A resin supplier to Parker-Hannifin wanted to raise prices for high-impact polypropylene by 12%. It was during the Gulf War, when petrochemicals and corrugated cartons were rising at 35% per year. Representatives of the resin supplier said that the impact on resin prices and supply was causing all resin producers to raise prices 12–18%, and that they wouldn't budge on their price increase.

Problem: Ray Shepard, sourcing and commodity manager for Parker-Hannifin's Chelsea Division in Olive Branch, Miss., determined that the price increase demanded by the resin supplier represented an additional expense of $664,000 a year to the company. Moreover, since the company was locked into a yearly contract with its biggest customer, Parker-Hannifin would start to lose large amounts of money since the margins from that business were low. The customer would not allow Parker-Hannifin to pass along the price increase. Despite all that, the resin supplier held firm. To find out what he did, see www.Purchasing.com/negotiations.

Among possible solutions: Accept the price increase and try to convince the customer to agree to cover the increase; accept the increase and lose money on the account; redesign the product that contained the resin; find a new supplier if possible. See www.purchasing.com for the solution.

Solution: Shepard had done his homework before the meeting. He told the supplier that he had checked with another supplier that could provide the resin at a price 10% lower than what the original supplier was charging, and its product quality was equal to or better than theirs. He said the original supplier’s resin was over-specified for Parker-Hannifin’s application. And he said that he had checked with Parker-Hannifin’s quality control department, which successfully tested the plastic shells made from the new resin from the new supplier. An independent lab had confirmed that the shell samples passed toxicity testing and testing for head impact. He said, finally, that he had sent production samples to its biggest customer for testing and that if the samples passed the tests Parker-Hannifin might change suppliers.

Confronted with that information, the original supplier rescinded the price increase.

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