporting the metal duty-free. However, early this year, local steelmanufacturers complained to the government that the local steelmanufacturing plants are almost collapsing because the productioncost is extremely higher than the selling price. The governmentestablished a committee that proposed imposition of strict tax dutieson steel importers dumping off the metal from their countries oforigin. The new regulations for importing steel has proposedimposing custom duty of steel products from Asia ranging between 8%and 19% from November1, 2014.
However,the price increment has not been implemented as per now. The proposalis at the final stages of implementation preparation. In addition,the government has allowed traders a grace period of four months fourmonths to deliver the orders they had taken at the previous cost.After that, the import duties shall be imposed on each new order.Your latest order extends over a period of eight months, whichimplies that we will supply some engine bolts after the priceincrease (Marsh, 2000).
Thecost prediction of the steel products after the imposition of the newprice is still hard to predict presently because the government hasnot yet fixed the duty. In addition, we are cannot predict thereaction of steel importers after the new duty policies shall beestablished. Fortunately, we do not expect the cost duty impositionto have very significant cost difference because the United Stateshad other supplies from countries that were paying import duties forimporting steel products in the United States (Huse, 2001). Inaddition, we are often able to negotiate and acquire affordable steelsupplies due to our economics of large scale.
Sincewe are determined to maintain our reputation of the benchmarkingsupplier of the Caterpillar engine bolts in the market, we arerequesting that you grant the agent another appointment so that hecan bring to you another catalog when delivering the firstconsignment.
TheMemo to My Boss
Ihave written a bad news letter to Walters’ Original EquipmentsManufacturers explaining to them that the sales agent under-quotedthe cost of the supplies. I am planning to use the revised taxationpolicy that will be implemented on the steel products in soon as thebase for my negotiation. I have ordered a detailed explanation of thenew tax policy and the way it will affect the cost of the newproducts.
However,I will make it clear to the client that we will continue supplyingthe products at the cost our agent had given the company previouslysince the government has not yet increased began implementing theregulation. The revised price for the tender will begin applyingafter the government will implement the policy that willautomatically cause the cost of steel products to increase (Huse,2001).
Afterthe policy implementation, the cost of steel will increase byapproximately 6%. I am intending to renegotiate a 4-5% increase onthe original tender quote so that the new price for the tender willnot be very different from the initial cost. For the small profitmargin I will compromise, I will regain it through negotiating withone of the major steel manufacturers to supply us steel at a low costfor a big tender. Since we have many customers who have ordered bigshipments within the next seven months, we will save on economics oflarge scale, as we will be able to bargain for cheaper deals with ourchosen company (Huse, 2001).
Similarly,we should purchase a large stock when the cost of steel is still lowand store it in our warehouses. After the price increase, we will infact sell the supplies at a bigger profit margin than we arepresently. We will still maintain the reputation of the mostaffordable steel service supplier in the market.
Marsh,P. D. V. (2000). Contractnegotiation handbook.Aldershot: Gower.
Cassell,C. (1993). Tenderbargaining: Negotiating an equal partnership with the man you love.Los Angeles: Lowell House.
Huse,J. A. (2001). Understandingand negotiating turnkey and EPC contracts.London: Sweet & Maxwell.