Department of Management Sciences (PUMBA)

Savitribai Phule Pune University (SPPU),

Pune-411007

A Presentation on Case Study Analysis of

“Don’t Shoot The Messenger”

Presented By :

Vishal Shelke - 23147

Ganesh Reddy - 23145

 Case Study
Company Background

• In June 1998, Billings Equipment Inc., opened a plant in Seattle to produce

new line of earth- moving machines for construction industry.

• Company has history of impeccable ethical treatment of suppliers and leader

in industry

• Jeff Martin – Supply Management Engineer – took active efforts and did
hard work – shedding sweat and tears in reducing costs and cycle times of
his suppliers

• Jeff’ suppliers had invested many personal hours and sizeable expense to
reach this point in time. It had evolved into strained but working
relationship.
 Relationship With Suppliers

• During initial period line setup aggressive timelines followed. Early

supplier involvement in prototype and testing activity was ensured in
development of new product line.

• Suppliers were pushed to limit on material and tooling lead times,

exhausting goodwill and testing commitments

• Everyone involved , including suppliers, invested personal time and effort

toward meeting the market timelines

• Purchase agreements were negotiated and parts now were being received to
support production ramped up towards market introduction
 Problem

• Aggressive push to production leads to forced acceptance of early design of many

components, which inhibited additional cost reduction.

• Generally, 80% cost reduction occurs during the design phase. Tooling was
developed during early design configurations to meet production schedule.

• As design became frozen and cost information became more complete, projected
total costs were going to exceed target cost by 20%.

• BoM continue to rise above target levels due to procedural or accounting errors,
rather they represent true cost.

• General manager realized that rising cost is beyond recovery and would impact
market pricing and success of entire product line .

• Till this time, BEI invested $ 20 million to $30 million in sunk costs for the plant
and pre-production efforts. Hence, something drastic would have to be done
 Ethical Issue

• To arrest this rising costs, on July 5, 2000, General manager of BEI, instructed
supply management team to renegotiate existing agreements for 10% reduction with
major suppliers due to target costs exceeding expectations.

• Jeff Martin, was instructed along with entire purchasing staff to contact his
suppliers immediately with what they view as very bad news. Jeff had to face his
suppliers with this demand .

• Task has to be completed by 30 day. Buyers were to be followed immediately

contacting their top 30 suppliers.

• There is underlying threat for non-compliance to reopen previously negotiated

agreements indicated possible cancellation of product line altogether or
consideration of other sources of supply.

• Jeff facing ethical dilemma of how to convey this price reduction message as it
would be violating trusted relationship with suppliers.
• But still with some additional eroding of supplier tolerance for concessions , Jeff
succeeded within 30 days to get agreement from 4 of his 5 major suppliers.

• About 20% of suppliers complied promptly , within 30 days. Other buyers had mixed
results

Another Bombshell

• After some suppliers reluctantly complied with price cutting within 30 days , GM
suspected of padded prices by suppliers.

• And hence, GM ordered buyers team to push for reduction of additional 5%.
Which means suppliers who had complied with first request were to be penalized

• Jeff was now faced with an ethical situation pitting his responsibilities to general
manager against carefully developed supplier relationships.
 Q.1) If you were in Jeff’s position , what would you have done
to preserve relationships?
Transparent Offering
Golden Mean
Communication Incentives
• Apprising suppliers of • We along with our • We would in
prevalent situation about internal team and consultation with higher
exceeding target costs suppliers will brainstorm management will try to
• We would also explain in order to come at offer incentives like
consequences for both agreeable cost reduction extending business
the parties if • This may decrease contracts, preferential
compromises aren’t resentment in suppliers treatment in upcoming
made projects, to give
increased cost in near
future once production
get streamlined and
market response

• Professional behavior : Though GM’s insistence, we will show professional behavior

throughout negotiations instead of threatening or behaving rudely with them
• Highlighting issue to upper management : we will try to convince GM that extra 5%
reduction seems to be impractical. If he not convinced , we will highlight issue to
business head
 Q.2) What are ethical issues in case?

Lack of Trust Lack of Empathy Spoiling long term

• GM suspicious about
suppliers regarding
padding up of prices
despite having long term
relationships
• This may lead to taint
leadership of BEI in
market which is known
for ethical treatment
• Supplier had invested
personal time and energy
in line setup at BEI.
• Still, GM is suspicious
about padding up of
prices by suppliers. This
shows gross lacking of
empathy.
relationship
• BEI focusing on short term
earnings at the expense of
long term relationships
with suppliers
• Also, only selective
suppliers complied with
10% reduction, if they
know others not complied
they may break
relationship

• Lack of Accountability : There is clear fault on part of BEI management. Aggressive

timelines were followed. Supplier were pushed to limit on material and tooling lead
times. Purchase agreements were negotiated in frenzied pace. Hence , cost target get
exceeded. Hence, instead of taking this accountability BEI delegating cost reduction
burden on suppliers.
 Q.3) What is your assessment of general manager’s approach
to meeting target cost objectives?

Compromise on Impractical
Myopic view
product quality Expectations
Skeptical nature
• Prioritizing short • Further reduction • Decision to • GM suspicious of
term goals over on prices may lead demand 10% supplier of
long term to provide low reduction within padding of prices
objectives without quality material by 30 days is and asking to push
any concern for suppliers unreasonable for additional 5%
supplier because tier 1 cost reduction.
relationships suppliers need to • Non application of
manage tier 2 mind in asking
suppliers as well reduction timeline

• Hence,though BEI need to meet cost reduction target, it’s management lacks
consideration for broader implications on suppliers and supply chain and ethical
concerns arising out of it.

• This may seriously harm goodwill that BEI earned as a market leader in the industry
THANK YOU!!!