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Tutorial: Zone of Negotiation

Tutorial: Zone of Negotiation. How to set the upper and lower limits!!. Situation. Parka value in NYC = $100 Manufacturing Cost in Chicago = $35 Transportation Fixed Cost = $10 Transportation Variable Cost = $20 Full Capacity. Excess Capacity. Situation. Parka value in NYC = $100

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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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