NEGOTIATIONS

ASSESSING THE NEGOTIATING ENVIRONMENT

• Assessing the negotiating climate typically involves gaining an

understanding of market conditions for the particular commodity or service
being purchased and the position of the supplier in that market
• It is important for you to assess the relationship you have with the supplier.
• Often, this can determine the atmosphere during the negotiation and have
an important impact on how you and your team develop your negotiation
strategy.
ASSESSING THE NEGOTIATING ENVIRONMENT

(a) THE COMPETITIVE ENVIRONMENT.

When the competitive environment is limited by the lack of qualified
suppliers or by intellectual property rights, competitive bidding is unlikely.
(b) NATURE OF COMPETITION. Competition is available in virtually all
markets for goods and services.
Higher competition generally results in lower prices and a greater
willingness by suppliers to provide additional services.
ASSESSING THE NEGOTIATING ENVIRONMENT
ASSESSING THE NEGOTIATING ENVIRONMENT

Competition can be evaluated from a number of perspectives:

• Number of qualified or qualifiable suppliers in the market. Higher
numbers generally foster greater competition.
• Impact of the buyer. Greater procurement volume encourages vigorous
competition for your business in markets where competition exists.
• Barriers to entry for the particular product or service. The lower the
cost to establish new businesses in the particular market, the greater is the
competitive pressure.
ASSESSING THE NEGOTIATING ENVIRONMENT

• Capacity. Often related to the number of suppliers, higher levels of unused

capacity within an industry can foster greater competition.
• Dominant brand. Effective branding strategies that make one supplier or
one product more desirable than others result in less vigorous competition.
• Ability to substitute. Products or services that are easily substituted by
those from other industries are more highly competitive.
• Role of market forces. When analysts speak of market forces, they
generally refer to factors—economic, physical, and political—influencing
and affecting buying and selling at a particular time.
 ASSESSING THE NEGOTIATING
ENVIRONMENT
(c) EARLY INVOLVEMENT.
Early involvement by the procurement
group is one of the fundamental keys to
employing successful negotiation
strategies.
The later the involvement of the
Procurement Department in sourcing
decisions, the less leverage will be
available for negotiating favorable terms.
 GATHERING INFORMATION AND ANALYSIS

• Information, as they say, is power.

(a) ANALYZING THE SUPPLIER’S SITUATION. In gathering information, you might first want to consider
looking at the situation from the supplier’s point of view: What motivates their position and what are they
likely to value the most?
(i) Financial Needs
Obviously, the greater the financial need, the greater is the supplier’s incentive to offer concessions.
(ii) Existing Relations
• How does your business impact the supplier’s bottom line?
• How does your volume affect its position in the marketplace?
• Does your organization require more or less customer service than others?
GATHERING INFORMATION AND ANALYSIS

(b) ANALYZING YOUR ORGANIZATION’S POSITION.

You will likely know a great deal more about your organization and its
specific needs than you will about your supplier’s, so the exercise of
gathering and analyzing your own position will encourage your team
(i) Urgency
When does your organization need the product or service you will be
negotiating? If it is needed urgently, you may want to prepare to negotiate
accelerated delivery by trading concessions in other areas such as price or
transportation methods. to more clearly identify areas where concessions
may be required.
 GATHERING INFORMATION AND ANALYSIS

(ii) Priority of Needs.

When you initially evaluated a key supplier, you may have measured its performance on a
weighted-average matrix to help in the selection process.
In terms of concessions, then, we would likely trade elements of service (the lowest value on
the list) for pricing concessions (the highest value on the list).
GATHERING INFORMATION AND ANALYSIS

(iii) Internal Constraints.

Unknown conditions within your organization may preclude your team from
fully leveraging its negotiating position, and they need to be identified prior
to establishing a strategy.
For example, it may be impossible to precisely define a scope of work for a
construction project renovating an existing building. Contractors rarely know
what they will find when opening a wall or ceiling. As a result, you will
likely be unable to develop a firm fixed price for the project.
PREPARING FOR THE NEGOTIATION

• In preparation, you will likely want to select and orient your cross-
functional team to ensure that you are all working together as a team
toward the common objectives.
(a) SELECTING AND LEADING THE NEGOTIATING TEAM.
• In any significant negotiation, you will first want to form a support team
composed of technical domain experts, the financial group, and members
of the user groups—likely the same people who participated in the
preparation of the RFP and the supplier selection.
PREPARING FOR THE NEGOTIATION

(i) Selection Criteria.

It is naturally important that key members of the user group actively participate in the
negotiation process for a number of reasons.
(ii) Assessing the Team’s Strength and Weaknesses.
It is a good idea for the members of the team to jointly assess its collective strengths and
weaknesses in advance.
(iii) Communicating with Team Members.
One of the most important roles the team leader has is that of the communicator and project
manager. The team leader is responsible for seeing that participants know what factual
information is needed and who should be gathering it.
PREPARING FOR THE NEGOTIATION

(b) FORMULATING OBJECTIVES AND DEVELOPING STRATEGIES.

Once the team has been selected and is operationally in place, your next step is to lead the
development of a plan for the actual negotiation.
(i) Objectives. When your supplier selection team established its initial requirements and
began the process of determining the most qualified supplier, it also developed a set of
expectations.
PRICE
• Despite the fact that you understand the nature of value and the concept of
total cost of ownership, the focal point of any negotiation is usually price.
QUALITY
• As negotiations progress, you will likely find that increased quality
specifications result in higher prices and that relaxing some of the
noncritical specifications mayresult in lower prices.
SERVICE LEVELS
• In many cases, service levels are included in the statement of work in the
form of a service-level agreement (SLA).
CAPACITY/VOLUME
• Whenever the potential for limitations in a supplier’s production or service
levels exist as a result of forecasted changes in market conditions, you will
need to address it contractually.
LENGTH OF CONTRACT
• Another point of negotiation occurs when there may be considerable risk
involved in the fluctuation of prices, and you (or the supplier) wish to lock
in pricing for a given period of time.
MANAGING SPECIFICATIONS
• The technical users on the team are generally responsible for determining
the specifications. Often, you will find that the tighter the specifications are
(in terms of typical industrial capabilities), the more you will have to pay.
 PREPARING FOR THE NEGOTIATION

(ii) Establishing Priorities.

As previously described, organizing the priority of your team’s objectives
can be one of the most important aspects in any negotiation planning
process.
Based on team discussions and consensus, it is possible to organize each of
the stated objectives into a priority list or, at the least, indicate if they are
high, medium, or low.
(iii) Preparing Psychologically.
Psychological preparation generally means preparing well enough to develop
a high level of confidence in the validity of your position.
PREPARING FOR THE NEGOTIATION

(iv) Planning Your Agenda.

As part of your psychological preparation, you will want to have your
agenda set up in advance.
This provides your team with a sense of direction and sets your own pace for
the negotiation.
(v) Conducting Practice Sessions.
Finally, it can be quite useful to have your team practice for the actual
negotiations by holding some realistic practice sessions.
CONDUCTING THE NEGOTIATION

• Implementing your strategy essentially amounts to how you approach the

negotiations—cooperatively in a win-win mode or win-lose in an
adversarial mode.
• Win-win modes tend to encourage collaboration in the negotiation process.
• Win-lose strategies tend to rely on power to control the negotiation
process.
(a) CREATING THE CLIMATE.
• Establishing the climate is one of your first concerns just prior to and
during the negotiation process.
• Climate refers to the physical aspects of where the negotiations are taking
place, as well as the general mood of those conducting the negotiations.
(i) Location
• Typically, negotiations are held at the buyer’s office, although there is no
hard-and-fast rule about that.
• If negotiations are conducted at your site, you may be subject to more
interruptions by routine business matters than you would be at some other
place, but you will have the comfort of familiar ground, as well as the
convenience of having support staff and records nearby.
CONDUCTING THE NEGOTIATION

(ii) Developing a Collaborative Atmosphere.

• A collaborative atmosphere, it is felt by many, is the most conducive to
negotiating in environments where long-term relationships are important.
• You will benefit from good relations if you consider that the supplier’s
representative is as anxious as you are to do a good job.
(iii) Allowing for Cultural Differences.
When conducting negotiations with personnel from nations other than your
own, the most important rule to remember is that cultural differences will
invariably have an impact.
CONDUCTING THE NEGOTIATION

(b) ADOPTING A NEGOTIATING STYLE.

While there is an endless array of negotiating styles, and small libraries can
be filled with the texts describing them, there are two basic types of
negotiators: collaborative negotiators, who seek to develop outcomes that
enhance the sense of accomplishment of both parties (winwin), and power
(or positional) negotiators, who seek to prevail in achieving their objectives
regardless of the impact on the other party.
CONDUCTING THE NEGOTIATION
(i) Tactics.
The tactics you will likely use for negotiations are closely related to the
specific style you adopt, and there appear to be endless compendiums of
them strung along like so many pejorative proverbs.
A few of the more common tactics:
• Do not make concessions without receiving equal consideration.
• Question how your statements will align with your objectives—
pronouncements can be pointless or even counterproductive.
• Avoid accepting the first offer.
• Take breaks whenever you feel the need. Do not attempt to fight fatigue.
CONDUCTING THE NEGOTIATION

(ii) Sole-Source Tactics.

Negotiating with a sole source can provide a measure of challenge.
As long as your organization is able to maintain its objectives from a
marketing perspective, you will likely find little to negotiate.
CONDUCTING THE NEGOTIATION
(c) DOCUMENTING THE NEGOTIATION.
It is important to properly document negotiation activities so that personnel
unfamiliar with the specifics of the project will be able to clearly understand
what occurred should the need arise.
Documentation should be approached from two points:
First, documenting the negotiation plan and its objectives and comparing the
objectives to actual outcomes as a way of determining the team’s effectiveness
and,
Second, providing an executive summary of the actual negotiation so that
auditors will be able to assess its impact, and approving authorities will be able
to understand what you are requesting.
END