Slide webinar Basic Commercial Negotiation

1. Basic Commercial
Negotiation

2. 2
Working history
Material Planner, PT Henkel Indonesien
Raw Material Manager, PT Sepatu Bata, Tbk
RM Procurement Manager, PT PZ Cussons Indonesia
Packaging Procurement Manager, PT Frisian Flag
Indonesia
Regional Procurement Manager, PT Shell Indonesia
Adhe Priyambodo
Education
- Engineering Physics, ITS Surabaya
- Some extensive trainings in
Supply Chain, Procurement, Negotiation,
Warehouse Management & ERP system
in Indonesia & overseas
.
Professional membership
- Chartered Institute of Procurement
and Supply (CIPS), UK
- Indonesian Production & Operations
Management Society (IPOMS)
- Asosiasi Logistik Indonesia (ALI)
.

3. Key Topics in Commercial Negotiation
• What is Commercial Negotiation?
• How to Prepare Negotiation?
• How to Perform Negotiation Meeting?
• Negotiation Tactics

6. What is Negotiation?
• A process
• Involving two or more
parties
• Each parties have different
requirement and position
• Intended to achieve mutual
agreement
• Require conflict
management skills to avoid
unproductive process &
result
Process Content
What you are
negotiating about
→ Generic
How the negotiation is
managed
→ Unique

7. Commercial Negotiation
• Negotiation in the field of commercials activity
• Between supplier and buyer
• To make an agreement of commercial terms
• Example of Commercial Terms:
• Price
• Quality
• Payment Term
• Risk share
• Volume & Commitment
• Contract Terms & Conditions
• Dispute Resolutions/Contract Governing Law

8. Negotiation Objective for Buyer
• #1 : “Value for Money” (External)
• #2 : “Fit for Purpose (Internal)
• #3 : “Manage Relationship”
5R
Right
Quality Right
Quantity
Right Time
Right
Place
Right Price

9. Is Negotiation Needed?
• Negotiation is not free
• Price negotiation is only drive
20% of total savings
Specifications
50%
Demand
Management
30%
Price
20% Saving

10. Commercial Negotiation Level
• Tactical Negotiation
• Short Term Deal
• Operational Term → Details
• Perform by Staff
• Strategic Negotiation
• Long Term Deal
• Strategic Term → Direction
• Involving Senior Management
Risk
Spend
High
Low
Low
High
Strategic
Tactical

11. Negotiation and Contracts
• During Tender/ Pre-Award
• Post Award
Purchase
Request
Quotation
Request
& Analysis
Negotiation
Purchase
Order
Delivery &
Receiving
Payment
Vendor
Evaluation

12. Negotiation Types
Competitive (Win-Lose)
• Competitive (Win-Lose)
• Fixed pie
• One party get bigger pie
• Business relationship sacrificed
• Suitable for one time purchase
Collaborative (Win-Win)
• Collaborative (Win-Win)
• Increase pie value → bigger pie
• How? By solving each other problems
• Both party gain at the end
• Good business relationship

13. Negotiation Types, Example
Purchase of Air Conditioner
• Price : 2.000.000
• Cost : 1.500.000
• Margin : 500.000
300 ribu
500 rb
200 ribu
Supplier Buyer

14. Negotiation Types, Example
Purchase of Air Conditioner
• Price : 2.000.000
• Cost : 1.500.000
• Margin : 500.000
500 rb
Lead time
Warranty
Buyer Interest Supplier Interest
• Longer warranty
• Free maintenance
• Installation not in
working hours
• Faster lead time
• Certified technician
• Larger quantity order
• Faster Payment Term
• Customer
recommendation
Installation
Maintenance
Payment Term
Customer
Recommendation
Technician
Order
Quantity

15. Negotiation Styles
Avoider Hates and avoid conflicts
Competitor Likes to win and be in
control of situation
Accommodator Likes to resolve conflicts
by solving other’s problem
Compromiser Middle position between
Competitor and
Accommodator
Problem Solver Thinks about fair win-win
solutions by solving
problem and creative
thinking

16. Negotiation Styles: When to Use or Avoid?
Style When to USE When to AVOID
Avoider • When you want to buy time • When dealing critical issue
Competitor • When you need quick decision
• When your POWER is high and
RISK of purchase is low
• When you want a long-term
business relationship
Accommodator • When your POWER is low and
RISK of purchase is high
• When the other party is lying
Compromiser • When negotiating on mutually
exclusive objectives
• When negotiating mutual
interest
Problem Solver • When dealing critical issues
• When you want a long-term
business relationship

17. Negotiation Power
• Organizational Power
• Market Position Power
• Business Requirement and Offer Power
• Technical Knowledge
• Personal Power

18. Negotiation Process
Preparation
• Gather
information
about the
commodity,
supplier
and find
alternative
supplier
Opening
• Asking
probing
questions
to obtain
more
information
and gain
advantages
Bargaining
• Supplier
and buyer
make offers
and counter
offers and
make
concessions
to reach
agreement
Closing
• Make
summary of
the deal
and seal the
deal with
written
agreement

19. Preparing for Negotiation: Gather Information

20. Preparing for Negotiation: Setting Targets
1. List down CRITICAL ISSUES
2. Set WOW and WALK-AWAY for
each Critical issue
3. List down OTHER ISSUES
4. Set WOW and WALK-AWAY for
each Other issue

21. Preparing for Negotiation: Setting Targets
Critical Issues Wow Walk-Away
Price 1.600.000 2.000.000
Technical
Specification
Extra feature Comply
Installation
Time
< 1 week > 3 weeks
Other Issues Wow Walk-Away
Transport Free List price
Warranty > 1 year < 2 years
Payment Term 90 days 30 days
Maintenance Free service List price
Technician
response
Same day > one day

22. Preparing for Negotiation: ZOPA & BATNA
Supplier A Supplier B Supplier C
Price Rp. 2.100.000 Rp. 1.700.000 Rp. 1.900.000
ZOPA : Zone of Possible Agreement
Rp 2.000.000
Buyer’s settlement range
Supplier A’s settlement range
Rp 2.100.000
Rp 1.900.000
Rp 1.800.000
Rp 1.700.000
No ZOPA
Rp 2.000.000
Buyer’s settlement range
Supplier B’s settlement range
Rp 2.100.000
Rp 1.900.000
Rp 1.800.000
Rp 1.700.000
ZOPA
Rp 2.000.000
Buyer’s settlement range
Supplier B’s settlement range
Rp 2.100.000
Rp 1.900.000
Rp 1.800.000
Rp 1.700.000
ZOPA

23. Preparing for Negotiation: ZOPA & BATNA
• BATNA will increase your negotiation power
• BATNA not comes by itself, but should be seriously developed
• BATNA need to be credible and more or less equal with the main
negotiated supplier
BATNA : Best Alternative to Negotiated Agreement

24. Preparing Negotiation Meetings
Critical Points to Manage:
• Set up the participant
• Set up the premise and schedule
• Basic behaviour
• How to raise questions
• Body language
• Negotiation tactics