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• Manufacturing Cost in Chicago = $35• Transportation Fixed Cost = $10• Transportation Variable Cost = $20

• Full Capacity • Excess CapacityShipper Max

So, most shipper can pay and still make a profit.

Value – Mfg Cost = Max Trans Cost$100 - $35 = $65 is Max Trans Cost

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.

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 capacityFull Capacity = Total Cost (VC+FC)Excess Capacity = Variable Cost only

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

Situation• Parka value in NYC = $100• Manufacturing Cost in Chicago = $35• Transportation Fixed Cost = $10• Transportation Variable Cost = $20

• Full Capacity • Excess Capacity

TC = VC+FC 10+20=$30 VC $20

100-35=$65 $65

Situation• Parka value in NYC = $100• Manufacturing Cost in Chicago = $35• Transportation Fixed Cost = $10• Transportation Variable Cost = $20

• Backhaul????

Cost does matter in Negotiation +$0

$65