WMBA 6501 Week 4 Bolt Renewal Negotiation Plan Example

Target $422, Walk Away Above $431, Alternative Near $437 Landed: A Negotiation Plan for a Fastener Distributor's Bolt Renewal, With the Supplier's Likely Limits Estimated in the Same Units

Student Name

Walden University

WMBA 6501: Conflict Management and Negotiation

Instructor Name

Month Day, Year

Target $422, Walk Away Above $431, Alternative Near $437 Landed: A Negotiation Plan for a Fastener Distributor's Bolt Renewal, With the Supplier's Likely Limits Estimated in the Same Units

The Negotiation in Numbers

Linden Fastener Supply, the fictional Michigan distributor whose renewal this course follows, buys about 6,500 thousand-piece units of structural bolts a year from Calumet Bolt Works, its main domestic supplier. The blended price last year was $412 per thousand. Calumet has opened the renewal with a 6 percent increase, to about $437, citing wire rod costs. Week 3 argued for an integrative approach that trades volume commitment, smoother monthly orders and faster payment for shorter lead times and a smaller increase. This plan sets the numbers Linden will carry into the room.

Each dollar per thousand is worth about $6,500 a year to Linden. The gap between Calumet's opening and last year's price is worth about $160,700 a year.

What Linden Wants

Linden's target is an increase of 2.5 percent, to about $422 per thousand, together with a two-week lead time on its top twenty part numbers. At that price the increase costs Linden about $67,000 a year. The target is ambitious but grounded: wire rod prices, according to Calumet's own explanation, rose about 9 percent, and wire rod is roughly a third of the cost of a finished bolt, which implies a cost increase of about 3 percent for Calumet. A 2.5 percent increase combined with the volume and payment concessions from Week 3 leaves Calumet better off than a 3 percent increase alone would.

What Linden Will Accept

Linden's reservation price, the worst deal it will accept, is an increase of 4.5 percent, about $431 per thousand, and only if the two-week lead time is included. Without the lead time, the reservation falls to 3.5 percent, about $426, because Linden would then have to keep holding the safety stock that the shorter lead time would release, worth about $18,000 a year in carrying cost.

What Linden Does If Talks Fail

Linden's best alternative to a negotiated agreement is to move part of its volume to an importer in Ohio that has quoted $428 per thousand delivered to its warehouse, plus about $9 in freight to Linden's second location, for an effective $437. The importer's lead time is six weeks and its quality record with Linden is short: two lots in the past year, one with a thread gauge rejection. Adjusting for the longer lead time and the risk of rejected lots, the alternative costs Linden roughly $440 to $445 per thousand in practice. Fisher et al. (2011) argued that knowing one's best alternative protects a negotiator from accepting a worse deal and from rejecting a better one, and here the alternative is clearly worse than any increase up to about 6 percent. That is useful to know and dangerous to reveal.

What Calumet Is Likely Carrying

Calumet's position can be estimated from what the case shows. Calumet's lines are only about four-fifths full, so losing Linden's volume would hurt more than it would in a tight market. Its other distributor customers pay roughly $425 per thousand for similar bolts, according to two of Linden's customers who buy from them. Its alternative to a deal with Linden is to sell the freed capacity to those distributors, probably at lower volume and with more selling cost.

Table 1

Estimated Positions, Dollars per Thousand Pieces

Calumet's figures are estimates from the case; the firms and figures are composite.

If the estimates are right, the zone of possible agreement runs from about $420, Calumet's estimated floor, to about $431, Linden's ceiling. Thompson (2020) describes this overlap between the parties' reservation points as the bargaining zone, and the negotiation's job is to settle as near Linden's target as possible while the integrative trades enlarge what both sides gain.

Opening Move

Linden should open first, at about $418, a 1.5 percent increase, paired with the volume commitment and payment terms. Galinsky and Mussweiler (2001) showed experimentally that whoever names the first number tends to draw the settlement toward it, though the pull shrank when the receiving side thought about the opener's alternatives or limits. Opening first with a figure supported by Calumet's own cost explanation sets the anchor before Calumet's 6 percent becomes the reference point.

Concession Plan

Linden will concede in decreasing steps, from $418 to about $421, then $423, then $424.50, signaling that it is approaching its limit, and will tie each step to a gain: the lead time first, then a cap on next year's increase. It will not move above $426 without the lead time.

Information to Gather in the Room

Several of the estimates above can be tested before Linden makes any concession. The purchasing manager will ask three questions early: which of Calumet's costs rose this year besides wire rod, which issues in the agreement matter most to Calumet this year and how full its heading and threading lines are expected to run next spring. The answers bear directly on Calumet's floor and on the value of the volume and order band offers. Fisher et al. (2011) treat this kind of questioning as the core of interest-based negotiation, and it costs nothing to ask. Linden will not disclose its own reservation price or the importer's effective cost in return, though it may confirm that it has a working alternative.

What Could Go Wrong

The plan's weakest estimate is Calumet's reservation price. If Calumet's costs rose more than its explanation suggests, its floor may be higher than $420, and the bargaining zone may be narrow. If Calumet holds above $431 with the lead time included, Linden should test a partial shift of volume to the Ohio importer on a trial basis rather than accept a price above its limit.

References

Fisher, R., Ury, W., & Patton, B. (2011). Getting to yes: Negotiating agreement without giving in (3rd ed.). Penguin Books.

Galinsky, A. D., & Mussweiler, T. (2001). First offers as anchors: The role of perspective-taking and negotiator focus. Journal of Personality and Social Psychology, 81(4), 657-669. https://doi.org/10.1037/0022-3514.81.4.657

Thompson, L. L. (2020). The mind and heart of the negotiator (7th ed.). Pearson.