GeneralHospital(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 (WasteWeight/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 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?