Case Name: the Muenster Pump Company

Case Name: The Muenster Pump Company

I. Major Facts

A.) The Muenster Pump Company has manufactured high quality agricultural pumps for over 40 years.

B.) The firm’s only plant is in the small Midwestern City of Muenster.

C.) Bob Dorf, president of the firm, is the grandson of Emil Dorf, the founder.

D.) Bob, his family, along with all key personnel, live in or near Muenster. There is a positive relationship between the firm and city officials.

E.) The firm has always taken pride in being as self sufficient as possible. Shortly after the firm was established, its proprietor developed a foundry to cast pump housings and related items. Today the foundry produces virtually all of the firm's required pump housings.

F.) Bob's cousin, Terri, is the purchasing manager. In order to hire Terri, Bob consolidated the buying functions previously performed by himself and other members of the firm. Since Terri came on board two years ago material costs have dropped from 60% of the cost of sales to 50%.

G.) Recently a representative of the union of foundry contacted Terri. The Rep stated that he was aware of Muenster’s pump housing production capabilities, but claimed that new developments in case pouring allowed his firm to offer extremely attractive prices.

H.) Terry requested a price on Muenster’s most popular L-1012 case housing. The L-1012 represents 60% of the firm's demand for case housings and the pump that incorporated this product is sold to distributors for $500. A week later, a letter arrived from union foundry, quoting a price of $90.00 F.O.B Muenster. Delivery was promised within 120 days after receipt of the first order. Thereafter, delivery would be made within 60 days of receipt of the order. Minimum orders were established as 100 units. Terry obtained price quotes from two other foundries. The prices were $94.00 and $98.00 F.O.B Muenster.

I.) Terri met with her uncle Ned, to discuss how much it costs Muenster to produce the casting housings...