Negotiation Global Procurement Perspective - PowerPoint Presentation

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Negotiation

Global Procurement Perspective

From:

Presented by:

Akshay Sharma 13PGP008

Chapter 13

Chapter 20Slide2

Chapter OverviewWhat is negotiation?Negotiation frameworkNegotiation planningPower

in negotiationConcessionsNegotiation tactics: trying to reach agreement

Win-Win negotiationInternational negotiationComprehensive global negotiation skills and enhanced cultural understandingThe impact of the Internet on negotiations

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What Is Negotiation?Direct:A process of formal communication, either face-to-face or via

electronic means, where two or more people come together to seek mutual agreement about an issue or issues

Involves the management of time, information, and power between individuals and organizations who are interdependentIndirect:Relationships between people, not just organizations

PersuasionNegotiation skills can be honed and practiced3Slide4

Terms Used in NegotiationPositionsInterestsNeeds Wants

BATNA (Best Alternative To a Negotiated Agreement)

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PositionsA negotiator’s opening offerRepresents the optimistic or target value of the issues being negotiatedThe stated demand at the negotiation table

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Needs vs. WantsNeeds – those negotiated outcomes that the negotiator must have in order to reach a successful conclusionWants – those negotiated outcomes that a negotiator would like to have

May often be exchanged as concessions

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InterestsThe unspoken motivation or reason that underlies any given positionUnlikely to be expressly stated or acknowledged during the negotiationMay not be directly germane to the position

May be personal in nature

7Key Points on Interests

Play detective and try to

discern the other party’s interests

through a series of open-ended, probing questions

Always focus on the other party’s underlying interests, not his/her stated positionsSlide8

BATNA (Best Alternative To a Negotiated Agreement)What is BATNA:Negotiating Without Giving In.

A party should generally not accept a worse resolution than its BATNA.Bottom line or reservation point

Walk away if outcome is better than BATNANeed to ensure that a negotiator’s BATNA is never revealed to the other partyAll settlements must be judged in light of all other viable alternativesAccounts considered: relationship value, time value of money and the

likelihood that the other party will live up to their side of the bargain8Slide9

Triangle Talk

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The Negotiation Process

Step 1:

Know Exactly What You Want

Step 2:

Know Exactly What They Want

Step 3:

Propose Action in a Way that They Can AcceptSlide10

Know Exactly What You WantDetermine and write down specific goals and objectivesCan be referred during the negotiationThe more clearly defined, the more likely that can be achieved

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Know Exactly What They WantAttempt to discern the other party’s likely needs and wantsEstimate underlying interests to the other party’s stated positionsBeware of expecting the other party to think in the same wayAsk

open-ended questions to confirm or counter preconceived notions

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Propose Action They Can AcceptFrame your own needs in terms of the other party’s needsMake it easy for the other party to say, “Yes”Remain fair, flexible, and reasonable

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Negotiation Framework

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Identify or Anticipate a NeedPurchase requisitionsInventory countsReorder point systemsNew product developmentNew facilities

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Is Negotiation Required?Is bid process inadequate?Are many non-price issues involved?Is contract large?Are technical requirements complex?Does contract involve plant and equipment?

Does contract involve a partnership?Will supplier perform value-adding activities?Will there be high risk or uncertainty?

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When to NegotiateIdentification of allowable costsDelivery schedules and lead timesExpected product and service quality levels

Performance metricsTechnological support needed

Contract volumesSpecial packagingLoss and damage liabilityPayment terms and currency issuesProgress payment schedules

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When to NegotiateTransportation mode selectionCarrier selectionFiling freight claims

Warranties and replacementsCapacity issues

Material lead timesPenalty clausesPerformance incentivesContract lengthContract renewal mechanismProprietary information

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When to NegotiateIntellectual propertyResources related to closer buyer-supplier relationshipsContract resolution mechanisms

Spare partsAfter-sale serviceOperator and maintenance training

Improvement requirementsQualityDelivery performanceLead timeCost

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Reasons for NegotiationTotal contract value or volume is largePurchase involves complex technical requirements, perhaps even product and process requirements and specification still evolvingPurchase involves

capital-intensive plant and equipmentAgreement involves a special or collaborative buyer-supplier relationship

Supplier will perform important value-adding activities 19Slide20

Plan for the NegotiationIdentify participantsDevelop objectivesAnalyze strengths and weaknessesGather informationRecognize other party’s needs

Identify facts and issuesEstablish positionsDevelop strategies and tacticsBrief personnel

Practice the negotiation 20Slide21

Establish Positions

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Buyer

Seller

Aspiration Point

Aspiration Point

B.A.T.N.A.

B.A.T.N.A.

Zone of Likely Agreement

Example is a buyer-seller price negotiation

Zone of Likely Agreement = Zone

of Possible

A

greement (ZOPA)Slide22

Conduct the NegotiationPerform fact findingRecess or caucus as necessaryWork to narrow differencesManage time pressures

Maintain informal atmosphereSummarize progress periodicallyEmploy tactics

Keep relationships positive 22Slide23

Points to Focus OnDefining the issuesDefining interestsDefining objectives and openingsAssessing constituents and social

contextAnalyzing the other partyPlanning issue presentation and defenseDefining protocols

Where to negotiate 23Slide24

Face-to-Face Negotiation PhasesFact finding and information sharingRecess to:Reassess relative strengths and weaknessesReview and revise objectives and positions

Reorganize the negotiation agendaNarrow differencesSeek agreement and conclusionMay involve several iterations

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Being an Effective NegotiatorWilling to compromise or revise goalsView issues independentlyEstablish upper and lower ranges for each major issueExplore additional optionsBuild on common ground between

partiesAvoid making irritating commentsAvoid argumentation by presenting too many reasonsMake fewer counterproposals

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Execute the AgreementProvide performance feedbackBuild on the success of the negotiationMonitor contract provisions

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Power in NegotiationPower is the ability to influence another person or organizationPower by itself is neither good or bad; it is the application or use of power that makes it good or badSources of negotiating power

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Sources of Negotiating PowerInformational powerReward powerCoercive powerLegitimate power

Expert powerReferent power

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Informational PowerReady access to relevant and useful informationPresentation of facts, data, and persuasive argumentsCan be manipulated by withholding information or by providing false information

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Reward PowerOne party is able to offer something of perceived value to the otherDirect attempt to exert controlIndividuals respond and behave accordingly when valued rewards are available

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Coercive PowerTaking away or withholding something of value to the other partyAbility to punish – financially, physically, or mentallyCan have damaging effects on long-term relationshipsPromotes escalation of conflict or retaliation

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Legitimate PowerSpecial form of informational powerOften represented by verifiable credentialsReduces the likelihood of refuting a positionOther party must value the expertise in order to be effective

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Referent PowerComes from attraction based on socially acceptable personal qualities and attributesPhysicalHonestyCharismaFriendliness

Sensitivity

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Use of PowerUsed to support one’s advantageNeed to be careful not to abuse powerDamaged relationshipsInvited retaliationDiminished value of that power

Some types of power interact synergistically with othersExample - expert and referent power

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ConcessionsMovement away from a negotiating position that has value to the other partyGive-and-take process is normal in most negotiationsNeed to avoid giving away concessions without receiving something of equal or greater value in return

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Guidelines for Making ConcessionsGive yourself enough room to make concessionsTry to get the other party to start revealing its needs and objectives firstBe the first to concede on a minor issue but not the first on a major oneMake unimportant concessions and portray them as valuable

Make the other party work hard for every concession you makeUse tradeoffs to obtain something for every concession you make

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Guidelines for Making ConcessionsGenerally, concede slowly and give a little with each concessionDo not reveal your deadline to the other party – everOccasionally, say “No” to the other partyBe careful trying to take back concessions, even tentative ones

Keep a record of concessions made to try and identify a patternDo not concede too often, too soon, or too much

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Negotiation TacticsLow ballHonesty and opennessQuestionsCaucusTrial balloonPrice increase

High ball

Best and final offerSilencePlanned concessionsVenue

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Power of InfluenceReciprocationConsistencySocial proofLikingAuthorityScarcity

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ReciprocationAn obligation to give something back of equal or greater value to someone after having received something from themCreates a powerful obligation responseCan be used effectively when giving concessionsPatterns of concession (quid pro quo)

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ConsistencyPeople tend to want to be perceived as being consistent in their beliefs and actionsIt is difficult to back away from something already agreed toBeware the consistency trapSmall commitments often lead to larger ones

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Social ProofLooking to the behavior of others to determine what is desirable, appropriate, or correctPower of the endorsementEveryone is doing it

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LikingPeople work well and are more agreeable with others that we like or who are like usGet to know the other party better to build on the relationship when concessions are being offered

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AuthorityPeople are more likely to accept the positions, arguments, and directions from recognized authority figuresPower of titles and perceived importance

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ScarcityCan also be the perception of scarcityAct nowFor a limited time onlyOffer expires tomorrowSuppliers often use potential price increases as a scarcity technique

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Overcoming TacticsModify tactics when they don’t workPrepare for likely tactics to be used against youTactics are more effective on you if you are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or disinterestedTry not to react without thinking

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Win-Win NegotiationWin-lose – competitive or distributive bargainingWin-win – collaboration or integrative bargainingExpand the value or resources available to all participantsEquitable sharing of a larger and expanded pie

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Win-Win NegotiationSlide49

Win-Win MethodsExpand the pieLogrollUse nonspecific compensationCut the costs for complianceFind a bridge solution

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International NegotiationAdded complexity and challengeSubstantial extra time and effort requiredCulture shockBarriers and obstacles

Need for translators

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Barriers and ObstaclesMiscommunication due to languageTime limitationsCultural differencesLimited authority of international negotiators

51Characteristics to Overcome Barriers

Patience

Knowledge of the contract agreement

Honest and polite attitude

Familiarity with foreign cultures and customsSlide52

Caveats when Negotiating OverseasDon’t think that everyone else negotiates like the AmericansThere is a danger in stereotyping or oversimplifying characteristics of other culturesThere is always substantial interpersonal variation within any culture

However, there are often common tendencies

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Impact of the Internet on NegotiationsElectronically-based negotiations tend to equalize the differences between the partiesNormal visual and auditory clues are diminished or not readily apparentStatus differences and social differences are less discernible

Problem of being anonymousNegotiators tend to be more risk taking

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Impact of the Internet on NegotiationsReal time vs. asynchronousLoss of information richnessMore difficult to provide feedback and conduct active listening

E-negotiators ask fewer questions and tend to make more assumptions

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Fair and Reasonable priceVendor Negotiation: Top 5 Negotiation Strategies That Lower Costshttp://www.driveyoursuccess.com/2010/09/vendor-negotiation-top-5-negotiation-strategies-that-lower-costs.htmlSlide56

Fair and Reasonable pricesix ways to make sure your next supplier negotiation session produces favourable results:1. Renegotiate all contracts annuallyA

nnual bidding or at least renewal discussions with the current suppliers.2. Conduct regular spend assessments

conduct regular spend assessments on specific vendors3. Aggregate volume buys across the organizationaggregate volume purchases across fragmented organizations, divisions and entities e.g. Various plants of Toyota asking the same vendor for aggregate order gaining economies of scale and better negotiating power4. Help suppliers work more efficiently

Suggesting options or vendor development e.g. suggesting another material option to vendor when material costs around 80% of the costOr doing bulk orders e.g. Maruti buys steel in bulk through which it provides steel to vendors at much lower cost5. Explore the alternativesSetting right Process at vendor development

6. Come at it from the win-win perspectiveSlide57

On-Time PerformanceMeeting delivery schedules for the specified quality and quantity.Premium price for premium performance.Example: Here's what we propose: you reduce your price by 10%; however, if you deliver within 30 days after receipt of our order as you promised, we'll pay the price in your proposal.Slide58

ControlMan hours of effortsLevel of scientific talent Special test equipment requirementsThe amount and type of work to be subcontracted Progress report Slide59

CooperationRewarding performing suppliers with future ordersPleasant working relationsTimely paymentsCooperation from their customers

Cooperation begets cooperation