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Case Analysis

Boise Automation Canada Ltd.:

The lost order at Northern Paper

Roman Vassilenko

Somerville

Core Issue/Problem & Sub-Issues.

The main problem Rob Allison, Senior Account Manager, and Boise Automation Ltd. company faced in the case is that Northern Paper Inc., pulp and paper mill in Rocky Falls, Ontario rejected the $1.2 million deal they worked on during seven months (from February 7th to September 9th, 2011).

Question: How Dieter Haase, the Eastern Canada regional sales manager, can improve management of sales team and improve the effectiveness of account managers in order to win other opportunities that existed in Boise’s sales funnel?

Sub-issues, which was a reason for Northern Paper Inc. to reject the contract with Boise Automation Ltd. are:

• Limited budget;

• Competitors, who offer prices lower than Boise;

• Boise focused on the superior technology, when Northern’s priority is to satisfy basic needs, such as:

o Easy to operate;

o Meet specifications;

o Reasonably priced.

Background.

Boise Automation Canada.

Boise is the Canadian arm of Boise Corporation Inc., a multinational manufacturer of electrical and electronic equipment, including automation equipment, which conducted business in a wide variety of industries around the world. In Canada, Boise specialized in turnkey automation solutions that included custom design of the automation system, supply of all equipment and components in the system and complete turnkey installation and start-up services to make the system fully functional for the customer.

Northern Paper Inc.

Northern is an integrated paper mill located in Rocky Falls, Ontario, approximately a three-hour drive from Sudbury. For more than four decades, Northern had been manufacturing paper at the mill beside the falls for which the town had been named.

Rob Allison, Senior Account Manager at Boise Automation Canada Ltd. with a 20 years experience selling automation systems in heavy duty lost a $1.2 million contract to design, supply and install an automated control system for Northern’s wood chip handling system. From the other side, if Rob Allison had won the order, it would have easily put him over his target quota for 2011 and would have significantly boosted his incentive payout.

Causes and implications.

Northern Paper Inc., planned to update automated control systems and developed strict specifications, which every manufacturer, solution provider, independent system integrator or hardware supplier have to meet. Moreover, Jason Li, engineering manager at Northern allocated a limited budget based on what company needs for this order and stated that the latest technology on the market is not the first priority for this deal.

Boise made a strong solution on the technical part, met all specifications, but designed a technically complicated product with a lot of modern parts and solutions such as:

• High-resolution graphics – graphical view of:

o Fluid level

o Temperature

o Flow chart;

• High-resolution monitors;

• Unique on-screen program adjustment;

• Latest technology sensors:

o Improved accuracy;

o Optimal control;

o Embedded high-speed communication technology;

o Speed controllers.

Northern Paper’s engineers didn’t expect so many innovations. By this, the price for the designed solution increased on 30% from the expected one and Northern’s representatives were not satisfied. The increase in price was caused by new technologies implemented by Boise company when Northern’s representatives told they have other strong bidders with affordable price, Rob suggested to reduce it from $1.35 million to $1.2 million, but this also didn’t satisfy Dan Reynolds.

Analysis, Options & Risks.

Analysis.

Northern Paper was interested in updating their current control systems because modern systems allow saving more money on the processes of paper production. Company engineers and executives were looking for a bidder, who will meet their requirements on the specifications, price, and usability of the automation control systems.

Boise exceeded specifications and used new superior features, which was not required and caused an increase in price over the budget limit of the Northern Paper. At the same time, all competitors were strictly focused on requirement and specifications and met Northern Paper budget.

As can be seen from the case, Boise tried to kill two birds with one stone from this deal, such as:

1. Sell their products and services to get revenue.

2. Use Northern Paper as a showcase of their modern products and solutions to potential customers.

However, this didn’t work, because automation control system and paper making are very accurate industries and customers expect full compliance, such as:

• Experience and knowledge of client systems;

• Targeting on specific industries;

• In-depth design knowledge;

• Client process expertise.

Options.

From the very beginning to the end of the deal there were four options, which could change situation and make a positive impact for Boise:

1. Don’t start negotiation process with Northern Paper, if the company could not meet specifications without adding new superior technologies;

2. Meet all requirements without adding new features and meet budget limit by this;

3. Convince the finance and engineering department this is a good long-term investment;

4. Reduce price to break even point, when Jason Li from Northern Paper stated that Boise was 30% higher than the price offered by the bidder with the lowest price.

Risks.

1. Don’t start the negotiation process with Northern Paper, if the company could not meet specifications without adding new superior technologies.

The Boise company and its sales team should understand the thing, that customers from the industry they are targeting do not expect surprises, even when they are positive because it ruins plans they are already developed.

In this case, there were an opportunity to reject Northern Paper mill as a potential customer and focused on others. Doing this way, the company might lose a big customer and a great opportunity to demonstrate the new technologies to others. Otherwise, by rejecting Northern Paper, they could serve a smaller paper mill and earn less in revenues.

This type of option means renouncement of the big customer, but guarantees a smaller amount of revenue.

2. Meet all requirements without adding new features in order meet the limit of the budget;

In order to meet the budget limit and succeed as a suitable supplier with a reasonable price, Boise could do exactly the same as Northern Paper engineers described in specifications.

The main risk of this option is to make the same offer as competitors did. By this, the customer will choose one with the lowest price even the difference will be insignificant

3. Convince the finance and engineering department this is a good long-term investment;

From the negotiations excerpts of Rob Ellison one can see there were an opportunity to convince North Point mill representatives in long-term benefits of modern automation control system installation.

However, according to the same excerpts, we can say that this is the least likely option because the main reason of North Point rejection is a high price for products and services.

4. Reduce price to break even point, when Jason Li from Northern Paper stated that Boise was 30% higher than the price offered by the bidder with the lowest price.

The first bid Boise offered were $1.4 million, which is 30% higher than the competitor with the lowest price. By this, we can assume that the lowest price was $980,000. In addition to the initial price, they added a premium for the superior technology, which is worth from 20% to 25%. Removing this additional percentage from the final price would bring Boise to the $1,120,000, which is much more competitive.

Best option.

Companies operating in such accurate industries should follow all requirements of the customer to close the deal. Boise met and even exceeded most of them except price.

Answering the question: “How Dieter Haase, the Eastern Canada regional sales manager, can improve management of sales team and improve the effectiveness of account managers in order to win other opportunities that existed in Boise’s sales funnel?”, I would recommend using the second option, which is “Meet all requirements without adding new features in order meet the limit of the budget”.

In addition, to stand out from other competitors Boise could use some small modern features, which doesn’t significantly increase the final price. It will interest engineers and give a credit among other suppliers on the market.

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