Rick Dietrich, Sales Manager for Electro-Ca, was developing a strategy for a negotiation session to be held with David H, a buyer at Edge Corporation. Mr. Holley requested the meeting to discuss the quotation submitted by Electro-Ca for Widget Z, a newly designed component. Rick's company submitted the quotation for Widget Z in response to a request for quotation of 200,000 units plus a possible follow-on order of up to 200,000 units. Working with the Engineering and Manufacturing staffs, Rick developed an estimate of manufacturing and tooling costs. The process required to produce the component was unique and somewhat complex. Therefore, quality control requirements for the part were quite involved. Furthermore, if material or equipment problems occurred, an additional $0.60 to $0.70 per unit would be required to produce the part at a level that satisfied the buyer's requirements. Additional tooling might also be required beyond the quoted tooling charge of $40,000. However, Rick wanted to keep tooling charges to a minimum. The Edge business would be beneficial to Electro-Ca since they were operating at 75% capacity. Edge was also a long-time customer. The contract would amount to approximately $1,000,000 plus a possible addition of $1,000,000 if the additional 200,000 units were realized. Estimated direct costs to produce the component were $2.71 (raw material + direct engineering + direct labor) of the $4.68 total cost to produce. Rick wanted to establish a per unit selling price that would cover all direct costs and significantly contribute to fixed costs and profit. Furthermore, he needed to consider the quality cost contingencies. After some discussion by the management committee and a review of estimated costs for the part, a quotation was agreed upon. The quality cost contingencies were included and the possible tooling cost increases ignored ($4.68 + $ 0.70). A profit percentage of 10% was added ($0.54). Rick and his controller decided to quote $5.90 per unit plus $40,000 for tooling. Rick felt this bid to be competitive with other firms. The manufacturing manager informed Rick he would make additional effort to develop statistical process control methods to highlight quality problems. Rick realized that the use of statistical methods could help reduce direct costs over time if Electro-Ca was successful in identifying and eliminating the sources of variability within the process. In addition, there were learning curve considerations for Widget Z. However, Rick did not include any estimation of learning effects in the bid. Typically, items such as Widget Z have a 90% learning curve. Rick's task was to develop his negotiation strategy and plan. He knew the contract was important to Electro-Ca, but they could not sustain a loss. He also knew that Edge did not possess the manufacturing capabilities for the part. The company had no option but to subcontract the component. Rick also knew that other suppliers were anxious for this business.

Questions:

Provide a detailed analysis of the negotiation. b. Evaluate the strengths and weaknesses of the strategies and tactics used by the negotiating parties. c. Apply theories from the text and/or readings. d. Support conclusions and/or assumptions with specific references to the course readings/theories or outside research. (4) Alternative Approaches or Solutions a. Provide potential alternative approaches/solutions if this negotiation were to be repeated. b. Identify and explain why you would make those alterations. c. Support recommended solution with specific references course readings/theories or outside research.