STRATEGIC

GLOOBAL
SOURCING
Chapter – 08

Negotiation Revisited
NEGOTIATION REVISED
 Clearly, there are many areas of real and potential differences in
the buying versus the selling business positions.

 There are matters of defining and interpreting specifications,

rationalizing quantity and delivery requirements with production or
capacity constraints, and, surely, notions of what constitutes fair
and reasonable supplier pricing.

 These differences cannot always be resolved by the competitive

process alone, so negotiation must be employed to complement
that process.
NEGOTIATION REVISED
 To rephrase this somewhat: Negotiation is employed whenever there are
differences of objectives, interests, or points of view that must be resolved
in order for two or more parties to reach agreement.

 Negotiation is a process of reaching agreement through discussion,

analysis, and bargaining.

 It is not an event. It is not a game. It is not a sport. It is a process.

 It has an easily identified methodology, with clearly defined planning steps

that, when followed, produce the final results we want...or get us as close
to the results as we can possibly come.
THE NATURE OF NEGOTIATION
 Negotiation is both collaborative and competitive

 What demands skill in negotiation is the ability to

deal effectively with the duality in the process
itself.

 On one hand, there is the intrinsic intent to reach

an agreement. That makes the process cooperative
THE NATURE OF NEGOTIATION
 The competitive nature of negotiation is the prime
reason why some of us are intimidated by it.

 After all, in any competitive endeavor or contest,

there are winners and losers, and if we negotiate,
we could wind up on the losing side.
THE NATURE OF NEGOTIATION
Negotiation Strategy
 Successful negotiation demands a carefully developed planning strategy that
addresses the dual aspects of negotiation: collaboration and competition.

 The cooperative, collaborative aspects are addressed by focusing on issues that

can be easily agreed on.

 The competitive aspect addresses issues that are in disagreement; issues that are
unclear, ambiguous, in dispute, or subject to different interpretation or opinion.

 An effective negotiation planning strategy must take into account your

objectives and those of your supplier, identifying issues that favorably and
unfavorably impact each of them.
Negotiation Strategy
 Negotiation planning strategy generally needs to address long-term mutual
satisfaction and the development of an approach that seeks to maximize the
benefits to both parties, so that each party can leave the negotiating table
feeling successful.

 Without a clearly defined set of negotiation plan goals, there is no way of

knowing what you have achieved, and both parties will continue to look
back with regret.
Negotiation Strategy
 Broad Outcomes

 Negotiation is not always a game or a sport. In games and sports

there is rarely more at stake than the outcome: only a winner and
loser.

 In negotiation, there are situations where both parties win and

situations where both parties lose, in effect creating three options
counting the win/lose.

 During the actual negotiation, this previously determined outcome

will drive your negotiation tactics.
NEGOTIATION STRATEGY
 WHY NEGOTIATE
 We negotiate to address those issues, identify areas that are
ambiguous or in dispute, and then resolve them.

 WHEN NEGOTIATE
 Competition has severe limitations in ensuring value when
requirements are special only to you, or when they are complex and
technically demanding.

 WHAT NEGOTIATE
 It’s a common but astute adage that everything is negotiable.
 Your job, then, is to prioritize what you want to negotiate given the
specific circumstances of the acquisition
Negotiation Strategy
WHAT to Negotiate

■ Price ■ Payment terms ■ Deliverables ■ Service levels

■ Quality ■ Support ■ Warranties ■ Risk assumption ■
Business continuity/disaster recovery ■ Liquidated
damages ■ Insurance/bonding ■ Freight allowances (for
product) ■ Consignment inventory
SUPPLIER’S OBJECTIVE
 Another requirement for negotiation planning is to attempt
to recognize the supplier’s objectives in order to better
understand what you may be able to gain through an
exchange of concessions.

 If, for example, you are aware that the supplier is operating
well below capacity, you might be able to gain a price
reduction by committing to more volume in the earlier
stages of the contract.