Shiva Plastics Corp. has been invited to submit bids for the production of a number of different injection molding parts. In the past, the company used a simple cost-plus pricing strategy based on the raw material cost of a part to determine its bids. However, overall manufacturing costs are uncertain and this pricing strategy has resulted in unexpected losses. With a more sophisticated cost estimation approach the company hopes to do better.
This case enables students to think about different aspects of bid preparation. One is the estimation of costs to prepare ?better? bids; the other is the impact of competition. The results from bids will illustrate two things: 1) the winner?s curse, i.e., the winner of most bids will not be the most profitable bidder and 2) having more accurate cost estimates does not necessrily lead to higher profits.
- SHIVA PLASTICS CORP
- PRICING STRATEGY
- COST ESTIMATION
- WINNER'S CURSE