Reflection on Negotiation - No Agreement

Reflection on negotiation:

No Agreement.  

The negotiation started as expected in which the two major components of negotiation are special tooling and struts manufacturing. I proposed to start with special tooling and to discuss the price of $310,000. The buyer asked for a breakdown of this price in terms of number of hours needed and material cost. I told the buyer that the price is based on approximately 3500 of working hours at rate of $45/hour, and the material cost is $140,000 plus the 10% handling cost. The material cost is non-negotiable and the buyer has the option to get the material from another supplier if desired.

         The buyer seems to be pleased with our offer and wanted to pursue that with the material costs but he doubted the number of hours needed to finish special tooling. I told the buyer that number of hours are based on sophisticated engineering calculations and it should be really close to the 3500 hours. It sounds like he needed to decrease either the number of hours needed to finish the special tooling or decrease the hourly rate. The buyer proposed a price of $250,000 for the special tooling which I didn’t accept and I explained that it will give us only 2200 of working hours based on the $45/hr, and that is not possible.  

As a seller, and based on my previous calculations, I know that my objective is to sell the special tooling for a price close to $310,000 or sell both special tooling and struts manufacturing for at least $668,800. So I decided to negotiate the struts manufacturing cost before offering any price for special tooling. The buyer agreed to negotiate the struts manufacturing cost before making an agreement on special tooling.

The buyer talked about the other bidders in the market that offer better prices for struts manufacturing. He mentioned couple of companies that offer to manufacture the struts in less number of hours. He said that our 100 hours per strut is a way more than their minimum bidder that can do 65 hours per strut, but he believed that our company is more reliable and can finish the work in a timely manner.  

My job was to convince the buyer that our work is different than other companies and we willing to take the job immediately if offered. I know from my previous preparation that the minimum I can accept for struts manufacturing is $358800 and that was based on 100hours/strut and 4% profit rates. I also know that I can’t accept 65hours/strut because that will give us only $251160 even at the 12% profit rates.

I explained to the buyer that our labor is cheaper than other companies at rate of $12/hr and we willing to do the work at 95hours/strut. The buyer seems not convinced by my proposed price and he wanted to go back to negotiate the special tooling again. After testing the water of both components I decided to make an agreement with the buyer for special tooling at $280,000. I thought this would give me room to negotiate the struts manufacturing cost at a better price for both sides. It turns around that the buyer wasn’t going to accept any price more than $250,000 which was not possible option for me. So we ended up not making any agreement.