Refer to the Carmichael Corporation Case 11-3 at the end of Chapter 11. Using the information given in the case study, explain in detail as to how the purchasing manager can come up with alternatives

Carmichael Corporation concentrated on poultry medi- cines and feed additives. Three years earlier, Carmichael had introduced Stimgro, a feed additive for young turkeys, which had shown unusual promise in promoting rapid, healthy de- velopment in birds less than one month old. Shortly there- joh24099_ch11_298-322.indd 320joh24099_ch11_298-322.indd 320 27/08/14 10:53 AM27/08/14 10:53 AM 07/04/2020 - RS0000000000000000000003330688 (Caleb Smith) - Purchasing and Supply Management Chapter 11 Cost Management after, a competitor, Brisson, introduced a similar product.

Because Brisson, like Carmichael, had its own exclusive distributors, Brisson’s entry into the market did not result in lower Stimgro sales for Carmichael. Small specialty produc- ers like Carmichael and Brisson did not compete on price or manufacturing cost. Their big concern was finding new products to sell and making sufficient profit before the prod- uct was taken over by a larger company or lost its market appeal. Carmichael and Brisson had about equal shares in the Stimgro market with annual sales of about $1.4 million each.

Carmichael imported the two primary ingredients for Stimgro from its UK parent and mixed and packaged them in the Chicago plant. The manufacturing cost for Stimgro is shown in Exhibit 1. Carmichael’s selling price of Stimgro was $360 per kilogram. Amanda Tellford had tried to find a North American source for MS-7 over the past few years but had found that all potential sources, pharmaceutical, and specialty chemical firms had declined serious interest.

They claimed the volume was far too low, and the price would have to be at least $800 per kilogram before they could be persuaded to manufacture MS-7. Moreover, MS-7 was tricky to produce, requiring very careful temperature, pressure, and timing control. The main equipment item was a large glass-lined autoclave ingeniously instrumented and constructed to deal with the unusual demands of MS-7 production. The autoclave was normally a fairly general-purpose type of equipment in the chemical industry. However, the special conditions required for the manufacture of MS-7 made this reactor a special-purpose tool, certainly overdesigned and overen- gineered for the other uses to which Brisson might apply it. MS-7 manufacture was a batch production process, and the expected capacity of the equipment was about 40,000 kilograms per year based on two-shift operation.

In Amanda Tellford’s eyes, Brisson’s action affected her own purchases of MS-7, which up to this point had been at an advantageous transfer price from the UK parent. Although the exact impact was still not entirely clear, she expected at least a 40 percent increase in her laid-down cost. Amanda had no doubt that Brisson would aggressively seek customs protection from undervalued MS-7 imports and that at least a 20 percent duty would be applied on the American selling price.

Amanda Tellford, therefore, requested information from the parent company concerning manufacturing costs of MS-7. She added several other data from her own knowledge and prepared the following summary: joh24099_ch11_298-322.indd 321joh24099_ch11_298-322.indd 321 27/08/14 10:53 AM27/08/14 10:53 AM 07/04/2020 - RS0000000000000000000003330688 (Caleb Smith) - Purchasing and Supply Management joh24099_ch11_298-322.indd 322joh24099_ch11_298-322.indd 322 27/08/14 10:53 AM27/08/14 10:53 AM 07/04/2020 - RS0000000000000000000003330688 (Caleb Smith) - Purchasing and Supply Management