Comprehensive Analysis of the Negotiations between Jane Axle and Tom Reed

Given the nature of today’s cash-strapped economy, all companies should consider coming up with a proper framework which can economically guide their purchasing decisions. Most of the time these capital buyers are usually strained either by tight timelines or by the difficulty in understanding the complicated specification of the asset they want to acquire. As such, proper purchasing guidelines are usually essential in not only trimming down the supplier list but also, in evaluating what exactly is being bought (Wilson, 2011). These guidelines or procedure enable organizations to negotiate properly on the price of the equipment understand the contractual protection provided by the supplier and help to avoid easily unnecessary costs which can be avoided. A real capital equipment acquisition process is very crucial in these cases, and it usually presents an organization with an excellent opportunity for value improvement. It helps the buyer get low total lifecycle costs thanks to the procedure. 

According to Crowder and Hill (2008), a six-step approach to the capital acquisition was formulated during the 93 rd Annual International Supply Management Conference held in May 2008. During the conference, it was discussed that a good capital acquisition procedure should entail the following steps. 1) Establishment of a cross-functional team with an approved project contract. 2) Definition of project’s expectations, the specification of the equipment and the procurement strategy. 3) Development of the criteria to evaluate supplier qualification. 4) Creation and distribution of ‘request for’ (RFx) documents and also coming up with ways of screening suppliers by going through their advertisements and technical reviews. 5) Creation of a bargaining plan checklist. 6) Supplier selection and development of project review process. 

During the first stage, a cross-functional team is formed, and a project charter was written. The charter spells out different aspects of the project or process such as its objectives, the timelines agreed upon, and composition of the team members. The second step provides the essential requirements of the project and spells out the agreed strategy to procure the equipment. Here key performance goal of the material is defined while considering the constraints which they are expected to operate in. The equipment market is also analyzed during this stage to come up with a good procurement strategy. The third step involves putting down of requirements and attributes of the equipment needed in the ‘request for’ documents accompanied by negotiation planning documents. These RFx documents help the buyer to know and be able to gauge supplier’s capabilities. Also in the documents, the buyer usually expresses their desired terms hence reducing future negotiation effort. The fourth step involves the distribution of the RFx documents and filtering of suppliers basing on their responses to the RFx documents. The fifth stage pertains to the refining of the negotiation strategy and finalizing of bargaining plan checklist. From the suppliers’ reply of the RFx documents, a buyer can establish the providers’ weaknesses and strengths and come up with an effective negotiation plan. The sixth step involves selection of the supplier and finalization of the deal. It should be followed by the development of an evaluation procedure of the equipment to monitor how the equipment fairs (Crowder & Hill, 2008). 

Comprehensive Analysis of the Negotiations between Jane Axle and Tom Reed 

From the case, the cost of operation, AMD Construction Company has an operating cost of $ 676,000 using their labor intensive boring machines. These machines require 2 three man crew bringing the total number of their laborers to 6. Given a chance to use the CAT-1 machine offered by Allen Manufacturing Company, AMD will see its operation cost lowered to $371000. Their workforce will also be reduced to two workers. Apart from higher productivity and labor saving brought by CAT-1 machine, another advantage with taking up CAT-1 machine is that the machine can operate for 2000 hours at 80% capacity without maintenance. The biggest challenge for AMD when it comes to CAT-1 is an initial outlay of $ 895233. To counter this fear, Allen Manufacturing Company has a three-year open-ended lease option of $25000 per month with Zero down payment and free maintenance and a salvage value of $100000. 

Assessment of the Negotiations Process 

Given the negotiation, AMD is better off buying the CAT-1 machine since it has higher productivity and savings regarding labor use and maintenance cost. However with the high initial outlay required in the unpredictable highway contract business, it will take too long to plough back money and get back to profitability. As such, AMD should take the lease option which will see them spend approximately $567889 which is within their budget and will also cater for the 10% DEB goal. 

References 

Crowder, M & Hill, M (2008). Six-Step Approach to Capital Purchases. Retrieved from https://www.instituteforsupplymanagement.org/files/Pubs/Proceedings/CJCrowderHill.pdf 

Wilson, E (2001). Creating a Smooth Process for Capital Equipment Acquisitions . Retrieved from http://www.24x7mag.com/2011/07/creating-a-smooth-process-for-capital-equipment-acquisitions/