Case Zumwald

CASE ZUMWALD

Zumwald AG is a decentralized company, organized into six operating divisions. Allthough the company is somewhat vertically integrated, outsourcing is allowed to division managers. There are three company´s divisions involved in the dispute; ISD, Heidelberg and ECD.

ISD has designed a new ultrasound imaging system, X73. ISD managers have asked for quotes for the materials needed (displays) to produce X73 components from Heidelberg and two outside companies. ISD received the following quotes:

* Heidelberg Division 140.000€

* Bogardus NV 120.500€

* Display Technologies Plc 100.500€

Half of Heidelberg´s sales are made to outside customers and ISD is one of their major inside customer. ECD was originally established as a captive supplier to Zumwalds divisions, but has found external markets for some of their products and therefore it has been given profit center responsibility. Bogardus NV has a reputation for producing high-quality products and it has been a long-time supplier to Zumwald. Display Technologies Plc has just recently entered the market and is pricing their products very aggressively in order to gain market share.

ISD has announced it will be buying the displays from Display Technologies Plc, and Heidelberg´s general manager is furious about their decision. Heidelberg has participated in the design of X73 with no mark-up over their costs, and Heidelberg´s argument is that they cannot match Display Technologies´ price because then they would have to shave their prices down to below costs. Heidelberg say they need to price their products so that they can earn a fair return on investment and that Zumwald will be better off if Heidelberg supplies the display components for ISD.

On the other side of the dispute ISD´s managing director tries to explain that they are trying to sell the new X73 in a highly competitive market, and therefore cannot...