Negotiation in Sourcing

1. SOURCING MANAGEMENT (KMB OM 04)
Negotiation in Sourcing (Unit 4)
Part 3 of 5
Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW
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2. Factors in Negotiation
Three important factors in negotiation are:
1. The Negotiators:
• Personality
• Negotiators as Representatives
2. The Negotiating Situation
• The Buyer’s Negotiating Position
• The Supplier’s Negotiating Position
3. Time
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

3. Any Aspect of the Purchase Agreement is Subject to
Negotiation
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Price
• purchase order price
• discounts (cash, quantity and
trade)
• escalation provisions
• exchange terms
• import duties
• payment of taxes
• countertrade credits
Transportation
●FOB terms
●carrier
●commodity classification
●freight allowance/equalization
●multiple delivery points
Delivery
• lead times
• delivery schedule
• consignment stocks
• supplier inventories
• cancellation options
Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

4. Any Aspect of the Purchase Agreement is
Subject to Negotiation
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Quality
• specification compliance
• performance compliance
• test criteria
• rejection procedures
• reliability
• design changes
Support
• technical assistance
• product research,
development, and/or design
• warranty
• spare parts
• training
• tooling
• packaging
• data sharing, including
technical data
Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

5. Purchasing Situations Requiring Negotiation
• Any written contract covering price, terms of delivery
and quality standards
• The purchase of items made to the buyer’s standards
• When changes are made in drawings or specifications
• Following an unsuccessful bidding process
• When problems of tooling or packaging occur
• When changing economic or market conditions require
changes in quantities or prices
• When problems of termination of a contract involve
disposal of facilities, materials or tooling
• When problems arise under the various type of
contracts used in defense and governmental
contracting
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

6. The Basic Steps in Developing a Negotiation
Strategy
1. Develop the specific objectives (outcomes) desired from
the negotiation
2. Gather pertinent data
3. Determine the facts of the situation
4. Determine the issues
5. Analyze the positions of strength for both (or all) parties
6. Set the buyer’s position on each issue, and estimate the
seller’s position on each issue based on your research
7. Plan the negotiation strategy
8. Brief all persons on the negotiation team
9. Conduct a dress rehearsal
10. Conduct the actual negotiations with an impersonal
calmness
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

7. Model of the Negotiation Process
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

8. Phases/Stages of Negotiation
(Diagram from workbook by Tracey G Harwood)
Phase 1
Preparation
Phase 2
Relationship
Building
Phase 3
Information
Gathering
Phase 5
Bidding
Phase 7
Implementing
the Deal
Phase 6
Closing
the Deal
Phase 4
Information
Using
Source: derived from Greenhalgh, 2001 (in Lewicki et al, 2003)
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

9. Phases/ Stages of Negotiation- (Contd.)
Source: derived from Kennedy (1989), ‘Everything is
Negotiable’
KENNEDY'S FOUR PHASES
1. PLAN/PREPARE
2. DEBATE
3. BARGAIN
4. PROPOSE
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

10. Phases/ Stages of Negotiation- (Contd.)
Source: derived from Lysons and Gillingham (2003)
‘Purchasing and Supply Chain Management’
A Negotiation Process Falls Into Three Distinct Phases
1. Pre-Negotiation
2. Actual Negotiation
3. Post-negotiation
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW

11. Phases/ Stages of Negotiation-
1. PRE NEGOTIATION
Points to be considered in Pre Negotiation stage
include:
a) Who is to negotiate
b) The Venue
c) Intelligence Gathering
d) Negotiation Objectives
e) Strategy & Tactics
f) Dummy Runs
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Dr. PARUL AGARWAL, ABESEC,
AKTU,LUCKNOW