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Essential Negotiation Skills
For SMBs Purchasing Organizations
©Copyright Procurement Solutions Group 1
Competent professionals can transform Purchasing into profit center of the SMB Enterprise.
∗ Effective negotiation skills are an essential requirement for business &
industrial buyers and a core competency of the purchasing profession.
∗ Many buyers and purchasing professionals at Small & Medium Size
Businesses (SMBs) are too busy expediting parts, fighting fires and
performing transactional activities.
∗ These buyers hardly get time to pursue strategic initiatives and practice their
negotiation skills.
∗ This slide deck provides a strong framework for understanding the process of
principled or win-win negotiations essential to effective purchasing and
maintaining cordial business relationship with suppliers.
©Copyright Procurement Solutions Group
SMB Purchasing Organizations
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What’s in It for Me?
©Copyright Procurement Solutions Group 7
By improving your negotiation skills, you will feel more confident
and empowered. You will not be afraid of difficult conversations.
You will get what’s coming to you or your company without
damaging the relationships.
You will earn recognition & respect of your management and your
suppliers for being a confident, fair & ethical negotiator.
“In life as in business, you don’t get what you deserve. You get
what you negotiate”. Dr. C . Karrass (renowned negotiation coach)
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2. Distributive Negotiation:
∗ Also called “positional” or “zero sum” negotiation.
∗ Negotiators employ a combination of tricks & tactics to
gain as much as possible before reaching a deal.
∗ Assumes the proverbial “pie” is fixed. It is, to them, a
one shot deal.
∗ Not suitable for long term business relationships.
©Copyright Procurement Solutions Group
Types of Negotiation
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∗ Negotiation is 80% preparation and 20% negotiating.
∗ Set goals, your needs/wants , don’t shoot from the hip.
∗ Anticipate their response, offers and your counter offers.
∗ Learn all about them, their interests, aspirations, strengths
& weaknesses , fears, competition, growth plans.
∗ Price is important but there are other elements of a deal
∗ Think in terms of Total Cost of Ownership (TCO)
©Copyright Procurement Solutions Group
1. Preparation
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∗ Find out other party’s deadlines, pressing needs and
bargaining history to gain clear perspective.
∗ Based on that perspective , tweak & tune up your
negotiations. It will make them feel better.
∗ Ask your opponent’s advice on the main issue.
∗ Try to walk in their shoes. Look thru their lenses.
∗ Try to see the situation from opponent’s perspective
using role reversal technique.
©Copyright Procurement Solutions Group
4. Perspective
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Compare the relative importance of three common
approaches and then adopt negotiating strategy to suit that:
1. *Relational (Win / Win & Nurturing)
2. *Collaborative (Win / win & Collaborative)
3. *Competitive (Win / Lose)
1*. Key suppliers 2. *Commodity Suppliers 3. *One shot
deals
©Copyright Procurement Solutions Group
Negotiation Strategies
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ZOPA:
∗ The “zone of possible agreement” or the bargaining range. (Harvard PON)
∗ Within this zone, parties are in the ball park, an agreement is possible.
∗ Outside of this zone, negotiation will not yield an agreement.
Concession:
∗ Something of value offered by one or the other party to further the deal.
∗ Concession could be a dollar amount, or an emotional payment.*
∗ Something one party concedes to other in effort to reach an agreement.
∗ Cheapest concessions you can offer a vendor ; a compliment, an apology,
empathy, understanding or simply the courtesy to hear them out sincerely*.
©Copyright Procurement Solutions Group
Important Terms & Concepts
22
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Leverage: Mechanical advantage gained by using a lever.
∗ Positional advantage to obtain a desired effect or result in negotiations.
∗ Leverage is often temporary; use it or you may lose it.
∗ You can create the illusion of competition to gain leverage.
∗ Use leverage to bring the opponent to their senses, not to their knees.
∗ “Silence” can be used as leverage. Makes people uneasy, spill their beans.
©Copyright Procurement Solutions Group
Important Terms & Concepts
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Concessions Pattern - Vendor’s Side
•$ 77.00 -
•$ 7.00
•$ 70.00 -
•$ 5.00
•$ 65.00 -
•$ 3.00
∗ Seller Starts with High Offer to
Open ($77.00)
∗ Lowers it progressively by smaller
increments
∗ In order of small, smaller, smallest
∗ Always gets a concession in return
for new concession, price reduction.
∗ If a vendor changes the pattern of
concessions, it could be a red flag.
∗ Try to learn why vendor is so needy.
∗ A desperate supplier can be Hi Risk.
©Copyright Procurement Solutions Group 28
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There is a substitute or second source for every imaginable item in this day & age. Don’t
lock yourself & your company into sole source unless there is a compelling reason.
Understand the difference between “Sole Source” and “Single Source” then develop the
negotiation strategy accordingly. Single source in NOT same as Sole Source.
Start with being friendly & curious seeking their help to find an acceptable solution.
Invoke standards of objective price criteria and principles of normative fairness .
Leverage their needs, aspirations, growth plans by offering your support. What motivates them?
Find out if there has been a breach of trust, fairness and how to remedy the situation.
Conduct regional, national or overseas market research to expand your choices.
Now, move on to creating the illusion of competition & segment power to gain leverage.
Create a set of options that is mutually beneficial. (MBOs) to trade in lieu of desired unit price.
Advise the supplier that your management can consider making the item in house which may end
the supplier’s revenue stream. Be mindful of not using warnings, threats and ultimatums.
Tell them, if the price remains unfavorable, management may no longer consider making the
product that requires this item. Demonstrate a spirit of collaboration & problem solving.
My management may consider using a substitute component of fair & reasonable price.
My management may evaluate investing in a new supplier to manufacture item in question.
Finally, develop a second source or plan B and plan C to avoid recurrence of this situation.
∗ ․unless you’ve
©Copyright Procurement Solutions Group 31
Sole Source Suppliers
Negotiating from a position of weakness
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Trading Concessions
Mutually Beneficial Options (MBOs)
Item Option 1 Option 2 Option 3
Quality 99.998 99.995 99.985
Price $50.0 $55.0 $58.0
Delivery 2.5 Wk 3.0 Wk 3.3 Wk
Quantity 100 140 125
Terms N60 N45 N30
Contract 1 Yr. 2.0 Yr. 1.5 Yr.
Freight/ S&H Free 50% Full
Learn about what the other party values most during pre-negotiation meeting or
info exchange phase and base your options on that information
©Copyright Procurement Solutions Group 34
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©Copyright Procurement Solutions Group 37
Equipment Deal- Roleplay Positions
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The Closing Process
Getting Consensus
∗ Ask the supplier to review & confirm what we have agreed to.
∗ Do they fully understand and agree with what is documented?
∗ Is their management committed to carrying out the agreement?
∗ If not, what factors need to be clarified?
∗ Take the lead in documenting the Ts & Cs of the agreement.
∗ If an agreement can not be implemented to the satisfaction of both
parties then negotiation process was an exercise in futility.
∗ Ask them to speak now or they must deliver to the terms of
agreement. Negotiations are means to the end (agreement/contract)
©Copyright Procurement Solutions Group 40
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Emotions can impact the negotiations positively or negatively.
∗ Don’t let the emotions derail your negotiations. Learn the body language.
∗ Watch for verbal & non verbal cues to detect their emotions & yours.
∗ Point out where you agree more than you point out differences.
∗ Build their self-esteem. Give them sincere praise on what they do well.
∗ Prepare three questions for which they will have to say “yes”.*
∗ *Shifts the brain to agreeable mode of thinking & positive state of mind.
∗ Check your anger, biases and ego at the door. Smile often without looking goofy.
©Copyright Procurement Solutions Group
Dealing with Emotions in Negotiations
43
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∗ Think weeks, and months ahead of negotiations. Don’t wait till eleventh hour.
∗ Maintain a file of records from previous negotiations with different suppliers.
∗ Keep & Consult your negotiation notes for reference by your side.
∗ Clearly understand your objectives, positions, needs and wants.
∗ Do follow your BATNA, Reservation Price and Walk Away Point.
∗ Acknowledge their Autonomy, Affiliation, Status, & Roles. (Prof. R. Fisher)
∗ Try to understand opponents’ needs , wants, interests, motivations.
©Copyright Procurement Solutions Group
Do’s of Conducting Effective Negotiations
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∗ Don’t debate, confront or fight. Create options, search for solutions.
∗ Don’t storm out of the negotiation, rather walk out tactfully & judiciously
∗ Do not fall for “splitting the difference” tactic.
∗ Don’t be too eager to please nor afraid to say NO.
∗ Don’t assume they know your weakness. Create perception of power.
∗ Don’t bluff, cheat or lie. It will catch up with you to hurt your credibility
©Copyright Procurement Solutions Group
More Don’ts of Effective Negotiations
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∗ They see opportunities in problems. Open minded & Empathetic.
∗ Have the ability to identify the interests, fears & concerns of both sides.
∗ Optimistic, patient, creative and strive for solutions & compromise.
∗ They don’t shoot from the hip nor aim to wing it.
∗ They plan, prepare & strategize to achieve goals & build relationships.
They understand these characteristics are all learnable skills.
They are excellent communicators and have self control.
©Copyright Procurement Solutions Group
The Effective Negotiator
52
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Thank You !
If you any questions, comments or suggestions about this presentation,
please do not hesitate to contact Omar Khan directly at:
omar@procurementsolutionsgroup.com
©Copyright Procurement Solutions Group
We Appreciate Your Attention
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Procurement: Supplier Negotiation Skills

  • 1. Essential Negotiation Skills For SMBs Purchasing Organizations ©Copyright Procurement Solutions Group 1
  • 2. Competent professionals can transform Purchasing into profit center of the SMB Enterprise. ∗ Effective negotiation skills are an essential requirement for business & industrial buyers and a core competency of the purchasing profession. ∗ Many buyers and purchasing professionals at Small & Medium Size Businesses (SMBs) are too busy expediting parts, fighting fires and performing transactional activities. ∗ These buyers hardly get time to pursue strategic initiatives and practice their negotiation skills. ∗ This slide deck provides a strong framework for understanding the process of principled or win-win negotiations essential to effective purchasing and maintaining cordial business relationship with suppliers. ©Copyright Procurement Solutions Group SMB Purchasing Organizations 4 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 3. What’s in It for Me? ©Copyright Procurement Solutions Group 7 By improving your negotiation skills, you will feel more confident and empowered. You will not be afraid of difficult conversations. You will get what’s coming to you or your company without damaging the relationships. You will earn recognition & respect of your management and your suppliers for being a confident, fair & ethical negotiator. “In life as in business, you don’t get what you deserve. You get what you negotiate”. Dr. C . Karrass (renowned negotiation coach) This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 4. 2. Distributive Negotiation: ∗ Also called “positional” or “zero sum” negotiation. ∗ Negotiators employ a combination of tricks & tactics to gain as much as possible before reaching a deal. ∗ Assumes the proverbial “pie” is fixed. It is, to them, a one shot deal. ∗ Not suitable for long term business relationships. ©Copyright Procurement Solutions Group Types of Negotiation 10 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 5. ∗ Negotiation is 80% preparation and 20% negotiating. ∗ Set goals, your needs/wants , don’t shoot from the hip. ∗ Anticipate their response, offers and your counter offers. ∗ Learn all about them, their interests, aspirations, strengths & weaknesses , fears, competition, growth plans. ∗ Price is important but there are other elements of a deal ∗ Think in terms of Total Cost of Ownership (TCO) ©Copyright Procurement Solutions Group 1. Preparation 13 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 6. ∗ Find out other party’s deadlines, pressing needs and bargaining history to gain clear perspective. ∗ Based on that perspective , tweak & tune up your negotiations. It will make them feel better. ∗ Ask your opponent’s advice on the main issue. ∗ Try to walk in their shoes. Look thru their lenses. ∗ Try to see the situation from opponent’s perspective using role reversal technique. ©Copyright Procurement Solutions Group 4. Perspective 16 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 7. Compare the relative importance of three common approaches and then adopt negotiating strategy to suit that: 1. *Relational (Win / Win & Nurturing) 2. *Collaborative (Win / win & Collaborative) 3. *Competitive (Win / Lose) 1*. Key suppliers 2. *Commodity Suppliers 3. *One shot deals ©Copyright Procurement Solutions Group Negotiation Strategies 19 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 8. ZOPA: ∗ The “zone of possible agreement” or the bargaining range. (Harvard PON) ∗ Within this zone, parties are in the ball park, an agreement is possible. ∗ Outside of this zone, negotiation will not yield an agreement. Concession: ∗ Something of value offered by one or the other party to further the deal. ∗ Concession could be a dollar amount, or an emotional payment.* ∗ Something one party concedes to other in effort to reach an agreement. ∗ Cheapest concessions you can offer a vendor ; a compliment, an apology, empathy, understanding or simply the courtesy to hear them out sincerely*. ©Copyright Procurement Solutions Group Important Terms & Concepts 22 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 9. Leverage: Mechanical advantage gained by using a lever. ∗ Positional advantage to obtain a desired effect or result in negotiations. ∗ Leverage is often temporary; use it or you may lose it. ∗ You can create the illusion of competition to gain leverage. ∗ Use leverage to bring the opponent to their senses, not to their knees. ∗ “Silence” can be used as leverage. Makes people uneasy, spill their beans. ©Copyright Procurement Solutions Group Important Terms & Concepts 25 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 10. Concessions Pattern - Vendor’s Side •$ 77.00 - •$ 7.00 •$ 70.00 - •$ 5.00 •$ 65.00 - •$ 3.00 ∗ Seller Starts with High Offer to Open ($77.00) ∗ Lowers it progressively by smaller increments ∗ In order of small, smaller, smallest ∗ Always gets a concession in return for new concession, price reduction. ∗ If a vendor changes the pattern of concessions, it could be a red flag. ∗ Try to learn why vendor is so needy. ∗ A desperate supplier can be Hi Risk. ©Copyright Procurement Solutions Group 28 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 11. There is a substitute or second source for every imaginable item in this day & age. Don’t lock yourself & your company into sole source unless there is a compelling reason. Understand the difference between “Sole Source” and “Single Source” then develop the negotiation strategy accordingly. Single source in NOT same as Sole Source. Start with being friendly & curious seeking their help to find an acceptable solution. Invoke standards of objective price criteria and principles of normative fairness . Leverage their needs, aspirations, growth plans by offering your support. What motivates them? Find out if there has been a breach of trust, fairness and how to remedy the situation. Conduct regional, national or overseas market research to expand your choices. Now, move on to creating the illusion of competition & segment power to gain leverage. Create a set of options that is mutually beneficial. (MBOs) to trade in lieu of desired unit price. Advise the supplier that your management can consider making the item in house which may end the supplier’s revenue stream. Be mindful of not using warnings, threats and ultimatums. Tell them, if the price remains unfavorable, management may no longer consider making the product that requires this item. Demonstrate a spirit of collaboration & problem solving. My management may consider using a substitute component of fair & reasonable price. My management may evaluate investing in a new supplier to manufacture item in question. Finally, develop a second source or plan B and plan C to avoid recurrence of this situation. ∗ ․unless you’ve ©Copyright Procurement Solutions Group 31 Sole Source Suppliers Negotiating from a position of weakness This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 12. Trading Concessions Mutually Beneficial Options (MBOs) Item Option 1 Option 2 Option 3 Quality 99.998 99.995 99.985 Price $50.0 $55.0 $58.0 Delivery 2.5 Wk 3.0 Wk 3.3 Wk Quantity 100 140 125 Terms N60 N45 N30 Contract 1 Yr. 2.0 Yr. 1.5 Yr. Freight/ S&H Free 50% Full Learn about what the other party values most during pre-negotiation meeting or info exchange phase and base your options on that information ©Copyright Procurement Solutions Group 34 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 13. ©Copyright Procurement Solutions Group 37 Equipment Deal- Roleplay Positions This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 14. The Closing Process Getting Consensus ∗ Ask the supplier to review & confirm what we have agreed to. ∗ Do they fully understand and agree with what is documented? ∗ Is their management committed to carrying out the agreement? ∗ If not, what factors need to be clarified? ∗ Take the lead in documenting the Ts & Cs of the agreement. ∗ If an agreement can not be implemented to the satisfaction of both parties then negotiation process was an exercise in futility. ∗ Ask them to speak now or they must deliver to the terms of agreement. Negotiations are means to the end (agreement/contract) ©Copyright Procurement Solutions Group 40 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 15. Emotions can impact the negotiations positively or negatively. ∗ Don’t let the emotions derail your negotiations. Learn the body language. ∗ Watch for verbal & non verbal cues to detect their emotions & yours. ∗ Point out where you agree more than you point out differences. ∗ Build their self-esteem. Give them sincere praise on what they do well. ∗ Prepare three questions for which they will have to say “yes”.* ∗ *Shifts the brain to agreeable mode of thinking & positive state of mind. ∗ Check your anger, biases and ego at the door. Smile often without looking goofy. ©Copyright Procurement Solutions Group Dealing with Emotions in Negotiations 43 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 16. ∗ Think weeks, and months ahead of negotiations. Don’t wait till eleventh hour. ∗ Maintain a file of records from previous negotiations with different suppliers. ∗ Keep & Consult your negotiation notes for reference by your side. ∗ Clearly understand your objectives, positions, needs and wants. ∗ Do follow your BATNA, Reservation Price and Walk Away Point. ∗ Acknowledge their Autonomy, Affiliation, Status, & Roles. (Prof. R. Fisher) ∗ Try to understand opponents’ needs , wants, interests, motivations. ©Copyright Procurement Solutions Group Do’s of Conducting Effective Negotiations 46 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 17. ∗ Don’t debate, confront or fight. Create options, search for solutions. ∗ Don’t storm out of the negotiation, rather walk out tactfully & judiciously ∗ Do not fall for “splitting the difference” tactic. ∗ Don’t be too eager to please nor afraid to say NO. ∗ Don’t assume they know your weakness. Create perception of power. ∗ Don’t bluff, cheat or lie. It will catch up with you to hurt your credibility ©Copyright Procurement Solutions Group More Don’ts of Effective Negotiations 49 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 18. ∗ They see opportunities in problems. Open minded & Empathetic. ∗ Have the ability to identify the interests, fears & concerns of both sides. ∗ Optimistic, patient, creative and strive for solutions & compromise. ∗ They don’t shoot from the hip nor aim to wing it. ∗ They plan, prepare & strategize to achieve goals & build relationships. They understand these characteristics are all learnable skills. They are excellent communicators and have self control. ©Copyright Procurement Solutions Group The Effective Negotiator 52 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
  • 19. Thank You ! If you any questions, comments or suggestions about this presentation, please do not hesitate to contact Omar Khan directly at: omar@procurementsolutionsgroup.com ©Copyright Procurement Solutions Group We Appreciate Your Attention 55 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/essential-procurement-negotiation-skills-2238
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