SIRUS GRAPHICS / AMR Components

Confidential Role Information for SIRUS Graphics (Buyer)

You are the Director of Component Sourcing for Sirus Graphics, a California-based developer and manufacturer of computer hardware components that add or extend the ability of Apple/Mac computers to handle sophisticated graphics. SirusGraphics is a relative newcomer to this market, and has been growing at a rapid pace because of the sudden popularity of its products. About one year ago, Sirus launched its latest low-end graphics accelerator-the DDR-7-and began producing and shipping them to Apple (for installation in Macs sold to buyers who want the Mac to come with an accelerator card) and to retail computer chains (for direct sale to consumers as a plug-in Mac accessory).

Graphics accelerators are video adapter cards that one can plug into a Mac (in an available expansion slot on a Mac's motherboard) designed to boost the computers performance on multimedia tasks such as games or scientific applications that are graphic intensive. These accelerator cards typically include their own memory and their own specialized processor to handle the intensive mathematical operations involved in graphics applications. An accelerator card enhances Mac performance by freeing up a computer's main processor and memory for other operations, while the graphics card handles the computational load associated with graphics. The demand for graphics accelerator cards by the general consumer market has grown significantly in the last few years as home and small business Mac users have increasingly sought more and better processing power to handle the snazzy graphics that software developers have been adding to productivity applications as well as games.

The problem you face now, and the reason for this upcoming negotiation, is that your supply of processors being installed in newly manufactured DDR-7 accelerators has temporarily dried up. When you began production, you contracted with a Colorado firm called Speed Mac to purchase suitable processors. This arrangement worked well until a couple of months ago when SpeedMac notified you that they are exercising an option in the contract to suspend delivery of the processors for one year because of problems with their production facility. This leaves you searching for a new, interim supplier of processors for the DDR-7.

As luck would have it, one of your Sirus colleagues attending a trade show a couple of weeks ago ran into an executive with a Massachusetts-based electronic components maker called AMR Components AMR recently began producing a new processor for graphics accelerators-a model known as the 16- that would work as a substitute for the SpeedMac component you had been using. Even better, your colleague told you that the AMR Components representative indicated that they currently have some idle capacity producing J6, and could be in a position to start delivering processors to a new buyer immediately.

A few days later, you were contacted directly by AMR Component's Vice President of Sales, who confirmed that they are in a position to supply a large number of 16 processors on short notice if apurchase deal can be reached quickly. The two of you agreed to schedule a meeting to negotiate the

possible purchase of 16 processors from AMR

Your goal in the upcoming negotiation is to pay the lowest possible price per unit for the 16 processors that you buy from AMR Components. The SpeedMac processor that you have been using (and which is technically comparable to the 16) has been supplied for 521 per unit. Perhaps you. can do better (lower) than that in the purchase of 16's considering that the 16 is a new and therefore less "market tested" component. On the other hand, the Speed Mac price was negotiated in the context of a longer-term relationship between the two firms, which is not the case here with AMR.

In any case, your firm needs this interim supply of processors very badly in order to avoid interrupting the production of DDR-7 accelerators. Also, there are no processor makers other than AMR Components that appear ready to offer a supply of this magnitude on such short notice. As a result, AMR looks like your best option, even though you may have to pay more for this interim supply than for the processors you had been buying. According to the numbers worked up by your marketing analysts, projected profits on the DDR-7 will not be seriously affected as long as you can keep the purchase price for the 16 under about $30 per unit. In fact, because of the damage to Sirus's reputation that could occur if production of your accelerators is interrupted, your boss thinks you really ought to consider any deal that gets you the 36's for less than $35 per unit. She has made it clear, however, that this is a worst-case outcome, and that you will be judged by how much better than this you can do.

Another issue is the volume of a contract: The number of processors you would like to have runs as high as 18,000, but you will take what you can get as long as it's at least 10,000. Your existing contract with SpeedMac will be restored and fully supplying Sinus in about nine months, and even optimistic demand forecasts for your accelerator do not indicate a need to expand production beyond what has already been planned for in the foreseeable future. Thus, the negotiation you are about to conduct is really a one-shot opportunity to do business with AMR.

As you wait for the meeting with AMR's representative, you are thinking through the approach you will take.

Question are

1 ISSUES: Be specific about what is at stake; What are the issues to be negotiated? - (In order of priority in the bargaining mix - from most to least) What are your primary underlying interests?

2 Your proposed STRATEGIES and any bargaining tactics you intend to employ;

What is your overall negotiation strategy? (be very specific and explain briefly) What tactics do you intend to employ to support your strategy and present my arguments (or defend against the other negotiator's arguments)? What is your back up plan if your initial strategy does not work? (briefly explain) And what tactics will you implement to support your backup strategy?