AMD Construction and Negotiation Benton, W.C. Jr. (2014). Purchasing and supply chain management (3rd ed.). AMD Construction and Negotiation Read Case 3: A

AMD Construction and Negotiation Benton, W.C. Jr. (2014). Purchasing and supply chain management (3rd ed.). AMD Construction and Negotiation Read Case 3: AMD Construction in the text (pg. 448-450) and answer the following questions in a three- to -four page, APA formatted paper: a.Discuss the various steps in the capital equipment acquisition process. b.Develop a comprehensive analysis of the negotiations between Jane Axle and Tom Reed. (Provide a chart to show financial impacts.) c.What is your assessment of the negotiations process, given what you have studied? What are your recommendations for Mr. Reed? You must justify your conclusions. Suggestion of format for analysis: Current Machine CAT-1 machine-purchase CAT-1 machine – Lease Operating cost (without operators) Direct Labor Depreciation (straight line) 4 months Lease Expense 4 Months Interest expense at 8% for 4 months Salvage Value after 3 years Unexpected Costs Totals Benton, W.C. Jr. (2014). Purchasing and supply chain management (3rd ed.).
AMD Construction and Negotiation
Read Case 3: AMD Construction in the text (pg. 448-450) and answer the following
questions in a three- to -four page, APA formatted paper:
a. Discuss the various steps in the capital equipment acquisition process.
b. Develop a comprehensive analysis of the negotiations between Jane Axle and Tom
Reed. (Provide a chart to show financial impacts.)
c. What is your assessment of the negotiations process, given what you have
studied? What are your recommendations for Mr. Reed? You must justify your
conclusions.
Suggestion of format for analysis:
Current
Machine
Operating cost
(without operators)
Direct Labor
Depreciation
(straight line) 4
months
Lease Expense 4
Months
Interest expense
at 8% for 4 months
CAT-1 machine- CAT-1 m
purchase
– Lease
Salvage Value after
3 years
Unexpected Costs
Totals
Case 3
AMD Construction Company: Negotiating
the Old-Fashioned Wayl
In June, AMD Construction Company was awarded a $120 million contract for
building a section of 1-65 near Birmingham. The contract called for clearing, tun-
neling, paving, bridge building, blasting, and landscaping 85 miles of roadway,
two lanes in each direction. The contract also required a 10 percent DBE (disadvan-
taged business enterprise) goal.
Over a period of six months prior to the bid opening, Jane Axle, salesperson for
Allen Manufacturing Company, had been calling on AMD to sell it the CAT-1 hor-
izontal boring machine. Ms. Axle joined Allen about eight months ago. She had
been the sales manager at a well-known fashion house in New York for the past
10 years. Although AMD had used the older labor-intensive models of horizontal
boring machines, the company had no experience with the newer, fully automated
boring machines. In September, Jane convinced Tom Reed, president of AMD, to
witness a demonstration of the CAT-1. Because Mr. Reed’s time was limited, the
demonstration’s sole purpose was to acquaint him with the general operating pro-
cedures for the boring machine.
Prior to the initial sales interview, Jane had searched the Internet to familiarize
herself with the highway market. In her research, she compared Allen’s equipment
prices with other distributors in the industry. If successful, this would be her first
sale in the highway market. In addition, she had familiarized herself thoroughly
with the industry jargon.
The following interview occurred the day after the product demonstration. Jane
had learned on the same morning that the contract in question had been awarded
to AMD.
Jane: Good morning, Mr. Reed.
Reed: Good morning, Jane.
Jane: I understand you have received the I-65 contract.
Reed: That’s right. All we have to do now is finish it under budget.
Jane: This appears to be the biggest project since 9-11.
Reed: Yes. However, we did have a similar project three years ago in
Reed: Yes. However, we did have a similar project three years ago in
Montgomery. We had major design problems on that job, and we missed
our estimate by $344,000.
Jane: Doesn’t the state pay for any errors or mistakes they make in their design
work?
Reed: Yes, they pay for their mistakes. However, that mistake was ours and we
didn’t get paid for it! You know, Jane, the highway business is unforgiving
and you make a large enough mistake on one job, you will go belly up.
Jane: That’s exactly why I’m here this morning, Mr. Reed, and that is why I
gave you the demonstration yesterday. I am here to show you how to
make money by saving on construction costs right down the line.
We realize that you have been in business many years and have the
Names and data have been disguised. Copyright © 2005 W. C. Benton Jr. All rights reserved.
know-how, or you wouldn’t still be operating today. But I have studied
your problems and believe we have a machine that will reduce your
tunneling labor costs by 25 percent.
Reed: Well, at the present, I have two horizontal boring machines and two three-
person tunneling crews, and can’t see how your boring machine will
benefit me at all. I did like your demonstration yesterday, but, of course,
the tunneling operation is only one category of work and I have the crews
and the equipment to get it done.
Jane: That’s true, Mr. Reed, but remember that the new CAT-1 can easily
produce two times the rate of your current equipment. What’s more, the
CAT-1 requires only one two-person crew. Believe me, we can get the dirt
flying. Isn’t it true that the tunneling operation must stay on schedule in
order to bring the job in under budget.
Reed: Yes.
Jane: Well, the CAT-1 is capable of operating 2,000 hours at 80 percent capacity
without maintenance. Two operators versus six is a significant savings.
There is no loading or unloading to consume time that runs up the cost.
The loading and unloading operation has been automated. The CAT-1 is
ready to go.
Reed: I don’t see how your product can live up to all of those specs.
Jane: Let’s see. You will get two times the production rate and save two-thirds
of your estimated labor cost. This savings goes straight to the bottom line.
Reed: That does sound interesting, but you have no real data to support your
claim. You are aware that all projects are different.
Jane: I have factored all of those concerns into my calculations. The numbers
never lie.
Reed: Numbers don’t lie, but productivity can’t be predicted. If the CAT-1 is so
good, why do my competitors not use it?
Jane: In the demonstration yesterday, you were able to see that dirt flying. Dirt
flying is productivity.
Reed: How long does it take to train a crew on the CAT-1?
Jane: It takes approximately two days to train an experienced operator on the
CAT-1.
Reed: I understand that there is a comparable boring machine sold by one of
your competitors. I will call them tomorrow for a demonstration. How
does your machine compare to the B-34?
Jane: Yes, there are other machines we compare with. However, ours can
compete with all of them. It is efficient and productive. Most of the other
machines have some of our features but not all of them. Our machine is
appropriate for your project.
Reed: Well, Jane, the CAT-1 certainly sounds economical.
Jane: It is economical, Mr. Reed. Two people operate the CAT-1 generally. The
machine has digital hydraulic controls and a wide-vision cab that gives
the operators clear vision and maximum flexibility at all times. It has a
350-horsepower GMC engine that operates at five different speeds.
Perhaps the maintenance efficiency is also an attractive feature. There is a
computerized cylinder cooling system that prevents damage to the

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