Negotiation

2. Chapter 16 Negotiation

3. Key Concepts Objectives of Negotiation Quality Fair and Reasonable Price On-time Performance Control Cooperation Supplier Relationship Management When to Negotiate

4. 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

5. 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

6. Key Concepts Online Negotiation Negotiating for Price Price Analysis Negotiation Cost Analysis Negotiation Characteristics of a Successful Negotiator

7. Objectives of Negotiation Quality Fair and responsible price On-time performance Control Cooperation Supplier relationship management

8. 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

9. 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

10. Supply Management�s Role in Negotiation The Supply Management Professional Acting Alone The Supply Management Professional as the Negotiating Team Leader

11. 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

12. 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

13. 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

14. Negotiation Teams Cross functional members Supply manager frequently serves as leader Overall strategy is required Roles are defined Mock negotiations are needed

15. The Negotiation Process Preparation Establishment of objectives Face to face discussions

16. 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

17. Determinates of the Seller�s Bargaining Strength How badly the seller wants the contract How certain he or she feels of getting it How much time is available to reach agreement on suitable terms

18. 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

19. Traditional Cost Objectives Quantity of labor Wage rates Quantity of materials Prices of materials Factory overhead Engineering expense Tooling expense Administrative expense

20. 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

21. 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

22. 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

23. Five Powerful Preparation Activities The BATNA The Agenda �Murder Boards� and Mock Negotiations Crib Sheets Draft Agreements

24. Face-to-Face Discussions Fact Finding Recess Narrowing the Differences Hard Bargaining

25. Universally Applicable Techniques Getting to Know You Use Diversions Use Questions Effectively Use Positive Statements Be a Good Listener Be Considerate of Sellers

26. Transactional Techniques Keep the Initiative Never Give Anything Away Frame the question The Dynamics of a Transactional Negotiation

27. Minimum Objective Maximum Buyer�s position Seller�s position Minimum Objective Maximum Cost Dynamics of a Transactional Negotiation

28. Collaborative and Alliance Negotiating Techniques Separate the people (negotiators) from the problem (quality, price) Focus on interests, not positions Invent options for mutual gain Insist on using objective criteria

29. The Debriefing: An Incredible Learning Opportunity Conducted by the negotiation team A self assessment/evaluation Debriefing must be done in a timely manner accurate and timely feedback� Identify what was done well Identify what could be improved upon Document lessons learned Provide individual and team feedback

30. Documentation Subject Introductory Summary Particulars Procurement situation Negotiation summary

31. Online Negotiation Agreements founded solely on written communication tend to have problems Those that include written and telephone communication are sustainable The best relationships are those that go beyond other forms of communication to involve face-to-face meetings

32. Advantages to Online Negotiation Can help focus on the issues separately from personalities Brainstorming may be more productive Online communication can free the buyer and supplier from location dependency If the negotiation is not being done �live� on the Internet, the time for conducting the negotiations is relatively flexible

33. Drawbacks to Online Negotiation Some of the drawbacks listed could also be advantages, depending on the firm�s objectives and needs It is far easier to say �no� in writing Psychological separation makes the termination of the relationship much easier Online negotiators are likely to feel a need to be more persuasive � more convincing A lack of nonverbal cues forces careful consideration of the impact of each word It is difficult to evaluate perceptions

34. Hypotheses Regarding Negotiations The more important the issue, the more likely it is that it will be negotiated face-to-face The more politically sensitive the issue, the more likely it is that it will be negotiated face-to-face If either negotiator will be personally affected by the outcome, that person may want to conduct the negotiation in person

35. Hypotheses Regarding Negotiations If the topic involves issues of firm sensitivity, such as trade secrets or core competencies, the negotiation is more likely to take place face-to-face Buyer-supplier relationships will be perceived as more distant, the more online communication and negotiation are used Less formal planning will occur prior to online negotiations than for those conducted face-to-face

36. Negotiating for Price Price Analysis Negotiation Negotiation time is shorter Support of technical specialists is seldom needed Pricing data are relatively easy to acquire Price Comparison Trend Comparisons Cost Analysis Negotiation

37. Characteristics of a Successful Negotiator All realize that specialized training and practice are required to become an effective negotiator All habitually enter into negotiations with more demanding negotiating objectives than their counterparts, and generally they achieve them All are pragmatic and flexible in their capability to deal with different negotiation techniques from �hardball� to �collaborative� All are included, or are destined to become included, among an organization's most highly valued professionals

38. Concluding Remarks Negotiation is free enterprise at its very best! Negotiation is a powerful supply management tool which competent professionals use to achieve maximum value at minimum cost By rewarding efficiency and penalizing inefficiency, the negotiation process benefits the negotiating firms and the nation's economy as a whole. The increasingly common collaborative approach to negotiations substitutes a win-win approach for the more traditional, transactional one