. Precontract Negotiations: CMI was a $5 million dollar company and knew they would have to borrow money in order to meet the supply for both Alpha and Beta. Therefore, they borrowed $3.2 million from the bank in order to finance their production facility with the car companies as backers.
Beta indemnity for CMI was for $6 million for non-recoverable costs.
Alpha indemnity for CMI was for $1.5 million for non-recoverable costs.
Tooling, setup and facility costs for CMI was $2.3 million.
Pricing consisted of 3 costs for 3 different parts. CMI first had to educate Purchasing in the car companies that the Slip Seal was not a commodity item. Purchasing had no experience with this item. As a result, CMI invented the “L Formula,” based on the Purchasing agents name who would give the pricing estimates to CMI based on elements of cost and renegotiated in their favor. CMI established the set volumes with both Alpha and Beta, but stipulated that any change of +/- 10% would necessitate price change.
Prices for metals during this period were unstable. Beta was using the copper wire which was a lot more expensive than the stainless steal wire that Alpha was using. In 1975, CMI and Beta switched to stainless steal wire and saved $12.70 per pound on wire.
($15 per pound – $2.30 per pound).
2. In 1973 and 1974, there were shortages of copper-flashed nickel and stainless steel. The prices of both metals were unstable. CMI had quoted Beta a price of $10 per pound for copper wire, but it had risen to $15 by August of that year. As a result, CMI went back to Beta and gave a quote with “padding” in order so that they would not have to absorb the full co ...