Porto Case

Negotiation- Porto Case

Buyer’s Information - Porto

Gerald Stecklen, a buyer for Porto, is responsible for developing a negotiating plan and strategy

for the purchase of a component (called New Prod) for a newly designed product. After

evaluating the quotations submitted by potential suppliers, he has decided to pursue purchase

negotiations with Technutronics.

New Prod was designed and developed by Porto engineers for a product currently under

development. Prototypes of the component were produced by a small specialized firm without

production volume capacity. Gerald knew the high tech industry had between five and eight

potentially qualified suppliers who were familiar with the complex manufacturing process

required to produce New Prod. Supplier capacity was available since the industry was just

recovering from a period of underutilization.

Seven suppliers received a request for quotation. The RFQ included a 12 month delivery

schedule for 200,000 units plus a possible follow-on order for up to 200,000 units. The quotes

also included payment terms and shipping (F.O.B. point) information (Exhibit 1B)

Five of the seven suppliers receiving RFQ’s responded. (Exhibit 2B). Technutronics had the

lowest quoted price at $5.90 per unit. Tyler Manufacturing was very close except for a high unit

cost of transportation. Both companies were acceptable suppliers and Gerald decided to

pursue negotiations with Technutronics. He is well aware that the lowest quoted price does not

always mean the lowest total cost. For that reason, Gerald knows that issues besides price will

have to be discussed with Technutronics. The requests for quotation were intended to reduce

the list of suppliers before commencing negotiations.

Gerald requested a cost estimate for New Prod from his staff analyst to help him formulate his

negotiating plan. The analysis (Exhibit 3B) provides a “should” cost of $4.10 per unit excluding

tooling and transportation. This cost included...