Ron Lee, the Purchasing Manager for Rover Industries, is responsible for developing a negotiating

plan and strategy for the purchase of a newly designed component called the Z$7$ controller. The Z$7$

was designed by Rover to fit the company$$s new line of high$-$tech drones. These new drones were

expected to become the best on the market. AllTech Inc. was one of Rovers major suppliers of

controllers for other products and had developed a solid working relationship based on quality,

service, and dependability. Ron was tempted to just negotiate the new contract directly with Alltech

but thought it would be prudent to introduce other suppliers as a basis for comparison. Ron knew

the high$-$tech industry had between five and eight potentially qualified suppliers who were familiar

with the complex manufacturing process required to produce the Z$7.$ Supplier capacity was

available since the industry was just recovering from a period of underutilization. In his mind, this

meant that suppliers were $$hungry for business$.$ RFP$$s $($request for proposals$)$ were quickly issued

to a select group of suppliers.

The RFP included a $12-$month delivery schedule for $200,000$ units $($Exhibit $1$B$)$ with the potential for

a follow$-$up order for another $200,000$ units for the following year. The RFP asked for pricing,

payment terms, Incoterms, and any other information the suppliers found pertinent to the

proposal. Five of the seven suppliers receiving RFPs responded. $($Exhibit $2$B$).$ Ron was pleased with

the proposals and noticed that $2$ of the lowest bidding suppliers had a great reputation in the

industry and were very capable of meeting his needs. Ron is well aware that the lowest quoted price

does not always mean the lowest total cost and for that reason, issues besides price will have to be

discussed. He purposely excluded AllTech from the bid, as he wanted to get an industry

comparison before entering into negotiations with them.

Although Rover Ind. had the capability to make the Z$7$ component themselves, they did not have the

necessary capacity as they had to focus on making the new drones. To prepare for upcoming

negotiations he advised his operations staff to formulate a cost estimate if they were to make the

part in house.

The analysis $($Exhibit $3$B$)$ provides a $$should$$ cost of $$4\mathrm{.}11$ per unit excluding tooling and

transportation. This cost included a $10\%$ profit margin for the supplier. The $$should$$ cost also

included reductions in cost over time as volumes increased. Both productivity improvements in the

production process and the learning curve effect on direct labour would help lower unit costs. In

theory, the unit cost to produce the first $5000$ in December would be higher than it would be for the

last $15000$ in November. Ron and his analysts were unsure exactly what the saving would represent

per unit, but they knew it would be a point of consideration in the negotiation. Quality control

measures were a vital concern for Ron. All products were subject to strict quality guidelines in the

aerospace industry and the Z$7$ component was no exception. The chosen supplier would have to

demonstrate near perfect quality and delivery performance. Ron looked forward to the upcoming

negotiation with AllTech Inc.

Assignment Steps

$1.$ Review the case and exhibits to familiarize your group with AllTech$$s situation.

$2.$ Prepare to negotiate with Alltech. Consider the following.

a$)$ Identify the key points and issues you will need to discuss in the negotiation. $($Remember

that price is not the only variable subject to negotiation$).$

b$)$ Determine your BATNA as a buyer.

c$)$ Determine what you believe Alltech$$s BATNA to be$.$

d$)$ Determine the relative importance of costs other than the unit price.

e$)$ Determine what you think the ZOPA might be$.$

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

$3.$ Prepare a list of concessions you$$re willing to offer as the negotiation progresses.

$4.$ Prepare and rehearse tactics that might be effective during the negotiations

$5.$ Organize the group for the negotiation $$decide who will speak and when. Will you have one

designated speaker, a panel of speakers or will each member of the group participate, and take

turns speaking?

$6.$ Appoint an executive assistant to the negotiation who will record concessions and changes in

position as the negotiation progresse