This document discusses assessing the negotiating environment when negotiating with suppliers. It describes factors to consider like the competitive environment, nature of competition, and importance of early involvement. The competitive environment chart shows how conditions like multiple qualified suppliers or unique patents impact competitive bidding. The nature of competition section outlines how the number of suppliers, barriers to entry, capacity, branding strategies, and ability to substitute products influence competition. Early involvement is key to avoid being locked into a supplier too early without negotiating leverage.

1. LECTURE 17
NEGOTIATION ASSESSING THE NEGOTIATING
ENVIRONMENT
Prepared By
Mueen Yousuf

2.  Negotiating is the process that procurement professionals
go through to create favorable terms as part of a new
supplier contract.
 This can involve negotiating different terms with an existing
supplier when a contract is renewed, or discussing terms
from scratch with a brand new vendor.
 Negotiations are typically used to determine the fairest price
and payment terms, delivery and production time, quality
standards and more.
 The negotiations need to consider the best option for both
supplier and buyer, rather than just aiming to get the
cheapest possible price, as this will help to build stronger
relationships with long term suppliers.
NEGOTIATING

3. REASONS FOR NEGOTIATING

4. HANDLING SUPPLIER-RELATED DEVIATIONS
PAYMENT TERMS
AND CONDITIONS
AFTER-CARE AND
MAINTENANCE
TERMS
LIFETIME COSTS
FOR EACH
PRODUCT/SERVICE
IMPORTANCE OF
PRODUCT AND
SERVICE TO YOUR
BUSINESS
DELIVERY TIME
REASONS FOR NEGOTIATING

5. HANDLING SUPPLIER-RELATED DEVIATIONSNEGOTIATION STAGES

6. HANDLING SUPPLIER-RELATED DEVIATIONSNEGOTIATIONS
ASSESSING THE NEGOTIATING ENVIRONMENT
GATHERING INFORMATION AND ANALYSIS
PREPARING FOR THE NEGOTIATION
ASSESSING THE NEGOTIATING ENVIRONMENT

7. HANDLING SUPPLIER-RELATED DEVIATIONS
ASSESSING THE NEGOTIATING
ENVIRONMENT
THE COMPETITIVE ENVIRONMENT
NATURE OF COMPETITION
EARLY INVOLVEMENT

8. (a) THE COMPETITIVE ENVIRONMENT
 When the competitive environment is limited by the lack of
qualified suppliers or by intellectual property rights,
competitive bidding is unlikely than Negotiations may be the
only way to achieve organizational objectives.
 Assess the likelihood of conducting competitive bidding by
using the chart in Table 7.1.
ASSESSING THE NEGOTIATING ENVIRONMENT

9. LECTURE 17
(a) THE COMPETITIVE ENVIRONMENT
COMPETITIVE CONDITION DEGREE FOSTERING CB
Multiple qualified or qualifiable suppliers High
Contracting is feasible High
Competitive environment is regulated Medium
Contract recently negotiated Medium to low
Product or service is covered by patents None
Clear specifications or SOW exists High
Government controlled resource None
Attractive volume High
Only one source of supply None
ASSESSING THE NEGOTIATING ENVIRONMENT
• This table describes the specific circumstances in the marketplace and the
degree to which their presence fosters competitive bidding.
• There can be no bidding if only one supplier can meet your requirements.

10. (b) NATURE OF COMPETITION
• Number of qualified or qualifiable suppliers in the market.
• Impact of the buyer. Greater procurement volume.
• Barriers to entry for the particular product or service.
• Lower the cost to establish new businesses in the
particular market, the greater is the competitive
pressure.
ASSESSING THE NEGOTIATING ENVIRONMENT

11. (b) NATURE OF COMPETITION
• Capacity. Often related to the number of suppliers, higher
levels of unused capacity within an industry can foster greater
competition.
• Dominant brand. Effective branding strategies that make
one supplier or one product more desirable than others result
in less vigorous competition.
• Ability to substitute. Products or services that are easily
substituted by those from other industries are more highly
competitive.
• Role of market forces. Factors—economic, physical, and
political—influencing. Demand and Supply
• Ability to Substitute
ASSESSING THE NEGOTIATING ENVIRONMENT

12. (b) NATURE OF COMPETITION
ASSESSING THE NEGOTIATING ENVIRONMENT

13. (c) EARLY INVOLVEMENT
 The greater the supplier’s certainty that it will receive the
order, the less likely it will be to engage in serious
negotiations.
 Early involvement is essential to avoiding being locked into
a single source prematurely without sufficient negotiating
leverage to influence critical terms of the contract.
 This is especially true during the new product development
cycle and when engaging a new supplier. Figure 7.2 depicts
graphically how the influence of the Procurement
Department diminishes as the course of the supplier
engagement progresses.
ASSESSING THE NEGOTIATING ENVIRONMENT

14. (c) EARLY INVOLVEMENT
ASSESSING THE NEGOTIATING ENVIRONMENT