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At this point, SMT representatives expressed great concern about the possibility of inflation in material costs. The IBM negotiators volunteered to include a form of price escalation in the contract, as previously agreed among themselves. IBM representatives suggested that if overall material costs changed by more than 10%10 \%, the price could be adjusted accordingly. However, if one party took the initiative to have the price revised, the other could require an analysis of all parts and materials invoices in arriving at the new price.

Another concern of the SMT representatives was that a large amount of overtime and subcontracting would be required to meet IBM's specified delivery schedule. IBM negotiators thought that a relaxation in the delivery schedule might be possible if a price concession could be obtained. In response, the SMT team offered a 5%5 \% discount, and this was accepted. As a result of these negotiations, the SMT price was reduced almost 20%20 \% below its original bid price.

In a subsequent meeting called to negotiate the prices of certain pipes to be used in the system, it became apparent to an IBM cost estimator that SMT representatives had seriously underestimated their costs. He pointed out this apparent error because he could not understand why SMT had quoted such a low figure. He wanted to be sure that SMT was using the correct manufacturing process. In any case, if SMT estimators had made a mistake, it should be noted. It was IBM's policy to seek a fair price both for itself and for its suppliers. IBM procurement managers believed that if a vendor was losing money on a job, there would be a tendency to cut corners. In addition, the IBM negotiator felt that by pointing out the error, he generated some goodwill that would help in future sessions.

What are the advantages and disadvantages to IBM and SMT from this approach?

Question

The first vending machine that William Kine, Inc., assembled took 80 labor-hours. Estimate how long the fourth machine will require for each of the following learning rates:

95%95 \%

Solution

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In this problem, we want to know how long the task will take on the 4th machine considering a 95% learning curve.

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