Part A Buyer: Integrated Medical Supply For part of its MRI and X-ray machine line, Integrated Medical Supply (IMS) needs to purchase "Part A." Because Part A shares many of the characteristics of a commodity, IMS can buy Part A from an outside supplier for a much lower price than it could produce Part A internally. After undertaking a preliminary supplier screening and evaluation process, the IMS's commodity team has decided to negotiate a purchase contract with High-Tech Imaging (HTI). As the negotiating team for IMS, you have assembled the following information to help you conduct a successful negotiation.

You have chosen HTI because of its convenient location.

You know that putting sourcing contracts out to bid on an annual basis is absolutely vital to keeping costs down and helping IMS remain competitive in a tough competitive environment.

You need 100,000 units of Part A to support this year's production. You expect to need a similar quantity each year for the next several years.

Your reverse-engineered "should-be" cost estimates indicate that HTI's costs for Part A are $100/unit.

Based on a target-cost analysis, the most you could conceivably spend on Part A is $180/unit.

There are at least 30 other potential suppliers who can meet your quantity and quality requirements.

Your market is fiercely competitive, requiring you to obtain the lowest possible price on sourced inputs.

Answer the following questions as a buyer:

1. What is your minimum acceptable position (BATNA)?

2. What is your maximum or ideal outcome?

3. What is your most likely outcome?

Part A Supplier: High-Tech Imaging (HTI) HTI is a high-quality, low-cost producer of fine mechanical parts. One of HTI's products is Part A, a component used in the assembly of MRI and X-ray machines. While your design for Part A is unique, buyers treat Part A as a commodity for all practical purposes. As HTI representatives, you are about to enter into a negotiation with Integrated Medical Supply (IMS), a leading manufacturer of medical devices. You have assembled the following information to help you conduct a successful negotiation.

Your production capacity for Part A is about 500,000 units per year. However, you are currently only operating at 65-70% capacity. You would really like to operate at about 90% capacity.

Your costs per unit of Part A are $120.00. IMS has a reputation for reverse engineering mechanical parts to estimate production costs. You are confident that IMS' process engineers have a pretty good idea regarding what it costs you to make Part A.

You target a 50% gross margin for your fine mechanical parts whenever possible. The cash flow is needed to invest in new product development. However, to keep your production lines running, you have sold a product before at a lower price. Thus, you would like to sell Part A for $180 but would be willing to sell the product at a lower price.

There are at least 30 other potential suppliers who sell Part A.

Your boss expects you to win this contract to help cover overhead and improve operating efficiencies.

Answer the following questions as a supplier:

1. What is your minimum acceptable position (BATNA)?

2. What is your maximum or ideal outcome?

3. What is your most likely outcome?

4. Propose a ZOPA based on what you have outlined above.