Question

A manufacturing company will be purchasing two sophisticated pieces of equipment for the factory floor. The project manager for this procurement has distributed the detailed specifications to a number of vendors and is waiting for the bid responses. When analyzing the vendor's bids, the PM can do a number of things to determine if the vendor's bid prices appear to be reasonable. Which of these actions would NOT be appropriate for the vendor bid analysis?

a Compare the bids and assume that the lowest responsible offer is fair.
b review business publications and industry websites to determine if the prices are in line with industry standards.
c Select one of the lower- priced vendors with a good reputation and negotiate with them for the best price.
d Implement activity- based costing ( ABC)
.

Answer 1

The project manager should compare bids, check against industry standards, and negotiate with vendors; but should not use activity-based costing as it is not suitable for external bid analysis. Understanding market prices and employing cost/benefit analysis will guide them in making a well-informed decision.

Step-by-step explanation:

When analyzing vendor's bids for equipment procurement, the actions a project manager (PM) should take include comparing bids, researching industry standards, and negotiating for the best price. However, one action that would NOT be appropriate is implementing activity-based costing (ABC). ABC is more applicable to internal cost analysis rather than external vendor bid analysis. Comparing bids to assume that the lowest responsible offer is fair can be deceptive because the lowest bid may not meet the required specifications or may involve hidden costs. Reviewing business publications and industry websites aids in understanding if the bids align with current market prices. Selecting a reputable vendor and negotiating is a practical approach to ensure a fair price and reliable equipment.

Cost/benefit analysis can also be a valuable tool during this process. By evaluating the extra costs and benefits of each bid, a PM can make a more informed decision. However, the firm should not simply select the technology with the lowest total cost without considering the potential shift in production technology due to changes in the cost of machines relative to labor. A careful analysis must take into account how the cost changes affect the overall production system.