Buyer’s Information – Porto Gerald Stecklen, a buyer for Porto, is responsible for developing a negotiating plan and strategy for the purchase of a component (called New Prod) for a newly designed product. After evaluating the quotations submitted by potential suppliers, he has decided to pursue purchase negotiations with Technutronics, a company that they have purchased from before and had a solid reputation. New Prod was designed and developed by Porto engineers for a product currently under development. Prototypes of the component were produced by a small specialized firm without production volume capacity. Gerald knew the high tech industry had between five and eight potentially qualified suppliers who were familiar with the complex manufacturing process required to produce New Prod. Supplier capacity was available since the industry was just recovering from a period of underutilization. Seven suppliers received a request for quotation. The RFP included a 12 month delivery schedule for 200,000 units plus a possible follow-on order for up to 200,000 units. The quotes also included payment terms and shipping terms (Exhibit 1B) Five of the seven suppliers receiving RFP’s responded. (Exhibit 2B). Technutronics had the lowest quoted price at $5.90 per unit. Tyler Manufacturing was very close except for a high unit cost of transportation. Both companies were acceptable suppliers and Gerald decided to pursue negotiations with Technutronics. He is well aware that the lowest quoted price does not always mean the lowest total cost. For that reason, Gerald knows that issues besides price will have to be discussed with Technutronics. The requests for quotation were intended to reduce the list of suppliers before commencing negotiations. Gerald requested a cost estimate for New Prod from his staff analyst to help him formulate his negotiating plan. The analysis (Exhibit 3B) provides a “should” cost of $4.10 per unit excluding tooling and transportation. This cost included learning curve effects. He believed that production times for this component should decrease as volumes increased due to learning. Based on discussions with internal engineers, Gerald estimated that production of this component should demonstrate an 85%-90% learning rate.* He was not sure, however, that this rate applied specifically to Porto since he has not visited the Technutronics facility. Quality control measures were a vital concern for Gerald. All products were subject to strict quality guidelines and New Prod was no exception. Technutronics, Tyler Manufacturing, and Space Metals each have a record of solid performance ratings for quality and delivery. With this information, Gerald now sat down and planned his negotiating strategy for the next meeting. * This means that as production volumes double from a previous level, direct labor requirements should decreases 10-15% on average. Exhibit 1B Expected New Prod Delivery Schedule Month Quantity December 20,000 January 20,000 February 25,000 March 15,000 April 15,000 May 15,000 June 10,000 July 10,000 August 15,000 September 20,000 October 20,000 November 15,000 Total 200,000 Payment terms: Net 25 Transportation Terms: Sellers Plant, Freight Collect Using Location: Detroit, Michigan Exhibit 2B Quotation Summary Estimated Transportation Supplier Unit Price Tooling Costs Cost Per Unit Bauer Manufacturing No quote ——— ——– Metal Modes $6.10 $30,000 $0.08 Tyler Manufacturing $5.95 $40,000 $0.16 Avicraft, Inc. No quote ——— ——– Technutronics $5.90 $40,000 $0.06 Aerobotics, Inc. $6.25 $45,000 $0.08 Space Metals $6.40 $50,000 $0.09 Questions to be answered based on information given above : 1. Prepare a SWOT for buyer and seller 2. List the goals you are trying to achieve? Break them down into needs and wants. 3. Prepare your Batna for buyer and seller 4. What concessions are you willing to make?