Obtain necessary supplies and equipment through negotiations

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Reference no: EM132222383

You work in the Purchasing Department of General Motors. Your responsibility is to obtain necessary supplies and equipment through negotiations and then to draft the contracts. Your boss has told you the following facts and asked you to negotiate and draft a contract. The facts are as follows:

GM wants to build a new auto called the Whiplash. It will be a break through car in terms of fuel and speed. For fuel, it will use a formula called ABC, which is a combination of lighter fluid, water and gasoline. To date, no one manufactures such a combination but GM is looking for a supplier who is willing to start. The problem is that in the processing, the solution is highly combustible. An additional problem is that, if not mixed exactly correct, the solution will not be effective and useless. Because of the delicateness of the operation, it is GM's experience that the error rate is 1 out of 4. If done correctly, however, the cost to produce such a fuel would be $.10 a gallon. If GM bought it from a manufacturer for $.35 a gallon, it could then offer it to consumers for $.50 a gallon. Since the Whiplash gets a 100 miles a gallon using ABC fuel, GM anticipates a steady demand and a substantial profit.

You have found a company, Mixtures Inc. that is willing to manufacture and supply ABC formula upon demand to GM at a price of $.25 a gallon. Mixtures Inc. is located in Berlin, Germany.

GM wishes to buy a minimum of 100,000 gallons each month for 12 months with an option to purchase additional amounts each month as needed. At the end of the 12 month period, GM wants the right to extend the contract an additional 12 months for the same price. GM wants delivery to be by Mixtures Inc. to their Grand River plant in Detroit on the first day of each month. Any delays will result in lost production of $200,000 a day. GM would like the first delivery on June 1. Since Mixture Inc will be making a substantial profit, they have told you that they will agree to most of your terms. Their major concern is guaranteeing payment at the time the product is delivered. They have asked you to write up the first draft with your terms.

Question: What are 6 contract terms that should be addressed in this scenario?

Reference no: EM132222383

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