Negotiation Case

Group 1: Prateek Mishra, Ismail Bouaida, Aditya Pavan Gudimetla, Ana Santos Alfageme

Buyer’s Information – Sysco

1. Given the unit price, tooling costs, and estimated transportation charges presented in Exhibit 2B, calculate the cost per unit for each supplier (using 200,000 units). What are some possible reasons why two suppliers did not provide quotations to Sysco?

200,000 unitsBaueur

Metal Modes Tyler ManuAvicraft

Technutronics Aerobotics, Inc Space MetalsMan , Inc.

Unit price $ 6,10 $ 5,95 $ 5,90 $ 6,25 $ 6,40

Tooling costs $ 30.000,00 $ 40.000,00 $ 40.000,00 $ 45.000,00 $ 50.000,00

Transportation$ 0,08 $ 0,16 $ 0,06 $ 0,08 $ 0,09

charges

Total cost$

$ 1.266.000,00 $ 1.262.000,00$

$ 1.232.000,00 $ 1.311.000,00 $ 1.348.000,00- -

Per Unit$

$ 6,33 $ 6,31$

$ 6,16 $ 6,56 $ 6,74- -

The possible reasons why two suppliers did not provide quotation:

They were not able to work and develop New Prod

The manufacturing of this new products is not enough profitable (needs to buy new machines and cannot afford it)

The operations schedule was to tight and workers busy and concentrated on other activities for other buyers

2. Prepare to negotiate a contract with Technutronics. Identify the key issues and the range of your position on those issues. Remember that price is not the only variable subject to negotiation.

Risk - Risk is an important factor to be considered in Supply Chain. Technutronics has to consider that when she is purchasing from an global supplier

Quality - This is also another important factor to consider when you decide a supplier.

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Supplier relationships - Supplier relationships are shifting from an adversarial approach to a more cooperative approach with selected suppliers. The activities that the modern purchasing organization must put in place are quite different from just a few years ago. It is very necessary to maintain supplier relationship so as to acquire good results and productivity.

Long term Benefits - Long term business and cost reduction program implementations should be considered while you select your supplier. The easy is the approach to the supplier, the more can the implementation of cost reduction programs.

Inco Terms and Payment Terms - Inco Terms are really important while considering a supplier as it reduces the risk involved with Delivered Duty Paid (DDP) and it increases with Free Carrier (FCA)

Lead Time - The longer the lead time the inaccurate the forecast would be. Our Supply Chain should be agile to the increasing change in demand. Hence, the companies have to consider Lead time while selecting a supplier.

3. What do you think will be the most important issue(s) to the seller?

A seller should get good deals while negotiating. A seller is willing to buy the best bid based on what profit he can get. Sellers most of the time always aim for a win/win outcome.

The listing agreement should expressly provide that the seller retains absolute control over the process of picking a prospective buyer, negotiating with that buyer and consummating or not consummating closing.

4. What do you believe is the lowest price that Technutronics is willing to accept? What is the highest price for New Prod you are willing to pay? (This defines your negotiating range on the price issue).

The lowest price that Technutronics will be willing to accept will be 4.50. The highest price for new prod which buyer is willing to pay is 5.50, so the negotiation range will be 4.50 to 5.50.

If Technutronics wants to keep a good business relationship with Sysco they would probably be willing to accept the price where they would break even plus a profit percent of 10 to 15%.

That would be approximately 153,846 units (break-even point) or $ 4.74 plus 10% profit on the first batch. The highest price I would pay, would be ($4.74x20%) $5.45 which is the breakeven point ($4.74) plus 20%.

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Break even formula:Total Revenue = Variable Cost + Fixed Cost $6.16 (x) = $5.90(x) + 40,000$0.26 (x) = $40,000

X = 153,846 units (Break-even point)

5. Conduct the negotiation with the seller. You may share as little or as much information with the seller during the negotiation as you desire. Be sure to record any agreement you reach in the form of a contract.

Negotiation can be based on the following factors:

Payment terms - We can pay the amount in prior to 25 days (i.e. 20 days) so as to increase the trust and continue the contract.

Contract volume – Promise to deliver the exact volume of products as was promised, in fact more number of products whenever they feel it is a necessity.

When the contract/work will start - Can start the contract well in advance so that they can finish the contract on time in order to avoid any unexpected distractions. For example, in case of any natural calamities or any other reasons the contract might take time to get completed. So in order to avoid that we can start the contract well in advance

Price for the contract Providing technical support whenever necessary. Packaging alternatives - Selecting different modes of packaging techniques

among the available.

We have decided to have a long term contract with the suppliers keeping in mind that they would satisfy our needs as per our requirements. As Sysco is a large firm, it helps them to improve their market value by satisfying the needs and finishing the contract on time.

The total highest cost is = 1,180,000 $ (for 5.90$/unit)

The total lowest cost= 820,000 $ (for 4.10$/unit)

The total purchase saving difference= 360,000 $

So, we are negotiating on the price per unit of the product i.e. $ 4.10 per unit.

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