A local manufacturer of irrigation pumps is negotiating with a supplier for a newly tooled aluminium casting. The supplier says the quoted price cannot be reduced due to a significant tooling investment. The buyer has a credible annual volume forecast and estimated variable cost per unit. What analysis would best help the buyer test whether the proposed price gives the supplier a reasonable return at the expected volume?

Question

Answer

Estimate the supplier’s break-even volume and expected profit using fixed cost, variable cost, price, and demand.

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Compare the supplier’s price movement with a broad inflation index for industrial manufacturing inputs.

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Ask the supplier to reduce the quoted price by the same percentage as the buyer’s annual savings target.

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Select the supplier with the lowest total delivery charge because transport cost is the easiest cost to verify.

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A local manufacturer of irrigation pumps is negotiating with a supplier for a ne...

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