Chapter 13 Negotiation and Conflict Management

PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e
Negotiation and
Conflict Resolution
Chapter 13
© 2016 Cengage Learning. All rights reserved. May

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a publically accessible website, in whole or in part. SOUTH-WESTERN CENGAGE LEARNING
Chapter Overview
 What is negotiation?
 The negotiation framework in supply
management
 Negotiation planning
 Power in negotiation
 Concessions

2
a publically accessible website, in whole or in part. Purchasing & Supply Chain Management, 6e
Chapter Overview
 Negotiation tactics: trying to reach

agreement
 Win-win negotiation
 International negotiation
 Selected countries
 Impact of electronic media on
negotiations

3
What Is Negotiation?
 A process of formal communication,

either face-to-face or via electronic
means, where two or more people,
groups, or organizations come together
to seek mutual agreement about issue
or issues
 Involves management of time, information,
and power between individuals and
organizations who are interdependent
4
What Is Negotiation?
 Relationships between people, not just

organizations
 Role of persuasion
 Negotiation skills can be learned and
enhanced
 Supports implementation of supply
management strategies and plans

5
Common Terms Used in Negotiation
 BATNA  Issue
 Position  Strategy
 Interest  Power
 Need  Concession
 Want  Tactic
 Fact

6
BATNA
 That point where it is advantageous to

walk away from the negotiation
 Best Alternative to a Negotiated Agreement
 Bottom line or reservation point
 Should never be revealed to other party
 All settlements must be judged in light
of all other viable alternatives existing at
the time of the agreement
7
Position
 Negotiator’s opening offer

 Represents the optimistic (or ideal) target
value of issues being negotiated
 Stated demand at negotiation table

8
Interest
 Unspoken motivation or reason that

underlies any given position
 Unlikely to be expressly stated or
acknowledged
 If done, usually results in loss of power
 May not be directly germane to stated
position
 Often personal in nature

9
Key Points on Interests
 Learn to play detective

 Try to discern other party’s interests
through series of open-ended, probing
questions
 Then listen carefully
 Always focus on the other party’s
underlying interests, not its stated
positions

10
Need vs. Want
 Need
 Negotiated outcome that negotiator must
achieve
 Want
 Negotiated outcome that a negotiator
would like to have
 May often be exchanged as a concession

11
Triangle Talk
Step 3:
“Propose Action in a Way that They Can Accept”
Step 1: Step 2:
“Know The “Know
Exactly Negotiation Exactly
What You What They
Want” Process Want”

12
Know Exactly What You Want
 Determine and formalize specific goals

and objectives
 Helps retain clear focus and minimize
distraction
 When written, can be referred to readily
during negotiation
 The more clearly defined, the more likely
that priorities can be achieved

13
Know Exactly What They Want
 Attempt to discern other party’s likely

needs and wants
 Estimate underlying interests to other
party’s stated positions
 Beware of expecting other party to
think in same way as you do
 Ask probing, open-ended questions to
confirm or counter assumptions

14
Propose Action in a Way
that They Can Accept
 Frame your own needs in terms of
other party’s needs
 Make it easy for other party to say
“Yes”
 Remain fair, flexible, and reasonable
 Address their needs first

15
The Negotiation Framework
Identify or anticipate sourcing requirement
Determine if negotiation or bidding is required
Plan for the negotiation
Conduct the negotiation
Execute and follow up on the agreement

16
Identify or Anticipate
the Sourcing Requirement
 Purchase requisitions
 Inventory counts
 Reorder point systems
 New product development
 New facilities

17
Determine If Negotiation or
Competitive Bidding Is Required
 Is bid process inadequate?
 Are many non-price issues involved?
 Is contract large?
 Are technical requirements complex?
 Does contract involve plant and
equipment?

18
Determine If Negotiation or
Competitive Bidding Is Required
 Does contract involve a partnership?
 Will supplier perform value-added
activities?
 Will there be high risk and uncertainty?

19
When to Negotiate
 Identification of  Technological
allowable costs support and
 Delivery schedules assistance
and lead times  Contract volumes
 Expected product and release timing
and service quality  Special packaging,
levels handling, and
 Performance metrics shipping
and how information  Liability for loss and
is gathered damage
20
When to Negotiate
 Transportation  Capacity
mode selection commitments
 Carrier selection  Penalty clauses
 Filing freight claims  Performance
 Payment terms and incentives
currency exchange  Contract length and
 Progress payment renewal mechanism
schedules  Protection of
 Warranties and proprietary
replacements information
21
When to Negotiate
 Ownership and use  Contract dispute
of intellectual resolution
property mechanisms
 Resources related  Spare parts
to developing closer  After-sales service
relationships  Operator or
 Improvement maintenance
requirements training
 Quality, delivery, lead  Access to
time, cost,
responsiveness
technology
22
Reasons for Negotiation
 Total contract value or volume is large

 Complex technical requirements
 Product and process requirements and
specifications may still be evolving
 Purchase involves utilization of capital-
intensive plant and equipment

23
Reasons for Negotiation
 Agreement involves special or

collaborative relationship
 Supplier will perform important value-
added activities, requiring …
 Appropriate compensation
 Performance standards
 Performance metrics

24
Planning for the Negotiation
 Better planning  better outcomes
 Electronic communication tools vs.
face-to-face negotiations
 Reduce expensive and time consuming
travel
 Use of online RFP and RFQ templates
 Quick turnaround on changes
 Simultaneous negotiations with multiple
suppliers
25
Points to Focus On
 Defining issues,  Assessing role of
needs, and wants constituents and
 Assembling issues, social context
needs, and wants  Analyzing other
 Defining bargaining party
mix  Planning issue
 Defining interests presentations and
 Defining own defenses
objectives and  Defining process
opening offers protocols
26
Phases of the Negotiation
 Phase I
 Fact finding and information sharing
 Clarify or confirm information
 Phase II
 Recess to assess new information and
findings
 Assess relative strengths and weaknesses
 Review and revise objectives and
positions, if necessary
 Organize agenda
27
Phases of the Negotiation
 Phase III
 Meet face-to-face or electronically
 Narrow differences on issues
 Offer proposals and counterproposals
 Exchange concessions
 Phase IV
 Seek agreement
 Conclude negotiation
 Agree to follow-on activities
28
Being an Effective Negotiator
 Willing to compromise or revise goals

 When faced with new information
 View issues independently
 Establish upper and lower ranges for
each major issue
 Explore more viable options
 Build and focus on common ground
rather than differences
29
Being an Effective Negotiator
 Avoid making irritating comments

 Avoid argumentation
 Too many reasons can dilute an argument
 Make fewer counterproposals
 Too many concessions
 Compromising too much
 May indicate lack of adequate planning
and show invulnerability

30
Execute and Follow Up
on the Agreement
 Actual performance or management of
contract
 Load into organization’s contract
management system for visibility
 Provide performance feedback
 Build on success of negotiation
 Monitor contract provisions
 Reaffirm commitment of parties
31
Negotiation Planning
 Develop plan and overall strategy

 Specific strategies
 Research
 Actions
 Tactics

32
Reasons for Failed Negotiations
 Neglect other party’s problems

 Focus too much on price
 Focus on positions instead of interests
 Focus too much on common ground
 Neglect BATNAs
 Overadjust perceptions during actual
negotiation

33
Develop Specific Objectives
 Objective
 Aspiration or vision to work toward in
future
 Typical objectives
 Acceptable unit price
 Contract quantities
 Required delivery lead time
 Improved supplier quality

34
Develop Specific Objectives
 Not all objectives are equally important

 Need to prioritize
 Must have (needs)
 Would like to have (wants)
 Serves as basis for concession strategy

35
Analyze Each Party’s
Strengths and Weaknesses
 Understand through research and
experience
 Personality
 Negotiation style
 History of the other party
 Assess relative strengths and
weaknesses, i.e., “due diligence”
 Each negotiation experience is unique

36
Gather Relevant Information
 Previous experience with other party

 What happened between parties?
 Was negotiator satisfied with previous
outcome?
 Are we negotiating with same people or
with different negotiators?
 What were important issues to supplier?
To buyer?

37
Gather Relevant Information
 Previous experience with other party

 What were areas of disagreement?
 Is there anything about previous conduct
or protocols that should be changed?
 What is relative power between parties?
 Who has most to lose? To gain?

38
Sources of Information
 Other buyers or organizations with

experience with supplier
 Published sources of information
 Trade journals, other business
publications, and Internet websites
 Trade association and government data
 Annual reports
 Financial evaluations and databases
 Direct inquiry with supplier
39
Recognize Your Counterpart’s Needs
 Must consider longer-term success

 Issues critical to supplier may not be
issues critical to buyer, and vice versa
 Give-and-take must be considered
 Each party should not expect to prevail in
all issues
 Setting priorities for concessions and
issue tradeoffs

40
Identify Facts and Issues
 Fact
 Reality or truth that parties can state and
successfully verify
 Issue
 Items or topics to be resolved
 Triangle Talk is a helpful tool

41
Establish a Position on Each Issue
 Need for agility and flexibility

 Range of positions
 Minimum acceptable position (BATNA)
 Maximum, or ideal, position
 Most likely outcome
 Overlapping positions create
bargaining or settlement zone
 “Heart” of the negotiation process

42
Bargaining Zone Example
Buyer
$11.00
Aspiration $11.45
Aspiration
BATNA
BATNA
Zone of
Point
Point
Likely
Agreement
$11.15 $11.50
Note:
Example shown is typical buyer- Seller
seller negotiation on price

43
Factors in Modifying Positions
 Desirability of the contract

 Revelation of irrefutable information
that challenges accuracy and credibility
of original position
 Major concession that promotes
reciprocation on another issue

44
Develop the Negotiation Strategy
and Accompanying Tactics
 Strategy
 Overall approach used to reach mutually
beneficial agreement
 Tactic
 Art or skill of employing available means
to accomplish an end, objective, or
strategy
 Includes supporting action plan and
activities
45
Brief Other Stakeholders
 Stakeholder
 One who has an interest in or will be
affected by negotiation outcome(s)
 Need to be aware of, and in agreement
with, desired objectives
 Includes major issues and initial positions
for those issues
 Prevent unwanted surprises
 Develops stakeholder buy-in and support
46
Practice the Negotiation
 Applies to complex and formal
negotiations that are …
 Large dollar amount
 Long span of time
 Crucial to success of organization
 Mock or simulated negotiation
 Helps raise awareness of unanticipated
questions and issues
 Role play other party to develop empathy
47
Power in Negotiation
 Power
 Ability to influence another person or
organization to do something
 Power by itself is neither good nor bad
 It is actual application or use of power that
makes it good or bad
 Sources of negotiating power

48
Sources of Negotiating Power
 Informational power
 Reward power
 Coercive power
 Legitimate power
 Expert power
 Referent power

49
Informational Power
 Ready access to relevant and useful

information
 Presentation of facts, data, and
persuasive arguments
 Need for selective disclosure
 Can be manipulated by withholding
information or by providing false
information

50
Reward Power
 One party is able to offer something of

perceived value to other
 Direct attempt to exert active control
 Individuals respond and behave
accordingly when valued rewards are
available

51
Coercive Power
 Taking away or withholding something

of value to other party
 Ability to punish
 Financially, physically, or mentally
 Can have damaging effects on long-
term relationships
 Promotes retaliation or getting even

52
Legitimate Power
 Power based on official position held

 The higher the job position or title, the
greater the power inferred
 May be separate from reward power or
coercive power
 Buyer has legitimate power due to
his/her ability to award contract

53
Expert Power
 Special form of informational power

 Development and retention of body of
knowledge
 Often represented by verifiable
credentials and stature
 Reduces likelihood of refuting position
 Other party must value expertise in order
to be effective

54
Referent Power
 Comes from attraction based on
socially acceptable personal qualities
and attributes
 Personality or attractiveness
characteristics such as …
 Honesty
 Charisma
 Friendliness
 Empathy
 Sensitivity

55
Application of Power
 Used to support one’s advantage

 Need to be careful not to abuse power
 Damaged relationships
 Invited retaliation
 Diminished value of that power
 Some types of power interact
synergistically with others
 Example – expert and referent power

56
Concessions
 Movement away from position that has
perceived value to other party to gain
something else of value
 Give-and-take process is normal in most
negotiations
 Need to avoid giving away concessions
without receiving something of equal or
greater value in return
 Always keep BATNA in mind
57
Concessions
 Without effective concessions strategy,
negotiation may result in impasse
 Concessions should be made in
decreasing increments, not increasing
ones
 Increasing concession values encourage
other party to wait you out for even greater
concessions
 Based on length and cost of negotiation
58
Guidelines for Making Concessions
 Give yourself enough room to make

concessions
 Try to get other party to reveal his/her
needs and objectives first
 Be first to concede on a minor issue
but not first on a major one
 Make unimportant concessions and
portray them as valuable
59
 Make other party work hard for every

concession made
 Use tradeoffs to obtain something for
every concession you make
 Generally, concede slowly and give a
little with each concession
 Do not reveal your deadline to other
party – ever
60
 Occasionally, say “No” to other party

 Be careful trying to take back
concessions, even tentative ones
 Keep a record of concessions made
and try to identify a pattern
 Do not concede too soon, too often, or
too much

61
Negotiation Tactics:
Trying to Reach Agreement
 Short-term plans and actions employed
to ...
 Execute strategy
 Cause a conscious change in other party’s
position
 Influence others to achieve one’s own
objectives
 Can be either ethical or unethical
 Tricks or ploys
62
Common Negotiation Tactics
 Low ball  High ball

 Honesty and  Best and final
openness offer
 Questions  Silence
 Caucus  Planned
 Trial balloon concessions
 Price increase  Venue

63
Cialdini’s Power of Influence
 Reciprocation
 Consistency
 Social proof
 Liking
 Authority
 Scarcity

64
Reciprocation
 Obligation to give something back of

equal or greater value to someone after
having received something from them
 Creates powerful obligation response
 Can be used effectively when giving
concessions
 Patterns of concession
 Quid pro quo
65
Consistency
 People tend to want to be perceived as
being consistent in their beliefs and
actions
 Otherwise considered to be irrational
 It is difficult to back away from
something already agreed to
 Beware of the consistency trap
 Small commitments often lead to much
larger ones
66
Social Proof
 Looking to behavior of others to

determine what is desirable,
appropriate, and correct
 Power of endorsement
 Everyone else is doing it

67
Liking
 People work well and are more

agreeable with others that we like or
who are like us
 Get to know other party better to build
on relationship when concessions are
being offered

68
Authority
 People are more likely to accept

positions, arguments, and directions
from recognized authority figures
 Power of titles and perceived
importance

69
Scarcity
 Can also be “perception” of potential
scarcity
 “Act now!”
 “For a limited time only!”
 “Offer expires tomorrow!”
 Suppliers often use potential price
increases as a scarcity technique
 “Twenty percent price increase effective at
the first of the month!”
70
Overcoming Tactics
 Modify tactics when they don’t work

 Prepare for likely tactics to be used
against you
 Tactics are more effective if you are
unprepared, stressed, under severe
deadlines, inexperienced, fatigued, or
disinterested
 Try not to react without thinking
71
Win-Lose vs. Win-Win Negotiation
 Win-lose
 Competitive or distributive bargaining
 “Fixed sum game” perception
 Win-win
 Integrative or collaborative bargaining
 Expand the value or resources available to
all participants
 Requires time, patience, and creativity

72
Win-Lose Negotiation
 Assume rigid negotiating positions

 Compete over a fixed amount of value
 Practice strict use of power by one
party over another
 Pursue adversarial relationships

73
Win-Win Negotiation
 Understand each other’s needs and

wants
 Focus on common ground rather than
personal interests
 Conduct joint efforts to solve problems
 Develop creative solutions that provide
additional value
 Engage in open information sharing
74
Win-Win Methods
 Expand the pie

 Logroll
 Use nonspecific compensation
 Cut costs for compliance
 Find bridge solution

75
International Negotiation
 Added complexity and challenge with

different …
 Languages
 Customs
 Laws
 Cultures
 Extra time and effort required
 Culture shock
76
International Negotiation
 Barriers and obstacles

 Miscommunication because of language
 Time orientation
 Cultural differences
 Limited authority of foreign negotiators
 Need for knowledgeable translators
 Culture and language
 Industry and business concepts

77
Culture Shock
 Negotiator’s preexisting values, beliefs,

rules, and decision-making schema are
challenged
 Emotions run higher
 May encounter substantial
 Anxiety
 Disorientation
 Confusion

78
Characteristics to Overcome Barriers
 Extreme patience
 Thorough knowledge of agreement
 Honest and polite attitude
 Familiarity with foreign cultures and
customs
 Recognize that common words may
have different meanings, even between
similar countries or cultures
79
Caveats when Negotiating Overseas
 Don’t think that everyone else thinks

and negotiates like you do
 There is danger in stereotyping or
oversimplifying the interpersonal
characteristics of other cultures
 There is always substantial interpersonal
variation within any culture
 However, there are often general
tendencies
80
Impact of Electronic Media
on Negotiations
 Electronically-based negotiations tend
to equalize differences between parties
 Normal visual and auditory clues are
diminished or not readily apparent
 Status differences and social differences
are less discernible
 Problem of being anonymous

81
on Negotiations
 E-negotiations take more time than
face-to-face negotiations
 Outcomes tend to be less satisfying
 E-negotiations are more impersonal
and do not promote rapport
 Interchange is often more aggressive
and less diplomatic
 Messages are often misconstrued and
taken out of context
82
on Negotiations
 Negotiators tend take more risks
 Real time vs. asynchronous
 Loss of information richness
 More difficult to provide feedback and
conduct active listening
 E-negotiators ask fewer questions and
tend to make more assumptions
 What does “silence” mean?
83
Mitigating the Negative Effects of
Electronic Negotiation
 Conduct an initial face-to-face meeting
to build rapport
 At a minimum, have an extended telephone
conversation
 Take extra time to carefully reread and
edit e-mails before sending them
 They are irretrievable and can be easily
forwarded to others
 Double-check “to:” and “cc:” addresses
84
Mitigating the Negative Effects of
Electronic Negotiation
 Use generally accepted e-mail protocols
 Clear, concise language
 No all caps, excessive punctuation
symbols, underlining, bolding, italics, or
“off-the-cuff” comments
 Don’t copy e-mail to recipient’s
superiors
 Perceived as you not trusting the recipient

85
Effective E-Negotiating Practices
 Use a blended negotiation

 Share relevant personal information
initially
 Establish common ground
 Use emoticons ;<)
 Summarize agreements and
concessions frequently

86
Effective E-Negotiating Practices
 Include positive language addressing

the importance of the relationship
 Maintain a folder of the correspondence
 Know when and how to reply to or
forward electronic correspondence
 Proofread the entire message before
sending
 It will always take longer
87

Chapter 13 Negotiation and Conflict Management

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Chapter 13 Negotiation and Conflict Management

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Negotiation tactics: trying to reach

© 2016 Cengage Learning. All rights reserved. May

 A process of formal communication,

 Relationships between people, not just

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 That point where it is advantageous to

 Negotiator’s opening offer

© 2016 Cengage Learning. All rights reserved. May

 Unspoken motivation or reason that

© 2016 Cengage Learning. All rights reserved. May

 Learn to play detective

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Determine and formalize specific goals

© 2016 Cengage Learning. All rights reserved. May

 Attempt to discern other party’s likely

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

Determine if negotiation or bidding is required

Plan for the negotiation

Conduct the negotiation

Execute and follow up on the agreement

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Total contract value or volume is large

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 Agreement involves special or

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 Willing to compromise or revise goals

 Avoid making irritating comments

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 Develop plan and overall strategy

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 Neglect other party’s problems

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© 2016 Cengage Learning. All rights reserved. May

 Not all objectives are equally important

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© 2016 Cengage Learning. All rights reserved. May

 Previous experience with other party

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 Previous experience with other party

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 Other buyers or organizations with

 Must consider longer-term success

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© 2016 Cengage Learning. All rights reserved. May

 Need for agility and flexibility

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 Desirability of the contract

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 Ready access to relevant and useful

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