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Negotiation Porto CaseBuyer’s Information PortoGerald Stecklen a buyer for Porto, is responsible for developing a negotiating plan and strategy for the purchase of a component called New Prod

Negotiation- Porto CaseBuyer’s Information – PortoGerald Stecklen, a buyer for Porto, is responsible for developing a negotiating plan and strategyfor the purchase of a component (called New Prod) for a newly designed product. Afterevaluating the quotations submitted by potential suppliers, he has decided to pursue purchasenegotiations with Technutronics.New Prod was designed and developed by Porto engineers for a product currently underdevelopment. Prototypes of the component were produced by a small specialized firm withoutproduction volume capacity. Gerald knew the high tech industry had between five and eightpotentially qualified suppliers who were familiar with the complex manufacturing processrequired to produce New Prod. Supplier capacity was available since the industry was justrecovering from a period of underutilization.Seven suppliers received a request for quotation. The RFQ included a 12 month deliveryschedule for 200,000 units plus a possible follow-on order for up to 200,000 units. The quotesalso included payment terms and shipping (F.O.B. point) information (Exhibit 1B)Five of the seven suppliers receiving RFQ’s responded. (Exhibit 2B). Technutronics had thelowest quoted price at $5.90 per unit. Tyler Manufacturing was very close except for a high unitcost of transportation. Both companies were acceptable suppliers and Gerald decided topursue negotiations with Technutronics. He is well aware that the lowest quoted price does notalways mean the lowest total cost. For that reason, Gerald knows that issues besides price willhave to be discussed with Technutronics. The requests for quotation were intended to reducethe list of suppliers before commencing negotiations.Gerald requested a cost estimate for New Prod from his staff analyst to help him formulate hisnegotiating plan. The analysis (Exhibit 3B) provides a “should” cost of $4.10 per unit excludingtooling and transportation. This cost included learning curve effects. He believed thatproduction times for this component should decrease as volumes increased due to learning.Based on discussions with internal engineers, Gerald estimated that production of thiscomponent should demonstrate a 85%-90% learning rate.* He was not sure, however, that thisrate 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 strictquality guidelines and New Prod was no exception. Technutronics, Tyler Manufacturing, andSpace 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.* This means that as production volumes double from a previous level, direct labor requirementsshould decreases 10-15% on average.1Exhibit 1BExpected New Prod Delivery ScheduleMonthQuantityDecemberJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovember20,00025,00015,00015,00015,00010,00010,00015,00020,00020,00015,00020,000Total200,000Payment terms: Net 25Transportation Terms: Sellers Plant, Freight CollectUsing Location: Detroit, MichiganExhibit 2BQuotation SummarySupplierUnit PriceTooling CostsBauer ManufacturingMetal ModesTyler ManufacturingAvicraft, Inc.TechnutronicsAerobotics, Inc.Space MetalsNo quote$6.10$5.95No quote$5.90$6.25$6.40——–$30,000$40,000——–$40,000$45,000$50,0002Estimated TransportationCost Per Unit——-$0.08$.016——-$0.06$0.08$0.09Exhibit 3BBuyer’s “Should” Cost Estimate(For 200,000 units)Total CostUnit CostMaterial:0.3525 lbs./unit x $5.648/lb.$398,215$1.991Direct Engineering Labor:1500 hours x $11.50/hr.$17,250$0.0863Engineering Overhead:$17,250 x 120%$20,700$.01035Direct Manufacturing Labor:3900 hours x $8.50/hr.$33,150$0.1658Manufacturing Overhead:$33,150 x 250%$82,875$0.4144SUB TOTAL$552,190General and Administrative Costs:$552,190 x 35%$193,265$0.9663SUB TOTAL$745,455Profit: $745,455 x 10%$74,545$0.3727TOTAL$820,000$4.10Estimated Tooling Charges:3$25,000In addition to specific requests by the instructor:1.Given the unit price, tooling costs, and estimated transportation chargespresented in Exhibit 2B, calculate the cost per unit for each supplier (using200,000 units). What are some possible reasons why two suppliers did notprovide quotations to Porto?2.Prepare to negotiate a contract with Technutronics. Identify the key issues andthe range of your position on those issues. Remember that price is not the onlyvariable subject to negotiation.3.What do you think will be the most important issue(s) to the seller?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 yournegotiating range on the price issue)

Jun 24 2020 View more View Less

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