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Charlestown Chemical Inc

Charlestown Chemical Products produced commodity chemicals, intermediaries and specialties Over 95% sales from industrial markets Puritan Chemicals was a large customer for commodity chemicals, while Charlestown bought 4000 tons of muriatic acid annually from Puritan Charlestown bought muriatic acid at $ 97.50 per ton from Puritan But in June 1985, Puritan hiked price of muriatic acid to $ 132.50 per ton Charlestown had been unable to locate suppliers other than Puritan that were close enough to its Tulsa plant to sell at competitive prices Next alternative was Lee Chemical Company in Nashville, Tennessee

Refusal by Puritan to rescind the price hike led to Charlestown Chemical to invite a bid for muriatic acid from Lee Chemicals Lee Chemicals offered them 3500 tons per year at $ 111 per ton, delivered at Tulsa by tank car Lee Chemicals offer include must take conditions of at least 3000 tons of muriatic acid Charlestown Chemical was happy with the price offered by Lee Chemicals, but were skeptical about quality, must-take conditions and delivery by rail. Furthermore, Puritan was regarded as a top rate supplier Lee Chemicals sent one sample of the acid to be tested, and the sample met Charlestown Chemicals specs In June, Charlestown informed Puritan of an attractive offer from another supplier, but did not divulge details of bidder. Puritan still did not rescind the price increase.

Immediately after the meeting with Puritan Chemicals, Charlestown contacted Lee Chemicals again informing of apprehensions of product quality consistency, steep price, delivery by rail and must-take conditions Lee Chemicals revised their offer to $ 105 per ton, delivered by truck and offered a full tank of acid for trial run. However, the other conditions remained One tank truck of acid arrived from Lee Chemicals at Tulsa for testing, but before the trial could start, Charlestown received communication from Puritan that the price hike was canceled and acid would continue to be delivered at $ 97.5 per ton It was also believed by Charlestown plant manager that Lee sourced the acid from National Chemical Corporation, St. Louis

By August, the trial shipment of acid had provided satisfactory results and upon receiving this information, Lee Chemicals offered willingness to deliver muriatic acid at $ 102.5 per ton by truck or $ 97.5 per ton by rail, and also dropped the must-take conditions Puritan allowed Charlestown 3 days to accept offer price of $ 97.5 per ton for 1986 on entire requirements basis Puritan was also prepared to buy additional chemical commodities worth $ 500,000 from Charlestown Chemical

The problem with Charlestown now was whether to continue negotiations with Lee Chemicals or renew the contract with Puritan Chemicals Even if Lee was chosen, Charlestown would have to find another supplier since Lee could not offer entire needs of Charlestowns Tulsa plant The contract with Puritan stipulated that unless Puritan failed to match another reasonably satisfactory suppliers offer , Charlestown was obligated to source muriatic acid from Puritan

Situation Analysis
Muriatic acid is a specialty product for Charlestown Chemicals, primarily meant for consumption Puritan was a high value customer for Charlestown, and also a top rated supplier

Currently Charlestown cannot break contract with Puritan since Puritan matched Lees offer, but can consider Lee for 1986

Situation Analysis
Choosing Puritan as supplier Quality consistency Additional business of $ 500,000 No adverse effect business relation on Choosing Lee Chemicals as supplier Apprehension of quality consistency No additional business presently existing Start of a new business relation; But may lose some business from Puritan meet partial

Capacity to meet entire requirements Capability to requirement only

Single supplier low bargaining Multiple suppliers high bargaining power power

Charles Town Chemicals needs to develop alternate suppliers in the backdrop of recent unilateral price hike by puritan. Charleston need to take stand and mothball the offer by puritan on next year basis. Puritan should honor the current contract terms unconditionally for the remaining period at the prevailing price of $ 97.5