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  1. 1. Negotiation
  2. 2. Topics <ul><li>Approaches to negotiation </li></ul><ul><li>Content of negotiation </li></ul><ul><li>Factors that influence negotiation </li></ul><ul><ul><li>Conditions that prevent spontaneous response </li></ul></ul><ul><ul><li>Factors that increase buyer’s position </li></ul></ul><ul><li>Preparing for negotiation </li></ul><ul><li>Stages of negotiation </li></ul>
  3. 3. <ul><li>Page 548 </li></ul>Definition Negotiation “ An occasion where one or more representatives of two or more parties interact in an explicit attempt to reach a jointly acceptable position on one or more divisive issues about which they would like to agree.”
  4. 4. Approaches to negotiation <ul><li>Adversarial negotiation </li></ul><ul><ul><li>Win-lose negotiation </li></ul></ul><ul><ul><li>Emphasize on competing to attain goals at the adversary’s expense </li></ul></ul><ul><li>Collaborative negotiation </li></ul><ul><ul><li>Win-win negotiation </li></ul></ul><ul><ul><li>Emphasize on ascertaining goals held in common with other party </li></ul></ul><ul><ul><li>(Page 549, the comparison) </li></ul></ul>
  5. 5. Content of negotiation <ul><li>Substance goals </li></ul><ul><ul><li>Price, Contractual, Delivery etc </li></ul></ul><ul><li>Relationship goals </li></ul><ul><ul><li>Outcomes relating to working relationship </li></ul></ul><ul><ul><li>Partnership sourcing </li></ul></ul><ul><ul><li>Preferred supplier status </li></ul></ul><ul><ul><li>Supplier involvement </li></ul></ul><ul><ul><li>Sharing of technology (Page 550) </li></ul></ul>
  6. 6. Negotiation Contractually Related Issues (Pg 551) Type of contract (1) Fixed price or lump sum (2) Cost reimbursable (3) Unit price Use of sub-contractors Liability of sub-contractors Ownership of jigs, tools, moulds, etc. Charges for use of patents need by supplier/purchaser Confidentiality and restraint of trade issues Payments in advance Sharings of savings due to improved design/production Changes to specifications and designs Milestone payments Disposal of surplus material Environmental issues Health and safety issues Inspection rights Conditions, warranties and guarantees Force majeure Dispute of resolution Non-compensatible delays Legal charges Cancellation rights Right of audit and openbook agreements Set of rights Some Contractually Related Negotiation Issues
  7. 7. Factors in negotiation (Pg 552) <ul><li>Negotiators </li></ul><ul><ul><li>Personality </li></ul></ul><ul><ul><li>The degree of authority of negotiators </li></ul></ul><ul><li>Negotiating situation </li></ul><ul><ul><li>Who is stronger in the negotiating position? </li></ul></ul>
  8. 8. Factors in negotiation <ul><li>Time </li></ul><ul><ul><li>“ Necessity never made a good buyer” </li></ul></ul><ul><ul><li>Past experience governs expectation and perception </li></ul></ul><ul><li>Influential factors (Pg 555) </li></ul><ul><ul><li>Environmental (E.g. Culture, social etc) </li></ul></ul><ul><ul><li>Situational (E.g. Objectives, motivation etc) </li></ul></ul><ul><ul><li>Behavioral predisposition (E.g. Sensitivity) </li></ul></ul><ul><ul><li>Influencing power (E.g. Presentation ) </li></ul></ul>
  9. 9. When there is little latitude in determining their position or posture When they are held accountable for their performance When they have sole responsibility When they are responsible to a constituency present in the negotiations When they are appointed rather than elected Conditions that Prevent Spontaneous Response Negotiation
  10. 10. The Buyer’s Negotiation Position will be Strong If: Negotiation Demand is not urgent Suppliers are keen for the business Buyer is in a monosponistic position Demand can be met by alternatives/substitutes Make and buy options are available Buyer has a reputation for fair dealing Buyer has excellent supply market intelligence
  11. 11. Negotiation Who is to negotiate? The venue Intelligence gathering Negotiation objectives Strategy Tactics Conducting dummy runs Pre-negotiation Considerations
  12. 12. Who is to negotiate <ul><li>The individual approach </li></ul><ul><li>The team approach </li></ul><ul><ul><li>Allocate roles </li></ul></ul><ul><ul><ul><li>Spokesperson </li></ul></ul></ul><ul><ul><ul><li>Recorder </li></ul></ul></ul><ul><ul><ul><li>Experts </li></ul></ul></ul><ul><ul><li>Avoid disagreement </li></ul></ul>
  13. 13. The venue <ul><li>Should be in buyer office unless there are good reasons to do otherwise </li></ul><ul><ul><li>Inspect vendor facilities </li></ul></ul><ul><li>Advantages to negotiate on home ground </li></ul>
  14. 14. Gathering information <ul><li>Cost and price analysis </li></ul><ul><li>Situational analysis </li></ul><ul><li>Value analysis </li></ul>
  15. 15. Determining objectives <ul><li>Varying interests of participants in negotiations </li></ul><ul><ul><li>Suppliers: profit, time, relationship, reputation etc </li></ul></ul><ul><ul><li>Users: Schedule, safety, value, environmental impact, quality </li></ul></ul>
  16. 16. Model of bargaining Buyer Seller 5 8 9 10 13 Ideal settlement Ideal settlement Realistic Settlement Realistic Settlement Fall-back position Fall-back position
  17. 17. Discuss <ul><li>Describe how Lily negotiated with suppliers to purchase within the budget of US$20 per piece for DimS, inclusive of the ‘freezing’ cost. </li></ul><ul><li>What are important things does Lily need to prepare for the negotiation? </li></ul><ul><li>Decide her approach </li></ul><ul><li>Determine objectives </li></ul><ul><li>What kind of bargaining model can Lily use for her negotiation to meet her objective? </li></ul>
  18. 18. Strategy and tactics <ul><li>Strategy: overall plan that aims to achieve, as nearly as possible, the objectives of the negotiation as seen from each participant </li></ul><ul><li>Tactics: The position or attitude to be taken during the process </li></ul>
  19. 19. Negotiation Introductions, agenda agreement and rules of procedure Ascertaining the negotiation range Agreement of common goals Identification and removal of barriers Agreement and closure Stages of a Negotiation
  20. 20. Role play <ul><li>You will be divided into two groups </li></ul><ul><ul><li>IBM buying group </li></ul></ul><ul><ul><li>Keytronic supply group </li></ul></ul><ul><li>Both IBM and Keytronic are to meet today to negotiate for the contract of DimS product. </li></ul><ul><li>IBM’s objective is to negotiate for the supply at budget of $20, inclusive of “freezing cost” </li></ul><ul><li>Task 1: Prepare your negotiation (15 min) </li></ul><ul><li>Task 2: Negotiate at the meeting (15 min) </li></ul>