1. What are the advantages and disadvantages to IBM and SMT from this approach? IBM asked SMT and one other, much larger company to bid on 80 more units of a particular computer product. The request for quote (RFQ) asked that the overall bid be broken down to show the hourly rate, the parts and materials component in the price, and any charges for subcontracted services. SMT quoted $1.62 million and supplied the cost breakdown as requested. The second company submitted only one total figure, $5 million, with no cost breakdown. The decision was made to negotiate with SMT.

The IBM negotiating team included two purchasing managers and two cost engineers. One cost engineer had developed manufacturing cost estimates for every component, working from engineering drawings and cost-data books that he had built up from previous experience and that contained time factors, both setup and run times, for a large variety of operations. He estimated material costs by working both from data supplied by the IBM corporate purchasing staff and from purchasing journals.