Exercise: GTechnica—AccelMedia
ROLE INFORMATION FOR ACCELMEDIA (BUYER)
You are the Director of Component Sourcing for AccelMedia, a California-based developer and
manufacturer of computer hardware components that add or extend the ability of PCs to handle sophisticated
graphics. AccelMedia 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, AccelMedia launched its latest low-end graphics
accelerator – the AMPro 50 -- and began producing and shipping them to PC manufacturers (for installation in
PCs sold to buyers who want the PC to come with an accelerator card) and to retail computer chains (for direct
sale to consumers as a plug-in PC accessory).
Graphics accelerators are video adapter cards that one can plug into a PC (in an available expansion
slot on a PC’s motherboard) designed to boost a 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 PC 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 PC 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 AMPro 50 accelerators has temporarily dried up. When you
began production, you contracted with a Colorado firm called MaxProc to purchase suitable processors. This
arrangement worked well until a couple of months ago when MaxProc 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 AMPro 50.
As luck would have it, one of your AccelMedia colleagues attending a trade show a couple of weeks
ago ran into an executive with a Massachusetts-based electronic components maker called GTechnica.
GTechnica recently began producing a new processor for graphics accelerators -- a model known as the GT7 -
- that would work as a substitute for the MaxProc component you had been using. Even better, your colleague
told you that the GTechnica representative indicated that they currently have some idle capacity producing
GT7s, and could be in a position to start delivering processors to a new buyer immediately.
A few days later, you were contacted directly by GTechnica’s Vice President of Sales, who confirmed
that they are in a position to supply a large number of GT7 processors on short notice if a purchase deal can
be reached quickly. The two of you agreed to schedule a meeting to negotiate the possible purchase of GT7
processors from GTechnica.
Your goal in the upcoming negotiation is to pay the lowest possible price per unit for the GT7
processors that you buy from GTechnica. The MaxProc processor that you have been using (and which is
technically comparable to the GT7) has been supplied for $21 per unit. Perhaps you can do better (lower) than
that in the purchase of GT7s considering that the GT7 is a new and therefore less “market tested” component.
On the other hand, the MaxProc price was negotiated in the context of a longer-term relationship between the
two firms, which is not the case here with GTechnica.
In any case, your firm needs this interim supply of processors very badly in order to avoid interrupting
the production of AMPro 50 accelerators. Also, there are no processor makers other than GTechnica that
appear ready to offer a supply of this magnitude on such short notice. As a result, GTechnica 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 AMPro
50 will not be seriously affected as long as you can keep the purchase price for the GT7s under about $30 per
unit. In fact, because of the damage to AccelMedia’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 GT7s 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
MaxProc will bring a full resumption of supply 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 GTechnica.
As you wait for the meeting with GTechnica’s representative, you are thinking through the approach
you will take.
Before beginning this negotiation, write down answers to the following questions:
What is the unit price you would like to pay for the GT7s? 25
__________
What is the unit price you will initially present to GTechnica? 15
__________
What is the highest unit price you will pay for the GT7s? 30
__________
Exercise: GTechnica—AccelMedia
OUTCOME SHEET
Pair # _________
5
Check one: ____ We were unable to reach an agreement.
X
____ We reached an agreement, shown below.
______________________________________________________________________
Terms of Agreement
GTechnica agreed to sell GT7 processors to AccelMedia according to the following terms:
Number of Processors: 18,000
____________
25
Unit Price per Processor: ____________
Other Terms: ______________________________________
______________________________________
______________________________________
______________________________________________________________________
Please Provide This Information About the Negotiation
X GTechnica
Who made the first offer? ___ 32
unit price of first offer: ______
___ AccelMedia
15
Who made first counter offer? ___ GTechnica unit price of first counter offer: ______
X AccelMedia
___
signed,
Juan Francisco
___________________________ Juan Corral
____________________________
GTechnica Representative AccelMedia Representative
