Negotiation Slide 1 © The Delos Partnership 2005
Supplier Relationship Management Supplier Relationship Management Module 7 – Negotiation & Agreements
• Three interrelated skills• Planning & Checklist• Body Language• Doing, Acting & Renegotiating• Contrasting Situations• Agreements
Negotiation Slide 2 © The Delos Partnership 2005
Three Interrelated Skills Three Interrelated Skills
CommunicationCommunication& Bargaining& Bargaining
Power Power
Meeting Meeting SkillsSkills
Negotiation Negotiation
Presentation Presentation SkillsSkills
Negotiation Slide 3 © The Delos Partnership 2005
When the 3 skills are needed When the 3 skills are needed internallyinternally
Colleagues - Peers – BossColleagues - Peers – Boss
Projects
Priorities
Conflicts
Budgets
Appraisals / Pay Review
Situation...Situation...
Face to Face – Different levels of seniority
Over the phone
Using e
Anytime
Negotiation Slide 4 © The Delos Partnership 2005
When the 3 skills are needed When the 3 skills are needed externallyexternally
Customer & Supplier...Customer & Supplier...
Dealmaking
Price Changes
Performance Assessment
Visits
Projects
Situation...Situation...
Face to Face – Different levels of seniority
Over the phone
Using e
Anytime
Negotiation Slide 5 © The Delos Partnership 2005
The Expert Negotiator …The Expert Negotiator …
Delos Negotiation TipsDelos Negotiation Tips
• Knows the Product Position• Plans thoroughly• Uses the Power of Silence• Gives something to get
something • Knows everything is negotiable• Listens Actively• Uses the Pareto Principle• Is not afraid to walk out
• Knows that information is power• Knows there no more than 3 key issues• Never makes first offers • Never accepts first offers• Adapts the approach• Uses competition – real & imaginary• Buys time by limiting authority• Implements declaring the other side a
winner
Negotiation Slide 6 © The Delos Partnership 2005
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PLAN THE DEAL PLAN THE DEAL AND THE AND THE NEGOTIATIONNEGOTIATION
DO THE DEAL AND DO THE DEAL AND FINALISE THE FINALISE THE NEGOTIATION.NEGOTIATION.
CHECK THE DEAL CHECK THE DEAL AND AND NEGOTIATION NEGOTIATION OUTCOME.OUTCOME.
ACT TO IMPLEMENT ACT TO IMPLEMENT THE DEAL AND THE DEAL AND NEGOTIATION NEGOTIATION OUTCOME AND OUTCOME AND START TO START TO RENEGOTIATE…RENEGOTIATE…
CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE TIMES TIMES
Negotiation PDCA – is Critical Negotiation PDCA – is Critical
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Negotiation Slide 7 © The Delos Partnership 2005
Negotiation Planning
Negotiation Slide 8 © The Delos Partnership 2005
SUPPLIERS SUPPLIERS VIEWVIEWWHENWHEN
SELLINGSELLINGTO YOU TO YOU
Customer Matrix Position
Negotiation & Market Dynamics
Credit status / Payment risks
Technical & Implementation Competency
Growth Potential
Market Segments Selling Price Options
Competition Options
Supplier Positioning
Total Value Potential
Risks & Cost of Change
Technical Options
Internal customers needs
Other Supplier Options
Competition strategy
PROCUREMENTPROCUREMENTVIEW WHENVIEW WHEN
BUYINGBUYINGFROM FROM
SUPPLIERS SUPPLIERS
Take a Two Way View Take a Two Way View
Negotiation Slide 9 © The Delos Partnership 2005
InternalInternalValueValue
& Knowledge& Knowledge
Pricing
DeliveryPerformance
Need to Improve
Terms
FutureRequirements
QualityPerformance
PotentialNew
Relationship
What is the Negotiation Purpose? What is the Negotiation Purpose?
Negotiation Slide 10 © The Delos Partnership 2005
CustomersCustomers
SuppliersSuppliers
Businessor
PersonalGoals
Businessor
PersonalGoals
• Business &/or Personal Goals • Projects and Priorities• Risk or Total Value Improvement
• Business &/or Personal Goals • Projects and Priorities• Risk or Total Value Improvement
Negotiation Deciders & Drivers
Negotiation Stages
The Negotiation ProcessThe Negotiation Process
Negotiation Slide 11 © The Delos Partnership 2005
Strategy & Negotiation StagesStrategy & Negotiation Stages
1. Product1. Productand Serviceand ServicePositioningPositioning 2. Market2. Market
EvaluationEvaluation& Leverage& Leverage
3. Team 3. Team & Skill & Skill
SetsSets
4. Tactics, 4. Tactics, PloysPloys
& Approach & Approach
5. Close Out, 5. Close Out, Joint Actions & Joint Actions &
Check Check
Negotiation Slide 12 © The Delos Partnership 2005
Negotiation Skill SetsNegotiation Skill Sets
Product Product & &
ServiceService
PeoplePeople
FunctionalFunctional
• Existing and Future Requirements in use
• Global market knowledge of deals, moves, pricing
• Life Cycle, Innovation and Manufacturing know-how
•
• Conflict Resolution Skills
• Interpersonal and Relationship Management
• Culture and Values
• Your business
• Your competitors
• Legal – Financial – Six Sigma – I.T. – Facilities /HSE
Negotiation Slide 13 © The Delos Partnership 2005
Balanced Negotiation TeamsBalanced Negotiation Teams
Product Product & &
ServiceService
PeoplePeople
FunctionalFunctional
•
• Customer
• Technical & Manufacturing
• Supply Chain & Procurement •
• Facilitator
• Good Guy – Bad Guy
• Arbitrator
•
• Your Boss
• Marketing & Sales
• Lawyer – Finance & I.T. Support – H.S.E person
Negotiation Slide 14 © The Delos Partnership 2005
Body LanguageBody Language
Negotiation Slide 15 © The Delos Partnership 2005
Body LanguageBody Language
Just be your natural self in business !
Negotiation Slide 16 © The Delos Partnership 2005
Eye ContactEye Contact
• Signals Sincerity
• Should be natural
• Too much looks like aggression
• Avoiding it makes you look shifty
• Difficult – Focus on the bridge of the nose
Negotiation Slide 17 © The Delos Partnership 2005
Hands Hands
• Hands on side of chin = listening patiently
• Steepling - Fingers Together = Confidence & Authority
• Steepling – Can help you relax
• Hand under chin & eyes closed – ZZZZ Probably Asleep
Negotiation Slide 18 © The Delos Partnership 2005
LyingLying
Gestures to stop or deflect words
Hand to Mouth
Averted Gaze
Arms Folded
Hesitation
Experienced operators lie with a steady gaze
Negotiation Slide 19 © The Delos Partnership 2005
Negotiation Checklist Negotiation Checklist
• What does the negotiation support - Business or Personal goals, Vision, Strategy & Priorities?
• Who is the customer and is there a URS?
• Does the negotiation support and fit with the Business Model?
• Has Six Sigma methodology been used (DMAIC) ?
• Who is the customer and is there a URS?
• Has a risk analysis, CDA and Set Up been completed?
• Has a RACCI chart been completed?
• What are the current performance and total value measures?
• Who needs to be involved on both sides and what are the meeting logistics & agenda?
• What are the three key goals to be achieved?
• Is there a Financial plan to show the "Cost of Change"?
Negotiation Slide 20 © The Delos Partnership 2005
Communication StrategyCommunication Strategy
• Treat people the way you would like to be treated• Build the relationship over time• Maintain uncertainty until you have the deal you want• Coach your colleagues into doing the same• Know the facts...• Always be professional and respectful
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Negotiation Slide 21 © The Delos Partnership 2005
Do the DealDo the Deal
• Emphasise the value you are giving - minimize the value you are receiving.
• Communicate your conditions first followed by your offer.
• Use the power of silence, take adjournments but keep the time from offer to contract / agreement within a reasonable time period.
• Maintain control of the process and continually recognise the area of negotiability.
• Ensure key offers are put in writing & put your final acceptance in writing.
• Use language such as "suggest" "recommend" "propose" and when making commitments "estimated" and "reasonable endeavours".
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Negotiation Slide 22 © The Delos Partnership 2005
Check the deal and outcomeCheck the deal and outcome
• Measure the total cost, benefit / disbenefit / outcome over time
• Maintain secrecy & confidentiality by communicating the outcome on a “ need to know “ basis.
• Ensure that you and your negotiation partner are committed to the outcome from organizational top to bottom.
• Create a joint communication & plan using “ Racci “ chart principles.
• Keep control by writing the agreement / contract and using your terms & conditions and lawyers.
• Maintain an open mind on the deal / outcome you have negotiated.
• Build trust by communicating positive benefits of the outcome and sticking to the deal.
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Negotiation Slide 23 © The Delos Partnership 2005
Act and RenegotiateAct and Renegotiate
• No implementation = no credibility. This removes the basis of trust and chances of successful deal making in the future.
• Assess joint performance through an assessment scheme. Do not communicate your full benefits.
• Check on the impact of new technology, market changes, currency movements, new suppliers etc which will soon make the negotiation obsolete.
• Realise that the key to lowering costs is regular renegotiation of key elements and responsible market testing.
• Do not provide any information on the deal or negotiation outcome to other suppliers or competition.
• Decide when to renegotiate based on an assessment of value received, the supplier strategic status and future total cost potential.
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Negotiation Slide 24 © The Delos Partnership 2005
Negotiation - SummaryNegotiation - Summary
• Understand the Product and Service Status• Take a two way view• Measure risks and benchmark on a global total value basis.• Build a financial model which shows the cost of change and net
change benefit over time.• Use direct and where safe to do so indirect leverage.• Maintain strict secrecy & confidentiality.• Ensure you have built a team and team consensus. Select only one
point for contact.• Evaluate the financial, innovation and lowest cost status of suppliers.
Quality & delivery should be givens.• Use the right performance improvement measures..
Negotiation Slide 25 © The Delos Partnership 2005
Negotiation ExcellenceNegotiation Excellence
Some different Negotiation Situation examples follow
Negotiation Slide 26 © The Delos Partnership 2005
SUPPLIER
• High level relationship
• Offers concessions
• Drives for Closure
• Special Offers
• Wants long term deal
CUSTOMER
• Uses maximum leverage
• No compromises
• Will walk away
• Aggressive
• Short term deal
Business Value
Low High
Customer isa
Key Account
Product & Supplier
are Leverage
Contrasting Business Situations Contrasting Business Situations
Negotiation Slide 27 © The Delos Partnership 2005
SUPPLIER
• Premium pricing
• Cash with order
• Low attention
• Irregular supply
• No concessions
CUSTOMER
• Supply Assurance
• Pay a premium
• Constant attention
• Conciliatory
• Desperate for agreement
Business Value
Low High
Seller has a critical high cost product
Customer is
exploitable
Dominant Supplier...Dominant Supplier...
Negotiation Slide 28 © The Delos Partnership 2005
• Low Attention
• e Consortia
• Outsource – Sell Off
• R2P Freedom to Act
Business ValueLow
High
Development
Nuisance"C" Items
Strategic"A" Items
Leverage"A & B" Items
• Value Proposition
• Build Trust
• Long Term Perspective
• Up front investment
• Senior Teams
• Shared objectives
• P&L and Balance Sheet
• Exclusive Innovation
• 80/20 – e Auction
• Play the Market
• Aggressive
• Short Term
Str
ateg
ic I
mpo
rtan
ce
High
Relationship Overview Relationship Overview
Negotiation Slide 29 © The Delos Partnership 2005
Deal Effectiveness*Deal Effectiveness*
Deal Type
RegionMarket Minus
Cost Plus MFNGain
Sharing
Europe (EMEA) ? ? ? ?
North America ? ? ? ?
Asia Pacific ? ? ? ?
Latin America ? ? ? ?
* Can also be applied to Categories
Negotiation Slide 30 © The Delos Partnership 2005
Deal Type ExplanationDeal Type Explanation
Deal Type Explanation
Market Minus
The most common deal, where the product or service is owned by the supplier who determines market pricing that will operate in each segment & country. The seller provides a list price and specifies the price validity period. Prices vary, depending on specification, packaging and delivery terms. In return for volume/value or in recognition of the customer status, the supplier is prepared to offer the buyer discounts from the national market price.
Cost PlusCost plus deals are normally based on an "open book" principle, where the seller is prepared to allow the buyer access to product or service variable and fixed costs at the producer point. The buyer and seller then agree the profit margin to apply, distribution costs and how to share & apportion cost changes – which can be either up or down.
Most Favoured Nation
This is where a seller guarantees to provide the buyer with the lowest price within the agreed market segment. The mechanism is that the seller provides the buyer with an opening monthly price – and after the month end has closed, proactively provides the buyer with information on net prices achieved in the segment. The seller then credits the buyer back to the best net segment price and is prepared to offer further discounts for guaranteed value or volume.
Gain Sharing
The principle of gain sharing is based on seller and buyer collaboration where both operate effectively as "one company" to ensure the product or service is innovated, produced and distributed at the best possible cost without the application of profit (collaborative supply chain). The two parties agree in advance on I.P. ownership, how to subsequently apportion profit on the volumes required by the buyer, how to share margin on sales in the rest of the market and market strategy/ restrictions on sales to other customers or segments.
Negotiation Slide 31 © The Delos Partnership 2005
The need for AgreementsThe need for Agreements
Key CustomerKey CustomerAgreementsAgreements
Supply & Service Level Supply & Service Level C.D.A.C.D.A.
DevelopmentDevelopment
Supply Side Assurance Supply Side Assurance
1. Supplier1. SupplierCDACDA
3. Set Up3. Set UpPurchase Purchase OrdersOrders& Ts & Cs& Ts & Cs
4. Supply & Service 4. Supply & Service Level AgreementLevel Agreement
2. Risk Mgt2. Risk Mgt
5. Development5. DevelopmentAgreementAgreement
6. Exploitation6. ExploitationAgreementAgreement
Negotiation Slide 32 © The Delos Partnership 2005
Performance based agreementsPerformance based agreements
Confidentiality
Quality
Delivery
Cost
Supplier Supplier Assurance Assurance
and Performanceand Performance
Supply & Service Level is defined – Volumes, Quality, O.T.I.F., Price (Cost)
Negotiation Slide 33 © The Delos Partnership 2005
Define value & volume requiredDefine value & volume required
• Estimated Supply Volume (Number of products, SKU’s & Service Level
• Exact Quality required
• Price or Cost (Invoice and Net with currency defined)
• Delivery – ex works, CIF, delivered
• Turnaround times required (lead time in calendar days)
• Inventory (buffer stocks, supplier managed inventory)
• Payment terms (from date of acceptance)
• Preferred supply plants
• Agreement period – based on supply / demand
Negotiation Slide 34 © The Delos Partnership 2005
Questions ?Questions ?
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