16-1
Chapter 16
Negotiation
16-2
Key Concepts
•
Objectives of Negotiation
»
Quality
»
Fair and Reasonable Price
»
On-time Performance
»
Control
»
Cooperation
»
Supplier Relationship Management
•
When to Negotiate
16-3
Key Concepts
•
Supply Management’s Role in Negotiation
»
The Supply Management Professional Acting Alone
»
The Supply Management Professional as the Negotiating Team Leader
•
The Negotiation Process
»
Preparation
»
Establishing Objectives
»
Identify the Desired Type of Relationship
•
Three Powerful Preparation Activities
16-4
Key Concepts
•
Face-to-Face Discussions
»
Fact Finding
»
Recess
»
Narrowing the Differences
»
Hard Bargaining
•
Techniques
»
Universally Applicable Techniques
»
Transactional Techniques
»
Collaborative and Alliance Negotiating Techniques
•
The Debriefing: An Incredible Learning Opportunity
•
Documentation
16-5
Key Concepts
•
Online Negotiation
•
Negotiating for Price
»
Price Analysis Negotiation
»
Cost Analysis Negotiation
•
Characteristics of a Successful Negotiator
16-6
Objectives of Negotiation
•
Quality
•
Fair and responsible price
•
On-time performance
•
Control
•
Cooperation
•
Supplier relationship management
16-7
When to Negotiate
•
When any of the five prerequisite criteria for competitive bidding are
absent
•
When many variable factors bear not only on price but also on quality
and service
•
When early supplier involvement is employed
•
When the business risks and costs cannot be predetermined
•
When a customer firm is contracting for a portion of the seller's
production capacity
16-8
When to Negotiate
•
When tooling and setup costs represent a large percentage of the
supplier's total costs
•
When a long period of time is required to produce the items purchased
•
When production is interrupted frequently because of numerous change
orders
•
When a thorough analysis is required to solve a difficult make‑or‑buy
decision
•
When the products of a specific supplier are desired to the exclusion of
others
16-9
Supply Management’s Role in Negotiation
•
The Supply Management Professional Acting Alone
•
The Supply Management Professional as the Negotiating Team Leader
16-10
Bidding or Negotiation?
•
Recall the prerequisites to bidding…
»
Dollar value must be large
»
Specifications must be clear
»
Market must consist of an adequate number of sellers
»
Sellers must be qualified and want the contract
»
Time available must be sufficient
•
If any of these are not true, then negotiation is the best choice
16-11
Conditions Demanding Negotiation
•
Impossible to estimate costs with a high degree of certainty
•
Price is not the only important variable
•
Purchasing firm anticipates a need to make changes in the specification
•
Special tooling of setup costs are major factors
16-12
Even if the previous list is met…
here are two arguments for Negotiation
•
The negotiation process is far more likely to lead to a complete understanding of all
issues of the procurement
•
Competitive bidding tends to result in sacrifices in product quality, development
efforts, and other vital services
16-13
Negotiation Teams
•
Cross functional members
•
Supply manager frequently serves as leader
•
Overall strategy is required
•
Roles are defined
•
Mock negotiations are needed
16-14
The Negotiation Process
1. Preparation
2. Establishment of objectives
3. Face to face discussions
16-15
Preparation
•
90% of the time involved in a successful negotiation is invested in
preparation
•
The negotiator must:
»
Possess a technical understanding of the item or service
»
Analyze the relative bargaining positions of both parties
»
Have conducted a price or cost analysis
»
Know the seller
»
Be aware of cultural nuances
»
Be thoroughly prepared
16-16
Determinates of the Seller’s Bargaining Strength
1. How badly the seller wants the contract
2. How certain he or she feels of getting it
3. How much time is available to reach agreement on suitable terms
16-17
Establishing Objectives Related to Cost Positions
•
An objective position
»
Best estimate of what the seller's actual costs plus a fair profit should be
•
A minimum position
»
Developed on the premise that every required seller action will turn out
satisfactorily and with minimum cost
•
A maximum position
»
Developed on the premise a large number of required seller actions will turn out
unsatisfactorily and with maximum cost
16-18
Traditional Cost Objectives
•
Quantity of labor
•
Wage rates
•
Quantity of materials
•
Prices of materials
•
Factory overhead
•
Engineering expense
•
Tooling expense
•
Administrative expense
16-19
Non-Cost Objectives
•
All technical aspects of the purchase
•
Types of materials and substitutes
•
Buyer‑furnished material and equipment
•
The mode of transportation
•
Warranty terms and conditions
•
Payment terms (including discount provisions)
•
Liability for claims and damage
•
F.O.B. point
•
General terms and conditions
•
Details on how a service is to be performed
16-20
Other Objectives
•
Progress reports
•
Production control plans
•
Escalation/de‑escalation provisions
•
Incentive arrangements
•
Patents and infringement protection
•
Packaging
•
Title to special tools and equipment
•
Disposition of damaged goods and off‑spec (non-conforming) materials
16-21
Identify the Desired Type of Relationship
•
The three primary approaches presented earlier in the book in Chapter 4
are:
»
Transactional
»
Collaborative
»
Alliance
•
The desired type or relationship is strongly related to the negotiation
tactics a negotiator should and should not use
16-22
Five Powerful Preparation Activities
•
The BATNA
•
The Agenda
•
“Murder Boards” and Mock Negotiations
•
Crib Sheets
•
Draft Agreements
16-23
Face-to-Face Discussions
•
Fact Finding
•
Recess
•
Narrowing the Differences
•
Hard Bargaining
16-24
Universally Applicable Techniques
•
Getting to Know You
•
Use Diversions
•
Use Questions Effectively
•
Use Positive Statements
•
Be a Good Listener
•
Be Considerate of Sellers
16-25
Transactional Techniques
•
Keep the Initiative
•
Never Give Anything Away
•
Frame the question
•
The Dynamics of a Transactional Negotiation