201negotiation

Slides created by Brian Farrington Ltd. Procurement and Business Solutions People

for use with Lysons and Farrington: Purchasing and Supply Chain Management 7th edition

Negotiation

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Lysons & Farrington, Purchasing and Supply Chain Management, 7 th edition, © Pearson Education Limited 2005

Topics Approaches to negotiation Content of negotiation Factors that influence negotiation

Conditions that prevent spontaneous response

Factors that increase buyer’s position Preparing for negotiation Stages of negotiation

Definition

Negotiation

“An occasion where one or more representatives of two or more parties interact in an explicit attempt to reach a jointly acceptable position on one or more divisive issues about which they would like to agree.”

Page 548

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Approaches to negotiation Adversarial negotiation

Win-lose negotiation Emphasize on competing to attain goals at the

adversary’s expense Collaborative negotiation

Win-win negotiation Emphasize on ascertaining goals held in

common with other party

(Page 549, the comparison)

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Content of negotiation Substance goals

Price, Contractual, Delivery etc Relationship goals

Outcomes relating to working relationship Partnership sourcing Preferred supplier status Supplier involvement Sharing of technology (50)

Negotiation

Contractually Related Issues (Pg 551)

Type of contract (1) Fixed price or lump sum(2) Cost reimbursable

(3) Unit price

Use of sub-contractors

Liability of sub-contractors

Ownership of jigs, tools, moulds, etc.

Charges for use of patents need by supplier/purchaser

Confidentiality and restraint of trade issues

Payments in advance

Sharings of savings due to improved design/production

Changes to specifications and designs

Milestone payments

Disposal of surplus materialEnvironmental issuesHealth and

safety issues

Inspection rights

Conditions, warranties andguarantees

Force majeure

Dispute of resolution

Non-compensatible delays

Legal charges

Cancellation rights

Right of audit and openbook agreements

Set of rights Some Contractually Related Negotiation

Issues

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Factors in negotiation (Pg 552) Negotiators

Personality The degree of authority of negotiators

Negotiating situation Who is stronger in the negotiating position?

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Factors in negotiation Time

“Necessity never made a good buyer” Past experience governs expectation and

perception Influential factors (Pg 555)

Environmental (E.g. Culture, social etc) Situational (E.g. Objectives, motivation etc) Behavioral predisposition (E.g. Sensitivity) Influencing power (E.g. Presentation )

When there is little latitude in determining their position or posture

When they are held accountable for their performance

When they have sole responsibility

When they are responsible to a constituency present in thenegotiations

When they are appointed rather than elected

Conditions that Prevent Spontaneous Response

Negotiation

The Buyer’s Negotiation Position will be StrongIf:

Negotiation

Demand is not urgent

Suppliers are keen for the business

Buyer is in a monosponistic position

Demand can be met by alternatives/substitutes

Make and buy options are available

Buyer has a reputation for fair dealing

Buyer has excellent supply market intelligence

Negotiation

Who is to negotiate?Who is to negotiate?

The venueThe venue

Intelligence gatheringIntelligence gathering

Negotiation objectivesNegotiation objectives

StrategyStrategy

TacticsTactics

Conducting dummy runsConducting dummy runs

Pre-negotiation Considerations

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Who is to negotiate The individual approach The team approach

Allocate roles• Spokesperson• Recorder• Experts

Avoid disagreement

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The venue Should be in buyer office unless there

are good reasons to do otherwise Inspect vendor facilities

Advantages to negotiate on home ground

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Gathering information Cost and price analysis Situational analysis Value analysis

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Determining objectives Varying interests of participants in

negotiations Suppliers: profit, time, relationship,

reputation etc Users: Schedule, safety, value,

environmental impact, quality

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Model of bargaining

Buyer Seller

5 8 9 10 13

Ideal settlement

Ideal settlement

Realistic Settlement

Realistic Settlement

Fall-back position

Fall-back position

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Discuss Describe how Lily negotiated with suppliers to

purchase within the budget of US$20 per piece for DimS, inclusive of the ‘freezing’ cost.

- What are important things does Lily need to prepare for the negotiation?- Decide her approach- Determine objectives- What kind of bargaining model can Lily use for her negotiation to meet

her objective?

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Strategy and tactics Strategy: overall plan that aims to

achieve, as nearly as possible, the objectives of the negotiation as seen from each participant

Tactics: The position or attitude to be taken during the process

Negotiation

Introductions, agenda agreement and rules of procedureIntroductions, agenda agreement and rules of procedure

Ascertaining the negotiation rangeAscertaining the negotiation range

Agreement of common goalsAgreement of common goals

Identification and removal of barriersIdentification and removal of barriers

Agreement and closureAgreement and closure

Stages of a Negotiation

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Role play You will be divided into two groups

IBM buying group Keytronic supply group

Both IBM and Keytronic are to meet today to negotiate for the contract of DimS product.

IBM’s objective is to negotiate for the supply at budget of $20, inclusive of “freezing cost”

Task 1: Prepare your negotiation (15 min) Task 2: Negotiate at the meeting (15 min)

201negotiation

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