General Hospital (GH) is looking to identify a suitable supplier for the disposal of hazardous waste generated by the daily running of the facility for the next 12 months.
GH operates 52 weeks/year, 7 days/week. For the next 12 months, GH forecasts producing an estimated average of 5 kg of waste per day. Based on historical data, you are aware that GH has a poor forecasting process and data, resulting in an 80% yearly forecast accuracy. (Note: for the sake of this exercise, let's assume that the impact of forecasting errors is evenly spread across the year, months, weeks, and days.)
Three suppliers (namely Supplier A, B, and C) have responded to GH's Invitation To Tender (ITT), supplying the details of the service that they will be able to provide.
Supplier A and Supplier B have suggested similar service models, based on the following assumptions (for specific data please see the table below):
- Each supplier will charge a fixed price for the actual pick-up operation of each container (partly or fully filled) and for their replacement with empty ones (Cost/Container Pick-up).
- Each supplier will charge a fixed price per each kilogram of waste to be disposed (Cost/Kg Waste).
- Both suppliers will use special waste containers with a specified maximum weight (Waste Weight/Container).
- Both suppliers will activate the pick-up, replacement, and disposal operation following a call-off from the hospital.
Supplier C, on the other hand, is proposing monthly pick-up of whatever waste GH generates during the month. Supplier C does not require the use of special containers but does require a minimum of 5 days notice to start planning and complete the waste disposal operation.
|
Supplier
|
Cost/Container Pick-up
|
Cost/Kg Waste
|
Waste Weight/ Container
|
Pick-Up Frequency
|
|
A
|
33
|
0.61
|
100
|
Not Specified
|
|
B
|
10
|
0.45
|
50
|
Not Specified
|
|
C
|
38
|
0.73
|
Not specified
|
Monthly
|
Supplier A has indicated a willingness to negotiate, although limiting negotiation to the cost per container pick-up. Without adjusting the cost per kg of waste disposal, at what price does Supplier A become the lowest cost provider? If you are not successful in getting your desired cost from Supplier A, what is your best alternative to the negotiated agreement, or the BATNA?