Basic Commercial

Negotiation
 Adhe Priyambodo Working history
Material Planner, PT Henkel Indonesien
Raw Material Manager, PT Sepatu Bata, Tbk
RM Procurement Manager, PT PZ Cussons Indonesia
Packaging Procurement Manager, PT Frisian Flag
Indonesia
Regional Procurement Manager, PT Shell Indonesia
Education
- Engineering Physics, ITS Surabaya
- Some extensive trainings in
Professional membership
Supply Chain, Procurement, Negotiation, - Chartered Institute of Procurement
Warehouse Management & ERP system and Supply (CIPS), UK
in Indonesia & overseas - Indonesian Production & Operations
. Management Society (IPOMS)
- Asosiasi Logistik Indonesia (ALI)
2
.
Key Topics in Commercial Negotiation
• What is Commercial Negotiation?
• How to Prepare Negotiation?
• How to Perform Negotiation Meeting?
• Negotiation Tactics
What is Negotiation?
• A process
• Involving two or more
parties
• Each parties have different
requirement and position
• Intended to achieve mutual
agreement
• Require conflict Process Content
management skills to avoid What you are How the negotiation is
unproductive process & negotiating about managed
result → Generic → Unique
Commercial Negotiation
• Negotiation in the field of commercials activity
• Between supplier and buyer
• To make an agreement of commercial terms
• Example of Commercial Terms:
• Price
• Quality
• Payment Term
• Risk share
• Volume & Commitment
• Contract Terms & Conditions
• Dispute Resolutions/Contract Governing Law
Negotiation Objective for Buyer
• #1 : “Value for Money” (External)
• #2 : “Fit for Purpose (Internal) Right
Quality Right
• #3 : “Manage Relationship” Quantity

Right Price

5R
Right Time
Right
Place
 Is Negotiation Needed?
• Negotiation is not free
• Price negotiation is only drive
20% of total savings
Price
20% Saving

Specifications
50%

Demand
Management
30%
Commercial Negotiation Level
High
• Tactical Negotiation
• Short Term Deal
• Operational Term → Details
• Perform by Staff
• Strategic Negotiation Spend
Strategic
• Long Term Deal
• Strategic Term → Direction
• Involving Senior Management
Tactical
Low
Low Risk High
Negotiation and Contracts
• During Tender/ Pre-Award
• Post Award

Quotation
Purchase Purchase Delivery &
Request Negotiation Payment
Request Order Receiving
& Analysis

Vendor
Evaluation
Negotiation Types
Competitive (Win-Lose)
• Competitive (Win-Lose)
• Fixed pie
• One party get bigger pie
• Business relationship sacrificed
• Suitable for one time purchase
Collaborative (Win-Win)
• Collaborative (Win-Win)
• Increase pie value → bigger pie
• How? By solving each other problems
• Both party gain at the end
• Good business relationship
Negotiation Types, Example
500 rb
Purchase of Air Conditioner

• Price : 2.000.000
• Cost : 1.500.000
• Margin : 500.000 200 ribu
300 ribu

Supplier Buyer
Negotiation Types, Example
Payment Term
Purchase of Air Conditioner Lead time
• Price : 2.000.000 Technician
Warranty
• Cost : 1.500.000
Order 500 rb
• Margin : 500.000 Quantity Installation

Buyer Interest Supplier Interest

Customer Maintenance
• Longer warranty • Larger quantity order Recommendation
• Free maintenance • Faster Payment Term
• Installation not in • Customer
working hours recommendation
• Faster lead time
• Certified technician
Negotiation Styles
Avoider Hates and avoid conflicts

Competitor Likes to win and be in

control of situation

Accommodator Likes to resolve conflicts

by solving other’s problem

Compromiser Middle position between

Competitor and
Accommodator

Problem Solver Thinks about fair win-win

solutions by solving
problem and creative
thinking
Negotiation Styles: When to Use or Avoid?
Style When to USE When to AVOID
Avoider • When you want to buy time • When dealing critical issue
Competitor • When you need quick decision • When you want a long-term
• When your POWER is high and business relationship
RISK of purchase is low
Accommodator • When your POWER is low and • When the other party is lying
RISK of purchase is high
Compromiser • When negotiating on mutually • When negotiating mutual
exclusive objectives interest
Problem Solver • When dealing critical issues
• When you want a long-term
business relationship
Negotiation Power
• Organizational Power
• Market Position Power
• Business Requirement and Offer Power
• Technical Knowledge
• Personal Power
Negotiation Process

Preparation Opening Bargaining Closing

• Gather • Asking • Supplier • Make

information probing and buyer summary of
about the questions make offers the deal
commodity, to obtain and counter and seal the
supplier more offers and deal with
and find information make written
alternative and gain concessions agreement
supplier advantages to reach
agreement
Preparing for Negotiation: Gather Information
Preparing for Negotiation: Setting Targets
1. List down CRITICAL ISSUES
2. Set WOW and WALK-AWAY for
each Critical issue
3. List down OTHER ISSUES
4. Set WOW and WALK-AWAY for
each Other issue
Preparing for Negotiation: Setting Targets
Critical Issues Wow Walk-Away Other Issues Wow Walk-Away
Price 1.600.000 2.000.000 Transport Free List price
Technical Extra feature Comply Warranty > 1 year < 2 years
Specification Payment Term 90 days 30 days
Installation < 1 week > 3 weeks Maintenance Free service List price
Time
Technician Same day > one day
response
Preparing for Negotiation: ZOPA & BATNA
ZOPA : Zone of Possible Agreement
Supplier A Supplier B Supplier C
Price Rp. 2.100.000 Rp. 1.700.000 Rp. 1.900.000

Buyer’s settlement range No ZOPA

Supplier A’s settlement range

Rp 1.700.000 Rp 1.800.000 Rp 1.900.000 Rp 2.000.000 Rp 2.100.000

ZOPA
Buyer’s settlement range
Supplier B’s settlement range

Rp 1.700.000 Rp 1.800.000 Rp 1.900.000 Rp 2.000.000 Rp 2.100.000

ZOPA
Buyer’s settlement range
Supplier B’s settlement range

Rp 1.700.000 Rp 1.800.000 Rp 1.900.000 Rp 2.000.000 Rp 2.100.000

Preparing for Negotiation: ZOPA & BATNA
BATNA : Best Alternative to Negotiated Agreement

• BATNA will increase your negotiation power

• BATNA not comes by itself, but should be seriously developed
• BATNA need to be credible and more or less equal with the main
negotiated supplier
Preparing Negotiation Meetings
Critical Points to Manage:
• Set up the participant
• Set up the premise and schedule
• Basic behaviour
• How to raise questions
• Body language
• Negotiation tactics