Negotiation Strategies How to deal with co-workers, clients, and suppliers

1. Negotiation StrategiesHow to deal with co-workers, clients, and suppliers Richard G. Weissman, C.P.M. Northeast Supply Chain Conference and Exhibition September 2004

2. Richard G. Weissman, C.P.M. Director, Center for Leadership Assistant Professor Endicott College 376 Hale Street Beverly, MA 01915 978-232-2269 rweissma@endicott.edu

3. Objectives • Recognize the elements and process of negotiation. • Concentrateon negotiation tools and techniques. • Negotiate with internal and external clients. • Focus on process improvement. • Highlight communication and the human approach to negotiation. • Understand the benefits of successful negotiations.

4. Negotiation • An exploratory and a bargaining process (planning, reviewing, analyzing, compromising) involving a buyer and seller, each with their own viewpoints and objectives, seeking to reach a mutually satisfactory agreement on all phases of a procurement transaction including price, service, specifications, technical and quality requirements, payment terms, and elements. NAPM Glossary of Key Purchasing Terms

5. WHEN DO YOU NEGOTIATE?

6. Key Point! • Most negotiations occur over and over again. We tend to deal with the same customers, co-workers, suppliers, clients, directors, and managers for a long time. It is important to recognize and give proper weight to the context in which a negotiation is taking place. If it is within an on-going relationship, the significance of that relationship must be considered.

7. The 5 Ps of Negotiating • Preparation • Poise • Persuasiveness • Persistence • Patience Right Associates

8. Lack of competition Price, quality, delivery, and service needs Buying production or service capabilities High buyer or seller uncertainty Urgency Long lead times Necessity for flexible contracts Lack of firm product specifications Single source strategies Reasons for Negotiation

9. Problems in Negotiation • Lack of formal negotiation training • Lack of preparation • Failure to establish realistic objectives • Unsound tactics • Cultural misunderstanding

10. Brainstorming Exercise • What are the traits of a good negotiator?

11. How to be a “Sophisticated Customer” • Understand YOUR business • Understand THEIR business • Follow-up and follow through • Anticipate • Question • Communicate

12. Phases of Negotiation • Presentation phase • Clarification phase • Exploration phase • Proposal phase • Hard bargaining phase

13. Planning for Negotiation • Strategic planning • Administrative planning • Tactical planning

14. Planning the Negotiation Process • Basic groundwork • Develop objectives • Gain support • Assemble the team • Action! • Verbal agreement • Written agreement • Making it work

15. Information Quilt • Public domain, such as the Internet, magazines, newspapers, D&B reports. • Third parties, such as business associates, friends, or those who are aware of your opponent. • Your opponent, such as contacts within their organization.

16. Elements of a Written Negotiation Plan • Brief overview statement • Objectives • Positions of strength for both parties • Internal support requirements • Development of negotiating team • Negotiation plan & tactics

17. Documentation of Negotiation • Subject • Introductory summary • Particulars • Procurement situation • Negotiation summary

18. Competition Legitimacy Commitment Knowledge Risk-taking Time Effort or work Money Negotiation skills Friendly associations Sources of Power

19. Negotiating Power • Negotiating power is relative between the parties. • Negotiating power changes over time. • Negotiating power is always limited. • Negotiating power can be either real or apparent. • The exercise of negotiation power has both benefits and costs. • Negotiating power relates to the ability to punish or benefit. • Negotiating power is enhanced by legal support, personal knowledge, skill, resources and hard work. • Negotiating power is increased by the ability to endure uncertainty and by commitment. • Negotiating power is enhanced by a good negotiating relationship. • Negotiating power depends on the perceived BATNA. • Negotiating power exists to the extent that it is accepted. Negotiation Theory and Skills by James C. Melamed, J.D.

20. Authority • Escalating authority • Limited authority • No authority • Full authority • Escape from authority

21. Major Modes of Negotiation • Cooperative (win--win) • Competitive (win--lose) • Counterproductive (lose--lose)

22. Getting to Yes • Fisher, Vry & Patton of the Harvard Negotiation Project. • Separate the people from the problem. • Focus on interests, not positions. • Invent options for mutual gain. • Insist on using objective criteria.

23. Problems of Long-Term Relationships • Loss of objectivity • Complacency • Loss of secrecy • Growing dependency • Cooperative forces lessen • Person factors influence decision making • Organizations “locked-in” • Easy!

24. Nibbles • Cash terms • Extended warranty • Service / support • Spare parts • Training • Freight • Testing

25. Anchor • An initial offer in a negotiation, often set from external experiences. • The sticker price of an automobile is an example of an anchor. • When anchors are used, creativity in a negotiation suffers.

26. Concessions • Small concessions give the impression that the bottom line is not far off. • Large concessions indicate that a lot more can still be conceded before the bottom line is reached. • Rapid or large concessions undermine the credibility of the initial offer. • All concessions teach the lesson that more concessions will be made. batna.com

27. Signals • True signals. People send signals instead of saying things outright in order to convey information while preserving some degree of deniability. • False signals. These signals are designed to mislead you. • Unintentional signals. Signals made in error that may be valuable. Schatzki, Negotiation: The Art of Getting What you Want

28. Framing • How an object, event, or situation is depicted or presented • Emphasize the value of their concessions. • Provide a justification for the other party to make concessions. • Offer a standard of fairness for dividing the value created by negotiating.

29. Limits • Dollar limits • Term limits • Policy limits • Legal limits • Engineering limits • Committee limits • Miscellaneous limits

30. Agreement in Principle • May be part of the final agreement. • May be a way-station toward reaching an agreement. • May be used as a tactical approach to the negotiation. • May be a combination Schatzki, Negotiation: The Art of Getting What You Want

31. BATNA • Best Alternative to a Negotiated Agreement • No agreement may be better than a poor agreement. • The better your BATNA, the higher your leverage. • Successful negotiations may not result in agreements.

32. Some Negotiation Tactics • Agenda • Deadline • Concessions • Missing person • Bogey • Take it or leave it • Good guy / bad guy • Best and final offer

33. Ethics • Misrepresentation of position • Bluffing • Deception • Selective disclosure • Bribes • Spying • Theft • Humiliation • Sharp practice

34. Aspects of a Purchase & Sale Agreement • Quality • Support • Supply • Transportation • Price

35. Quality • Specification compliance • Performance compliance • Test criteria • Rejection procedures • Liability • Reliability • Design changes

36. Customer Support • Technical assistance • Product enhancements • Research & development • Warranty • Spare parts • Training • Tooling • Packaging • End user support

37. Supply • Lead times • Delivery schedule • Inventory programs • Consigned inventory • Stocking programs • Cancellation / reschedule options

38. Transportation • FOB terms • Carrier • Commodity classification • Freight allowance / costs • Multiple delivery points • Timing

39. Price • Purchase order price • Discounts • Foreign exchange • Escalation / de-escalation • Duties / taxes • Cost analysis / material / labor / overhead / profit

40. 8 Keys to High Performance Negotiation • Motivate • Facilitate • Cooperate • Educate • Investigate • Anticipate • Communicate • Administrate

41. WHEN DO YOU NEGOTIATE?