Pacific Oil Case Study

1277 words - 6 pages

Pacific Oil Company is a Sweetwater Oil company of Oklahoma City, Oklahoma. It was founded in 1902. One of the major chemical lines of Pacific's is the production of vinyl chloride monomer (VCM).
“VCM is subjected to the process of polymerization, in which smaller molecules of vinyl chloride are chemically bonded together to form larger molecular chains and networks.” Pacific Oil's first major contract with the Reliant Corporation was in 1979. The contract between Pacific Oil and Reliant was a standard one for the industry and due to expire in December of 1982. The contract was negotiated by the purchasing managers in Europe then it was reported to the vice presidents in the states.
In ...view middle of the document...

In December 1984 the yearly review showed that:
the basic supply-demand situation on VCM was changing
Relaint was aware of the situation, so as a result Fontaine and Gaudin wanted to anticipate the change in the supply-demand situation as an opportunity to pursue a more favorable price
re-signing all major customers because of the high demand
serious talk about Pacific entering the PVC business or not
As a result of the evaluation a new contract had been proposed in December 1984.
Two strategies:
“First, they would approach Reliant with the intent of reopening negotiation on the current VCM contract. They would propose to renegotiate the current agreement, with an interest toward extending the contract five years from the point of agreement on contract terms.”
“Second, they would contact those people at corporate headquarters in New York who were evaluating Pacific's alternatives for new product development, and inform them of the nature of the situation.”
Gaudin contacted Frederich Hauptman, the senior purchasing manager for Reliant Chemicals in Europe. As a result of the meeting, Hauptman cabled Gaudin that Relaint was willing to begin to renegotiate the current agreement.
March 10
Egon Zinnser, the regional vice president of Relaint's European operations, Hauptman, Gaudin, and Fontaine sat down to review the current VCM contract. They felt that Pacific's basic formula price on VCM is fair, but might not remain competitive in the long-term future. The net result of the meeting would be to reduce the effective price of VCM by approximately 2 cents per pound. This would be a net reduction $4 million per year. The proposal went back to Paris for further discussion. By of May 15, they had agreed on a revision of the formula price that would adjust the price downward by alsmot one cent per pound.
May 27
Hauptman contacted Gaudin to talk about the remaining issues in the contract. Gaudin hoped that Reliant would be willing to agree to extend the contract five years from the point of singing. Reliant had serious reservations about committing the company to a five-year contract extension. Reliant wanted to make a commitment for only a two-year contract renewal. After several phone discussions on
August , 17, Gaudin and Hauptman agreed to a three-year contract renewal. Remaining contract issues will be discussed in September.
September 10
Remaining important issues before signing the contract was the minimum quantity requirements should be raised to 10 percent each year. Hauptman's minimums were too low. No meetings were held until late October. In November the agreement consisted of 205 million pounds of minimum quantity purchases in the first year, 210 million in the second year, and 220 million in the third year.
October 24
Pacific had decided not to develop its own product lines for either PVC or fabricated...

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