Negotiation, The Financial Position Of The Company

Due to competitive pressures, firms in the computer industry arc constantly looking to reduce costs. Computer manufacturers compete fiercely for contracts based on meeting the technology, quality, and price requirements of customers. Profit margins and retum-on-investment targets arc almost always under pressure. Dell Computer recently saw its operating margins slip to a slim 7%.Most computer manufacturers have programs designed to improve quality and reduce the costs associated with their products. One strategy that many producers use is to contract only with high-quality suppliers and develop longer-term buycr-seller relationships. One major computer company, Porta also initiated a program requesting suppliers to continually improve productivity, which should lead to cost reductions.The objective of the program was to reduce purchase costs over the foreseeable future. Porto also expects its suppliers to contribute cost-saving ideas whenever possible.The high-technology industry features high fixed costs due to large investments in plant and equipment. These companies also commit large expenditures to research and developmentPorto currently has a requirement for an electronic component termed “New Prod,” which is part of a recently designed product. The estimated volume requirement of New Prod is 200,000 units with additional follow-on orders likely. For the New Prod component, Porto felt there were five to eight highly competitive suppliers capable of producing the item. These suppliers arc located primarily along the Hast and West Coasts of the United States. After a request for quote and preliminary analysis, the buyer for Porto decided to pursue further discussions with Tcchnotronics.