Downloaded 21 times
Uploaded byTran Thang
Chapter 16 Negotiation
The document outlines key concepts and objectives of negotiation within supply management, including quality, fair pricing, and supplier relationships. It emphasizes the preparation process, negotiation techniques, and the role of supply management professionals as leaders in negotiations. It also discusses the importance of face-to-face discussions, documentation, and the evolving dynamics of online negotiations versus traditional methods.
More Related Content
Similar to Chapter 16 Negotiation
Chapter 16 Negotiation
- 1.
- 2. 16-2 Key Concepts • Objectivesof Negotiation » Quality » Fair and Reasonable Price » On-time Performance » Control » Cooperation » Supplier Relationship Management • When to Negotiate
- 3. 16-3 Key Concepts • SupplyManagement’s Role in Negotiation » The Supply Management Professional Acting Alone » The Supply Management Professional as the Negotiating Team Leader • The Negotiation Process » Preparation » Establishing Objectives » Identify the Desired Type of Relationship • Three Powerful Preparation Activities
- 4. 16-4 Key Concepts • Face-to-FaceDiscussions » Fact Finding » Recess » Narrowing the Differences » Hard Bargaining • Techniques » Universally Applicable Techniques » Transactional Techniques » Collaborative and Alliance Negotiating Techniques • The Debriefing: An Incredible Learning Opportunity • Documentation
- 5. 16-5 Key Concepts • OnlineNegotiation • Negotiating for Price » Price Analysis Negotiation » Cost Analysis Negotiation • Characteristics of a Successful Negotiator
- 6. 16-6 Objectives of Negotiation •Quality • Fair and responsible price • On-time performance • Control • Cooperation • Supplier relationship management
- 7. 16-7 When to Negotiate •When any of the five prerequisite criteria for competitive bidding are absent • When many variable factors bear not only on price but also on quality and service • When early supplier involvement is employed • When the business risks and costs cannot be predetermined • When a customer firm is contracting for a portion of the seller's production capacity
- 8. 16-8 When to Negotiate •When tooling and setup costs represent a large percentage of the supplier's total costs • When a long period of time is required to produce the items purchased • When production is interrupted frequently because of numerous change orders • When a thorough analysis is required to solve a difficult make-or-buy decision • When the products of a specific supplier are desired to the exclusion of others
- 9. 16-9 Supply Management’s Rolein Negotiation • The Supply Management Professional Acting Alone • The Supply Management Professional as the Negotiating Team Leader
- 10. 16-10 Bidding or Negotiation? •Recall the prerequisites to bidding… » Dollar value must be large » Specifications must be clear » Market must consist of an adequate number of sellers » Sellers must be qualified and want the contract » Time available must be sufficient • If any of these are not true, then negotiation is the best choice
- 11. 16-11 Conditions Demanding Negotiation •Impossible to estimate costs with a high degree of certainty • Price is not the only important variable • Purchasing firm anticipates a need to make changes in the specification • Special tooling of setup costs are major factors
- 12. 16-12 Even if theprevious list is met… here are two arguments for Negotiation • The negotiation process is far more likely to lead to a complete understanding of all issues of the procurement • Competitive bidding tends to result in sacrifices in product quality, development efforts, and other vital services
- 13. 16-13 Negotiation Teams • Crossfunctional members • Supply manager frequently serves as leader • Overall strategy is required • Roles are defined • Mock negotiations are needed
- 14. 16-14 The Negotiation Process 1.Preparation 2. Establishment of objectives 3. Face to face discussions
- 15. 16-15 Preparation • 90% ofthe time involved in a successful negotiation is invested in preparation • The negotiator must: » Possess a technical understanding of the item or service » Analyze the relative bargaining positions of both parties » Have conducted a price or cost analysis » Know the seller » Be aware of cultural nuances » Be thoroughly prepared
- 16. 16-16 Determinates of theSeller’s Bargaining Strength 1. How badly the seller wants the contract 2. How certain he or she feels of getting it 3. How much time is available to reach agreement on suitable terms
- 17. 16-17 Establishing Objectives Relatedto Cost Positions • An objective position » Best estimate of what the seller's actual costs plus a fair profit should be • A minimum position » Developed on the premise that every required seller action will turn out satisfactorily and with minimum cost • A maximum position » Developed on the premise a large number of required seller actions will turn out unsatisfactorily and with maximum cost
- 18. 16-18 Traditional Cost Objectives •Quantity of labor • Wage rates • Quantity of materials • Prices of materials • Factory overhead • Engineering expense • Tooling expense • Administrative expense
- 19. 16-19 Non-Cost Objectives • Alltechnical aspects of the purchase • Types of materials and substitutes • Buyer-furnished material and equipment • The mode of transportation • Warranty terms and conditions • Payment terms (including discount provisions) • Liability for claims and damage • F.O.B. point • General terms and conditions • Details on how a service is to be performed
- 20. 16-20 Other Objectives • Progressreports • Production control plans • Escalation/de-escalation provisions • Incentive arrangements • Patents and infringement protection • Packaging • Title to special tools and equipment • Disposition of damaged goods and off-spec (non-conforming) materials
- 21. 16-21 Identify the DesiredType of Relationship • The three primary approaches presented earlier in the book in Chapter 4 are: » Transactional » Collaborative » Alliance • The desired type or relationship is strongly related to the negotiation tactics a negotiator should and should not use
- 22. 16-22 Five Powerful PreparationActivities • The BATNA • The Agenda • “Murder Boards” and Mock Negotiations • Crib Sheets • Draft Agreements
- 23. 16-23 Face-to-Face Discussions • FactFinding • Recess • Narrowing the Differences • Hard Bargaining
- 24. 16-24 Universally Applicable Techniques •Getting to Know You • Use Diversions • Use Questions Effectively • Use Positive Statements • Be a Good Listener • Be Considerate of Sellers
- 25. 16-25 Transactional Techniques • Keepthe Initiative • Never Give Anything Away • Frame the question • The Dynamics of a Transactional Negotiation
- 26. 16-26 Minimum Objective Maximum Buyer’sposition Seller’s position Minimum Objective Maximum Cost Dynamics of a Transactional Negotiation Heart of Transactional Negotiation
- 27. 16-27 Collaborative and AllianceNegotiating Techniques • Separate the people (negotiators) from the problem (quality, price) • Focus on interests, not positions • Invent options for mutual gain • Insist on using objective criteria
- 28. 16-28 The Debriefing: AnIncredible Learning Opportunity • Conducted by the negotiation team » A self assessment/evaluation • Debriefing must be done in a timely manner accurate and timely feedback” • Identify what was done well • Identify what could be improved upon • Document lessons learned • Provide individual and team feedback
- 29. 16-29 Documentation • Subject • IntroductorySummary • Particulars • Procurement situation • Negotiation summary
- 30. 16-30 Online Negotiation • Agreementsfounded solely on written communication tend to have problems • Those that include written and telephone communication are sustainable • The best relationships are those that go beyond other forms of communication to involve face-to-face meetings
- 31. 16-31 Advantages to OnlineNegotiation • Can help focus on the issues separately from personalities • Brainstorming may be more productive • Online communication can free the buyer and supplier from location dependency • If the negotiation is not being done “live” on the Internet, the time for conducting the negotiations is relatively flexible
- 32. 16-32 Drawbacks to OnlineNegotiation • Some of the drawbacks listed could also be advantages, depending on the firm’s objectives and needs • It is far easier to say ‘no’ in writing • Psychological separation makes the termination of the relationship much easier • Online negotiators are likely to feel a need to be more persuasive – more convincing • A lack of nonverbal cues forces careful consideration of the impact of each word • It is difficult to evaluate perceptions
- 33. 16-33 Hypotheses Regarding Negotiations •The more important the issue, the more likely it is that it will be negotiated face-to- face • The more politically sensitive the issue, the more likely it is that it will be negotiated face-to-face • If either negotiator will be personally affected by the outcome, that person may want to conduct the negotiation in person
- 34. 16-34 Hypotheses Regarding Negotiations •If the topic involves issues of firm sensitivity, such as trade secrets or core competencies, the negotiation is more likely to take place face-to-face • Buyer-supplier relationships will be perceived as more distant, the more online communication and negotiation are used • Less formal planning will occur prior to online negotiations than for those conducted face-to-face
- 35. 16-35 Negotiating for Price •Price Analysis Negotiation » Negotiation time is shorter » Support of technical specialists is seldom needed » Pricing data are relatively easy to acquire • Price Comparison • Trend Comparisons • Cost Analysis Negotiation
- 36. 16-36 Characteristics of aSuccessful Negotiator • All realize that specialized training and practice are required to become an effective negotiator • All habitually enter into negotiations with more demanding negotiating objectives than their counterparts, and generally they achieve them • All are pragmatic and flexible in their capability to deal with different negotiation techniques from “hardball” to “collaborative” • All are included, or are destined to become included, among an organization's most highly valued professionals
- 37. 16-37 Concluding Remarks • Negotiationis free enterprise at its very best! • Negotiation is a powerful supply management tool which competent professionals use to achieve maximum value at minimum cost • By rewarding efficiency and penalizing inefficiency, the negotiation process benefits the negotiating firms and the nation's economy as a whole. • The increasingly common collaborative approach to negotiations substitutes a win-win approach for the more traditional, transactional one