Question

Oppu is trying to design and launch a new mobile phone to the market. The average selling price of competitors’ phones is $1,200 per handset. Oppu believes that consumers will be willing to buy the new phone at 10 percent below the market price. However, after getting the quotation from its Supplier X, Oppu still faces a cost gap of $200 as it has planned to make a 15% percent profit for the new product.
(a) Based on the given information, calculate the price that Supplier X quoted to Oppu.

(b) Analyse any three (3) approaches that Oppu and Supplier X can consider to reduce the gap in costs. You can use the concepts in Kraljic’s Portfolio Matrix or any other relevant framework. Remember to provide specific examples related to the situation between Oppu and Supplier X, to support your answer.

(c) Assume that Supplier X’s business has grown over the years and the balance of power has shifted from Oppu to Supplier X. Oppu is negotiating the price of the handset with Supplier X.
Plan effectively for negotiation by evaluating three (3) tactics which Oppu may adopt to negotiate with such a stronger supplier. You should provide specific examples related to the situation between Oppu and Supplier X to support your answer.

Answer 1

Answer a.

b. In this situation, Oppu can reduce the supply risk by spreading their portfolio across several suppliers. This will also help in the situation given in question c. Also, since the profit impact is high it becomes important to maintain the quality of the product.

c. The main strategy for maintaining price would be to spread out the portfolio so that they are not stuck with a single supplier. Also, there is a risk of supplier becoming a competitor. For example, Asus used to be the biggest supplier of motherboard and chipsets for Dell PCs. Later they went on to become a commercial provider of finished PCs themselves giving Dell a competition in the market.

Another strategy can be the improvement of supplier negotiation terms. Now, since the sales are going up, the company can afford to provide the suppliers with an extra margin on some products. So in this way, they can retain a strong supplier.