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Tutorial: Zone of Negotiation

In negotiation scenarios, understanding the value, manufacturing costs, and transportation fees is crucial. Explore a case study involving a parka valued at $100 in NYC, with manufacturing costs of $35 in Chicago and transportation costs of $30 (fixed: $10, variable: $20). Learn how to set upper limits for negotiations by calculating maximum transportation costs while also considering different capacity situations. Grasp the importance of cost analysis in negotiations to ensure you achieve the best possible deal while maximizing profit.

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Tutorial: Zone of Negotiation

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  1. Tutorial:Zone of Negotiation How to set the upper and lower limits!!

  2. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Full Capacity • Excess Capacity

  3. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Full Capacity • Excess Capacity Shipper Max So, most shipper can pay and still make a profit. Value – Mfg Cost = Max Trans Cost $100 - $35 = $65 is Max Trans Cost

  4. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Full Capacity • Excess Capacity 100-35=$65 $65 Note: The top is the same regardless of the carrier’s capacity.

  5. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Full Capacity • Excess Capacity Carrier Min This changes based on capacity Full Capacity = Total Cost (VC+FC) Excess Capacity = Variable Cost only

  6. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Full Capacity • Excess Capacity Carrier Min TC = VC+FC 10+20=$30 VC $20

  7. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Full Capacity • Excess Capacity $65 100-35=$65 TC = VC+FC 10+20=$30 VC $20

  8. Situation • Parka value in NYC = $100 • Manufacturing Cost in Chicago = $35 • Transportation Fixed Cost = $10 • Transportation Variable Cost = $20 • Backhaul???? $65 Cost does matter in Negotiation +$0

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