Negotiation Plan
DeWitt Industries

SCM 852 Procurement and Sourcing Strategy

Team Members
Pichanuch Sribenjachote Ming-Hui Huang Gaurav Arora Amit Ranjan Jasdeep Grewal Rituraj Singh

Negotiation Plan
Gizbot has stringent quality guidelines with complex manufacturing process needed, it is clear that, for this negotiation, factors other than price should be given the attention. The objective of the negotiation then can be classified to:  Vital requirement o Competitive price o Quality  Desirable o More frequent shipments to keep holding costs lower. Specifically, we would like to have the total cost of obtaining Gizmot that would allow us to meet the target cost set by Product Development team. In addition, beyond the nature of Gizbot, the additional reason that the quality needs to be emphasized is a company‚Äôs lean initiative commitment in eliminating inspection and going toward defect-free shipments. Should-cost model with the tooling and engineering cost incorporated shows that the sourcing component should be at $7.77 given the margin of 10%. However, if the supplier is able to commit to defect free shipments, then the saving from an absence of inspection which is 10-12 cents per unit should be factored in. In case we give our supplier the complete benefit of better quality resulting in lean practice (without inspection) then $7.88 is still reasonable price. If we were to split the saving, then $7.83 would be another price to be considered. Minimum price, based on the should-cost model, should be discounted after few months to get benefit of increase in learning curve. With an assumption of 90% learning rate (standard in electronics industry) at 200,000 units, the labor cost should be lower than $1.79. This could possibly drive down the cost to as low as $5.73 per unit. Focusing on the total cost target of $8.75 and leaving out commitment to defect-free products, the maximum acceptable would be at $8.57, taken into account the shipping cost of $0.6/unit and inventory carrying cost at $0.12/unit. However, if the saving gained from quality is noted, the maximum acceptable price would be $8.68 in order to maintain the total cost $8.75. If we agree to split the saving from defect free, we should pay $8.63. From these calculations and analysis, the ranges are as follows: With no commitment to defect-free shipments:

Negotiation 7.1 of 10 on the basis of 2587 Review.