Transcript
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Purchase Negotiation
Negotiation Overview-- Negotiation is aprocess of formal communication,
either face to face or via electronic means, where
two or more people come together to seek mutualagreement about an issue or issues
The process involves the management of time,information, and power
It is a time-consuming process that requires
extensive planning and a commitment ofresources--90% of the negotiation processinvolves preparation, not execution
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Purchase Negotiation
Negotiation Overview--
Negotiation involves relationships between
people, not just organizations
The primary objective of a purchase negotiation isto reach an agreement that satisfies both parties
Negotiation is an opportunity to create value
within the supply chain
Good negotiators are not born--they develop theirskills through practice
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Negotiation Framework
Purchase negotiation
involves a five-step process
Identify or Anticipate
a Purchase
Requirement
Determine if
Negotiation is
Required
Plan for the
Negotiation
Conduct theNegotiation
Execute the
Agreement
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Negotiation Framework
Identify or Anticipate a Purchase
Requirement
The purchasing cycle begins with identifying a
material need or requirement for a component,raw material, subassembly, service, supplies,
piece of equipment, or completely finished product
Discussion Question: How does purchasing gainvisibility to the material requirement needs of its
internal customers?
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Negotiation Framework
Determine if Negotiation is Required Not all purchase requirements require detailed
negotiations with suppliers. Remember--negotiation is a time consuming process!
Discussion Question:When should purchasingpursue negotiation with suppliers (instead ofcompetitive bidding only)?
Discussion Question:What areas or issuesbesides price often require negotiation between abuyer and seller?
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Negotiation Framework
Plan for the Negotiation Preparation and planning are considered the most
important part of negotiation
Aplan is a method or scheme for achieving a
desired end. Planning, therefore, is the processof devising methods to achieve a desired end
Commonplanning weaknesses-- Failing to commit sufficient time
Failing to establish clear objectives
Failing to formulate convincing arguments or support forpositions
Failing to consider a counterparts needs
Believing quick and clever is enough
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Negotiation Framework
Plan for the Negotiation
The negotiation planning process involves
many activities--
Determine who will participate
Identify specific
objectives
Analyze strengths andweakness of each party
Gather information
Recognize counterparts needs
Identify facts and issues
Establish a position on each
issue
Develop appropriate strategiesand tactics
Brief other personnel
Practice the negotiation
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Negotiation Framework
Plan for the Negotiation
Discussion Question:How can a
purchase negotiator practice a negotiation?
Discussion Question:How does a
negotiator know what negotiating issuesare important to his orher organization?
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Negotiation Framework
Plan for the Negotiation--Establishing aRange on KeyIssues If negotiators do not develop ranges for key
issues, the likelihood of overlap decreases
Why would a negotiator shift positions or changethe range during a negotiation? Desire for the contract is strong
New or improved information becomes available andchallenges the accuracy of the original position
A major concession by one party supports othermodifications or compromises by the other party
The power relationship between the two parties forcesone party to shift an original position or range
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Negotiation Framework
Plan for the Negotiation--Establishing a
Range on KeyIssues
$11.00$10.5012.50Buyer
Seller
Minimum
Minimum
Target
Target
Maximum
Maximum
Is there any overlap?
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Negotiation Framework
Plan for the Negotiation--Establishing a
Range on KeyIssues
$12.00$11.0011.50
Buyer
Seller
Minimum
Minimum
Target
Target
Maximum
Maximum
Where is the likely area of
agreement?
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Negotiation Framework
Conduct the Negotiation Deciding where to negotiate can be an important
issue
The atmosphere surrounding the negotiationshould be less formal wherever possible
Summarize positions and points of agreementthroughout the negotiation
Remove managers!
Debrief after the negotiation session--identifylessons learned from the experience
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Negotiation Framework
Conduct the Negotiation
Research reveals that effective negotiators
display certain behaviors--
Willing to compromise or revise th
eir goals, particularlywhen new information successfully challenges their
position
View issues independently
Establish lower and upper ranges for each major issue
Explore almost twice as many options per issuecompared with average negotiators
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Negotiation Framework
Conduct the Negotiation
Research reveals that effective negotiators
display certain behaviors--
Make almost four times the comments aboutthe common ground between parties
Give fewer reasons for the arguments they
advance (too many supporting reasons can
dilute an argument)
Make fewer counterproposals
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Negotiation Framework
Execute the Agreement
A negotiated agreement represents the
beginning rather than the end of the
process A key part of executing a negotiated
agreement between parties involve
providing performance feedback
Build on the success of the agreement
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Power in Negotiation
Poweris the ability to influence anotherpersons or organizations behavior
Individuals and organizations bring different
sources of power to the negotiating table
The use of power can be part of a partysnegotiating strategy
Different sources of power can have varying
short and longer-term effects on a negotiationand a relationship
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Power in Negotiation
Sources ofPower in Negotiation--
InformationalPower
Perhaps the most common formof power
Relies on persuasion through the
use of facts, data, and other
information
RewardPower
One party is a able to offer
something of value to another partyRepresents a direct effort to
exert control
A source of power only if other
party values the rewards
Coercive Power
Involves the ability to punish
Repeated use can damage
relationships or invite retaliation
Its use often relates to the power
holders belief that another party
will
comply
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Power in Negotiation
Sources ofPower in Negotiation--
Legitimate Power
Position that a person holds,
rather than the individual person,
forms the basis oflegitimate power
ExpertPower
Expert has accumulated and
mastered vast knowledgeIndividual often has credentials to
verify that mastery
Non experts are less likely to
challenge an expert
ReferentPower
A referent has some attribute(s)
that attracts another party
The non referent wants the referent
to look favorable upon him or her
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Power in Negotiation
Negotiators must be careful not to abuse
power or risk damaging relationships
A party with power will likely use that power to
some degree during a negotiation Sources of power that are usually most
effective during negotiation are legitimate,
informational, and expert
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Concessions
A concession is a movement away from a position
by offering something of value to the other party
To make the negotiating process work, all parties
must be willing to demonstrate flexibility
Without a willingness to concede to some degree to
find alternative solutions, parties to a negotiation will
often find themselves in deadlock
The manner in which a negotiator approaches
concessions is an important part of the negotiatingstrategy
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Concessions
$40
$100
$25
$160
$0
$70 $50
$0
$0
$35
$55
$40
$30
$0
$0
$45
$0
$40
$10
$160
$0
$55
$5
$40
Concessions Receivedper
Negotiation Round
Supplier
1
2
3
4
5
6
Continue orStop??
_____________
_____________
_____________
_____________
_____________
_____________
Go to a fifth
round?
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Concessions
Words of advice on concessions--
Regardless of opening position, leave room to
maneuver. If you take a flexible position, make
sure your counterpart is also taking a flexibleposition or you will be offering most of the
concessions
A strong opening offer leads to success more
often than deadlock
As a negotiation progresses, the frequency and
value of concessions need to diminish
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Concessions
Words of advice on concessions--
Remove the audience during a negotiation.
The larger the audience the more difficult it
becomes to offer concessions
Smaller and smaller concessions indicate a
likely resistance to further concessions
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Negotiating Tactics
Negotiating tactics are the short-term plansand actions employed to execute anegotiating strategy
Understanding tactics is important!! Use tactics to try and persuade a counterpart to
endorse a position
A negotiator must understand what type of tacticsa counterpart is using
Watch out--Not all negotiating tactics areethical!!
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Negotiating Tactics
Examples of Tactics
Low Ball Honesty/Openness
Price Increase
Scarcity
Best and Final Offer Silence
High Ball
Strong Initial Offer
Phantom Quotes
or Offers
Planned
concessions
Use of power
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Win-Win Negotiation
Characteristics of win-
lose negotiation--
Rigid negotiating
positions
Argument over a fixedamount of value
Strict use of power by
one party over another
Adversarial competition
played out at thenegotiating table
Characteristics of win-win negotiation-- Parties try and
understand each othersneeds and wants
Parties build on commonground and worktogether to developcreative solutions thatprovide additionalvalue
Primary use of power isto focus on commonrather than personalinterests
Likely to engage in opensharing of information
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Win-Win Negotiation
Win-win negotiation applies only tocertain situations--
Strategically important items or services
Trust between parties exists
Both parties endorse a win-win approach
Discussion Question: How does a
negotiator know when his orhercounterpart is taking a win-win approach?
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Negotiation Conclusions
Successful purchasing negotiatorsshare some common attributes--
They realize that training, planning, and
practice are required to become aneffective negotiator
They have higher negotiating goals andaspirations than their counterparts
They are destined to be among anorganizations most valued professionals
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