chapter14 nego

8/7/2019 chapter14 nego

1/29


2/29

2

Purchase Negotiation

Negotiation Overview-- Negotiation is aprocess of formal communication,

either face to face or via electronic means, where

two or more people come together to seek mutualagreement about an issue or issues

The process involves the management of time,information, and power

It is a time-consuming process that requires

extensive planning and a commitment ofresources--90% of the negotiation processinvolves preparation, not execution


3/29

3

Purchase Negotiation

Negotiation Overview--

Negotiation involves relationships between

people, not just organizations

The primary objective of a purchase negotiation isto reach an agreement that satisfies both parties

Negotiation is an opportunity to create value

within the supply chain

Good negotiators are not born--they develop theirskills through practice


4/29

4

Negotiation Framework

Purchase negotiation

involves a five-step process

Identify or Anticipate

a Purchase

Requirement

Determine if

Negotiation is

Required

Plan for the

Negotiation

Conduct theNegotiation

Execute the

Agreement


5/29

5


Identify or Anticipate a Purchase

Requirement

The purchasing cycle begins with identifying a

material need or requirement for a component,raw material, subassembly, service, supplies,

piece of equipment, or completely finished product

Discussion Question: How does purchasing gainvisibility to the material requirement needs of its

internal customers?


6/29

6


Determine if Negotiation is Required Not all purchase requirements require detailed

negotiations with suppliers. Remember--negotiation is a time consuming process!

Discussion Question:When should purchasingpursue negotiation with suppliers (instead ofcompetitive bidding only)?

Discussion Question:What areas or issuesbesides price often require negotiation between abuyer and seller?


7/29

7


Plan for the Negotiation Preparation and planning are considered the most

important part of negotiation

Aplan is a method or scheme for achieving a

desired end. Planning, therefore, is the processof devising methods to achieve a desired end

Commonplanning weaknesses-- Failing to commit sufficient time

Failing to establish clear objectives

Failing to formulate convincing arguments or support forpositions

Failing to consider a counterparts needs

Believing quick and clever is enough


8/29

8


Plan for the Negotiation

The negotiation planning process involves

many activities--

Determine who will participate

Identify specific

objectives

Analyze strengths andweakness of each party

Gather information

Recognize counterparts needs

Identify facts and issues

Establish a position on each

issue

Develop appropriate strategiesand tactics

Brief other personnel

Practice the negotiation


9/29

9


Plan for the Negotiation

Discussion Question:How can a

purchase negotiator practice a negotiation?

Discussion Question:How does a

negotiator know what negotiating issuesare important to his orher organization?


10/29

10


Plan for the Negotiation--Establishing aRange on KeyIssues If negotiators do not develop ranges for key

issues, the likelihood of overlap decreases

Why would a negotiator shift positions or changethe range during a negotiation? Desire for the contract is strong

New or improved information becomes available andchallenges the accuracy of the original position

A major concession by one party supports othermodifications or compromises by the other party

The power relationship between the two parties forcesone party to shift an original position or range


11/29

11


Plan for the Negotiation--Establishing a

Range on KeyIssues

$11.00$10.5012.50Buyer

Seller

Minimum

Minimum

Target

Target

Maximum

Maximum

Is there any overlap?


12/29

12


Plan for the Negotiation--Establishing a

Range on KeyIssues

$12.00$11.0011.50

Buyer

Seller

Minimum

Minimum

Target

Target

Maximum

Maximum

Where is the likely area of

agreement?


13/29

13


Conduct the Negotiation Deciding where to negotiate can be an important

issue

The atmosphere surrounding the negotiationshould be less formal wherever possible

Summarize positions and points of agreementthroughout the negotiation

Remove managers!

Debrief after the negotiation session--identifylessons learned from the experience


14/29

14


Conduct the Negotiation

Research reveals that effective negotiators

display certain behaviors--

Willing to compromise or revise th

eir goals, particularlywhen new information successfully challenges their

position

View issues independently

Establish lower and upper ranges for each major issue

Explore almost twice as many options per issuecompared with average negotiators


15/29

15


Conduct the Negotiation

Research reveals that effective negotiators

display certain behaviors--

Make almost four times the comments aboutthe common ground between parties

Give fewer reasons for the arguments they

advance (too many supporting reasons can

dilute an argument)

Make fewer counterproposals


16/29

16


Execute the Agreement

A negotiated agreement represents the

beginning rather than the end of the

process A key part of executing a negotiated

agreement between parties involve

providing performance feedback

Build on the success of the agreement


17/29

17

Power in Negotiation

Poweris the ability to influence anotherpersons or organizations behavior

Individuals and organizations bring different

sources of power to the negotiating table

The use of power can be part of a partysnegotiating strategy

Different sources of power can have varying

short and longer-term effects on a negotiationand a relationship


18/29

18


Sources ofPower in Negotiation--

InformationalPower

Perhaps the most common formof power

Relies on persuasion through the

use of facts, data, and other

information

RewardPower

One party is a able to offer

something of value to another partyRepresents a direct effort to

exert control

A source of power only if other

party values the rewards

Coercive Power

Involves the ability to punish

Repeated use can damage

relationships or invite retaliation

Its use often relates to the power

holders belief that another party

will

comply


19/29

19


Sources ofPower in Negotiation--

Legitimate Power

Position that a person holds,

rather than the individual person,

forms the basis oflegitimate power

ExpertPower

Expert has accumulated and

mastered vast knowledgeIndividual often has credentials to

verify that mastery

Non experts are less likely to

challenge an expert

ReferentPower

A referent has some attribute(s)

that attracts another party

The non referent wants the referent

to look favorable upon him or her


20/29

20


Negotiators must be careful not to abuse

power or risk damaging relationships

A party with power will likely use that power to

some degree during a negotiation Sources of power that are usually most

effective during negotiation are legitimate,

informational, and expert


21/29

21

Concessions

A concession is a movement away from a position

by offering something of value to the other party

To make the negotiating process work, all parties

must be willing to demonstrate flexibility

Without a willingness to concede to some degree to

find alternative solutions, parties to a negotiation will

often find themselves in deadlock

The manner in which a negotiator approaches

concessions is an important part of the negotiatingstrategy


22/29

22

Concessions

$40

$100

$25

$160

$0

$70 $50

$0

$0

$35

$55

$40

$30

$0

$0

$45

$0

$40

$10

$160

$0

$55

$5

$40

Concessions Receivedper

Negotiation Round

Supplier

1

2

3

4

5

6

Continue orStop??

_____________

_____________

_____________

_____________

_____________

_____________

Go to a fifth

round?


23/29

23

Concessions

Words of advice on concessions--

Regardless of opening position, leave room to

maneuver. If you take a flexible position, make

sure your counterpart is also taking a flexibleposition or you will be offering most of the

concessions

A strong opening offer leads to success more

often than deadlock

As a negotiation progresses, the frequency and

value of concessions need to diminish


24/29

24

Concessions

Words of advice on concessions--

Remove the audience during a negotiation.

The larger the audience the more difficult it

becomes to offer concessions

Smaller and smaller concessions indicate a

likely resistance to further concessions


25/29

25

Negotiating Tactics

Negotiating tactics are the short-term plansand actions employed to execute anegotiating strategy

Understanding tactics is important!! Use tactics to try and persuade a counterpart to

endorse a position

A negotiator must understand what type of tacticsa counterpart is using

Watch out--Not all negotiating tactics areethical!!


26/29

26

Negotiating Tactics

Examples of Tactics

Low Ball Honesty/Openness

Price Increase

Scarcity

Best and Final Offer Silence

High Ball

Strong Initial Offer

Phantom Quotes

or Offers

Planned

concessions

Use of power


27/29

27

Win-Win Negotiation

Characteristics of win-

lose negotiation--

Rigid negotiating

positions

Argument over a fixedamount of value

Strict use of power by

one party over another

Adversarial competition

played out at thenegotiating table

Characteristics of win-win negotiation-- Parties try and

understand each othersneeds and wants

Parties build on commonground and worktogether to developcreative solutions thatprovide additionalvalue

Primary use of power isto focus on commonrather than personalinterests

Likely to engage in opensharing of information


28/29

28

Win-Win Negotiation

Win-win negotiation applies only tocertain situations--

Strategically important items or services

Trust between parties exists

Both parties endorse a win-win approach

Discussion Question: How does a

negotiator know when his orhercounterpart is taking a win-win approach?


29/29

29

Negotiation Conclusions

Successful purchasing negotiatorsshare some common attributes--

They realize that training, planning, and

practice are required to become aneffective negotiator

They have higher negotiating goals andaspirations than their counterparts

They are destined to be among anorganizations most valued professionals

Documents

chapter14 nego