Confidential Role Information for AccelMedia (Buyer)

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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
‐2‐
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? __________
• What is the unit price you will initially present to GTechnica? __________

• What is the highest unit price you will pay for the GT7s? __________