Hello team , sourcing as a buyer in negotiation on this passage attached what are some suggestions Thank you Role for Richard Raymond Buyer, Apex Avia
Hello team ,
sourcing as a buyer in negotiation on this passage attached what are some suggestions
Role for Richard Raymond
Buyer, Apex Aviation Company
After receiving a properly prepared purchase requisition together with specifications for 100 landing gear outer cylinder struts, you developed a Request for Proposal (RFP) which was sent to eight machining firms. Only three of the firms responded to the RFP and only one was willing to meet the required delivery schedule. Calls to two non-responsive suppliers confirmed their inability to meet the required delivery schedule. Although Apex has the ability to do the work in house, a decision has been made to subcontract the work to an outside supplier for two reasons: 1) Apex is nearing capacity on other work; and 2) Apex’s hourly rates and overhead are approximately 50 percent higher than those of smaller suppliers. Therefore, the team involved with the make or buy analysis decided to outsource the current requirement for the outer cylinder struts.
Apex has had a continuing relationship with the only responsive supplier, Hawk Manufacturing Company of San Mateo, California. Last week you visited Hawk and performed a pre-award survey which convinced you that this supplier will be able to satisfy your requirements if awarded the contract. Because the machining industry is operating near capacity, you carefully reviewed Hawk’s schedule. You are satisfied that Hawk will be able to meet your schedule. However, taking on your order will bring Hawk to full or near-full capacity. A copy of Hawk’s proposal is attached.
You are scheduled to meet with Mr. Hawk, owner of Hawk Manufacturing Co., in your office on November 13. Information on the cost of manufacturing the struts in house last year is attached along with relevant learning curve data and extracts of rates from fairly recent machining jobs.
Hawk Manufacturing Co.
700 El Camino Road
San Mateo, California
October 5, 2015
Richard Raymond, Manager of Supply
Apex Aviation Company
2777 Imperial Highway
Hawthorne, California 92050
Dear Mr. Raymond:
Here is our response to your Request for Proposal No. 474-0102. We are confident that we can meet all the terms and conditions of your request for a total price of $1,696,053.
As we see the job, there are two components: 1) development of special tooling to be used in manufacturing the outer cylinder struts and 2) actual production of the struts.
Based on our past experience, we estimate that the special tooling will cost $576,528. If you would prefer, we will develop the special tooling using a time and material approach. The hourly labor rate for building the tooling, including overhead, general and administrative expenses, and profit will be $93.29 per hour. Material for the tooling will be at cost plus a ten percent handling charge. We estimate materials costs, including the handling charge, to be $250,000.
The actual machining of the struts should take 120 hours per strut. Our cost for this portion of the contract is as follows:
120 hours per strut x 100 struts = 12,000 hours
Direct labor cost @ $27.50 per hour: $ 330,000
Overhead @ 150% of direct labor: 495,000
Total cost to manufacture: $ 825,000
G & A @ 18% 148,500
Subtotal: $ 973,500
Profit @ 15%: 146,025
Total cost for struts: $1,119,525
Special Tooling 576,528
If awarded the contract, we will be able to begin work on the special tooling immediately and on the production of the outer cylinder struts in six months to meet your delivery date.
Apex Aviation Company
From: D. Jones, Director of Manufacturing
To: Richard Raymond, Supply Manager
Subj: Costs for Manufacturing Outer Cylinder Struts
During the past year, we manufactured 50 struts identical to the struts for which we are asking proposals from outside suppliers. The average strut required 65 hours to produce. We found that a 90 percent learning curve approximated the learning achieved in this process. Fully burdened direct labor is currently $100 per hour.
The special tooling that we used to produce the strut, which has since been converted to the manufacture of another job, required 3000 hours of a tool and die maker’s time. The hourly rate, including applicable overhead, is $85 per hour. Cost of materials for the special tooling was $200,000.
Information from Recent Machining Jobs
Supplier Jones Mfg. Co. Ryan & Sons
Location San Francisco, CA Springfield, OH
Date of Order June 2015 October 2014
Type of Order Outer Cylinders Outer Cylinders
Hourly Rate $32 $27
Overhead 160% 145%
G & A 18% 16%
Profit 10% 15%
Note on Reading the Learning Curve Cumulative Values Table
The table relates the number of production units to three different learning rates: 80%, 85%, and 90%. The values under each of the learning rates columns are cumulative, meaning that as the number of units increases the number of hours to produce those units will decline at a rate determined by the relevant learning rate. For example, assume that it takes one hour to produce a unit under the 90% column. The table indicates that the second unit will take less than an hour (actually 90 percent of the hour). So the cumulative number of hours to produce the two units is not 2 hours but 1.9 hours because of the learning factor.
Note: A 90 percent learning rate means that every time output doubles, the average number of hours to produce a unit declines by 10%.
Here are the guidelines for the negotiation module. The preparatory work will include reviewing the negotiation case (each team, buyer and supplier, will have different information. Both teams will have a copy of the supplier’s proposal to the buyer).
Each team will develop its position with which to begin the negotiation. That will mean the following:
*identify roles for each team member, e.g. engineering, production, purchasing, etc. for the buying team. The team member assuming the role of purchasing should be the lead negotiator. For the supplier, identify roles for each team member, e.g. sales, engineering, production, etc. The sales rep. should be the lead negotiator for the supplier team.
*identify key issues for negotiation and establish negotiation objectives for each. Include a minimum, maximum, and objective position for each issue. Also include other issues for the non-quantitative variety that the team members may judge to be important.
The key to effective negotiation is preparation. Negotiation does not mean price haggling. It means setting objectives based on sound analysis and then working with the other side to try to achieve those objectives. Preparation should include:
*Assessing the bargaining strengths of buyer and seller
*Setting objectives for each key issue to be negotiated
*Developing an agenda. Agendas should be developed starting with issues that the buyer and supplier teams believe will be easiest to resolve. In this case, the buying team will be responsible for preparing the agenda.
Some tactics to consider during the negotiation session:
*Use of “recesses.” If the team is looking like it is getting out of control or if the team needs to caucus to consider an issue or facts presented by the buyer or seller, the team should call for a recess. (In this mock session, that will mean one team will leave the table to caucus in another part of the room or an adjoining room).
*Use questions judiciously. Try to anticipate questions from the other side when preparing for the negotiation. Use questions in a non-confrontational manner if you need to get more information about an issue.
*Use concessions. Generally, if you give one, get one in return. There may also be “throw away” issues, i.e. those issues on which you are willing to concede without getting one of equal value in return. That approach can set the tone for cooperation and set the foundation for getting significant concessions later in the session.
*Stay positive: No personal attacks.
*Be considerate of the other side, e.g. the importance of both sides to come away from the negotiation with mutual advantage. (Note: This does not mean equal advantage. Mutual advantage is an outcome that provides something of value for both buyer and seller. Typically, the better prepared negotiator will come away with more.
*Avoid “hard bargaining,” i.e. take it or leave it positions. While that may be necessary under some circumstances, you are to assume in this case that you need to come to a mutually advantageous agreement to maintain good long-term buyer-supplier relationships.
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