Negotiations

Slides created by Brian Farrington Ltd. Procurement and Business Solutions People
for use with Lysons and Farrington: Purchasing and Supply Chain Management 7th edition
 Slide 15.2
Negotiation

Definition
“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.”

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.3
The price content of negotiation – some issues

Negotiation

Amendment to
Existing price
Terms and payment Price review mechanisms
Progress payments Type of pricing agreement
Price analysis and cost breakdown
Quantity discounts
Material costs
Carriage
Labour cost
Packaging Some Price issues
Overhead costs, including
Insurance For Distribution and marking
Negotiation
Storage costs Reasonable profit
Penalties for stockout Learning curve allowances
Contingency allowance
Disposal of obsolete
Or unsold products Trade-in allowances

Rebates Scrap allowances

Incentive Allowance for buyer contributions and
payment basis of shared cost

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.4
The contractual content of negotiation – some issues
Contractually Related Issues
Type of contract (1) Fixed price or lump sum
(2) Cost reimbursable
(3) Unit price
Legal charges Use of sub-contractors
Dispute of resolution Liability of sub-contractors
Ownership of jigs, tools, moulds, etc.
Cancellation rights
Right of audit and openbook Confidentiality and restraint of trade issues
agreements Some Contractually Charges for use of patents need by
Set of rights Related Negotiation supplier/purchaser
Force majeure Issues Sharings of savings due to improved
Conditions, warranties and design/production
guarantees Payments in advance
Non-compensatible delays Milestone payments
Inspection rights Changes to specifications and designs
Environmental issues Disposal of surplus material
Health and
safety issues

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.5
The delivery content of negotiation – some issues

Delivery/completion
times
Performance management issue Lead time reduction

Passing of property Remedial action for missed milestone targets

Packaging/palletisation Provision of information to suppliers,

including purchasing online
Reduction in cost per unit of Some delivery
Weight or unit of distance as Materials requirements planning (MRP)
Issues for
Weight or distance increases
due to spread of fixed costs negotiation Liaison with other supply
Chain customers
Transportation
Just-in-Time (JIT) requirement
Damages/compensation for
failure to deliver on time Service levels

Carry of stock
By supplier

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.7
Negotiation

The Buyer’s Negotiation Position will be Strong

If:
Demand is not urgent
Suppliers are keen for the business

Buyer is in a monopsonistic 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

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.8
Factors influencing negotiations and their outcomes

Influencing strategies and skills of parties

Presentation of case, proposals made by parties,
pattern of moves and countermoves, concluding

Exercise of power, power bases, promises and threats

Communication, intention and understanding,

adaptive behaviour and
Development of trust, influencing behaviour

Conflict-handling modes, appropriate behaviour

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.9
Factors influencing negotiations and their outcomes

Behavioural predispositions of parties

Self-image, motives, perceptions,

attitudes, cognitive structures,
personal values

Interpersonal orientation, sensitivity to

Interpersonal relationships, cooperative/
Competitive disposition, previous interaction
Experience, willingness to take risks

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.10
Factors influencing negotiations and their outcomes

Environmental influences on parties

Macro and micro cultures

Legal, political, economic, social and technological factors

Conducting dummy runs

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.11
Factors influencing negotiations and their outcomes

Situational influences on parties

Objectives of parties in relation to perceived issues,

degree of potential overlap between them, level of
First offers, negotiator’s role obligations

Degree of mutual dependence of parties and

distribution of power between them

Extent of conflict of interest, perceptual distortion

Motivational orientation and role perceptions, the

Physical structure of bargaining
Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.12
Negotiation

Pre-negotiation Considerations

Who is to negotiate?

The venue

Intelligence gathering

Negotiation objectives

Strategy

Tactics

Conducting dummy runs

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.13
Negotiation

Stages of a Negotiation

Introductions, agenda agreement and rules of procedure

Ascertaining the negotiation range

Agreement of common goals

Identification and removal of barriers

Agreement and closure

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.14

Table 9.1 Some ‘personnel’ factors in negotiation

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.15

Table 9.2 Manipulative techniques and ploys

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, © Pearson Education Limited 2005
 Slide 15.17

Table 10.4 The interpretation of postures

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

Slides created by Brian Farrington Ltd. Procurement and Business Solutions People
for use with Lysons and Farrington: Purchasing and Supply Chain Management 7th edition