Key procurement issues: Negotiations

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Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Part 2
Key procurement issues
Chapter 10
Negotiations

2. Slide 10.2
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Objectives of this chapter
• To understand negotiating as a ‘mutuality of wants,
resolved by exchange’
• To identify the activities carried out during the different
stages of negotiation
• To analyse the characteristics of a skilled negotiator
• To recognise the key points of discussion stage
behaviour and recognise negotiating ploys
• To introduce the concept of body language and how it
can be interpreted
• To view how negotiating technique is influenced by long-
term interests

3. Slide 10.3
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Figure 10.1 The basic phases of negotiation

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Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Figure 10.2 The phases of negotiation – multi-meeting

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Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Figure 10.3 The phases of negotiation – single meeting

6. Slide 10.6
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Figure 10.4 Ranges of possibility

7. Slide 10.7
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Table 10.1 Some ‘personnel’ factors in negotiation

8. Slide 10.8
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Table 10.2 Manipulative techniques and ploys

9. Slide 10.9
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Figure 10.5 Two views of the negotiation process

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Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Table 10.4 The interpretation of postures

11. Slide 10.11
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Key areas in negotiation
Most purchasing negotiations will be concentrated on the
five key areas that will form the basis of most commercial
contracts. These are:
•Total value: both parties' negotiators will aim to maximise
the value of any deal to their own organisations. The
shape and forms of the total value will need to be
determined for each set of circumstances.
•Risk: each party in the negotiation will aim to minimise
the risk to their organisation.

12. Slide 10.12
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Key areas in negotiation (Continued)
Cost: this is usually one of the most critical aspects of
commercial negotiation. The buyer wants to get the lowest
cost or price, the seller usually the highest. The total cost
of acquisition is frequently a key driver for the buyer,
although suppliers – especially in capital purchases – will
endeavour to compartmentalise prices to optimise post-
sales revenue.
Cash: as well as defining what the price will be, the
negotiation will need to address when payment is to be
made. From the buyer's point of view, the aim is to
optimise cash flow. This usually means agreeing to pay as
late as possible. The supplier will probably have a very
different goal.

13. Slide 10.13
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Key areas in negotiation (Continued)
Terms and conditions: this is usually the neglected area
of negotiation. Buyers tend to find contractual details
tedious and complex. This often leads to the supplier's
terms and conditions prevailing by default. Expert
negotiators will seek to agree a balanced set of terms and
conditions.

14. Slide 10.14
Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015
Key areas in negotiation (Continued)
These five main areas of focus can often lead to enormous
differences in expectations between the two parties.
Effective negotiation is about achieving agreement without
reaching an impasse or being overpowered or exploited by
the supplier.
The buyers' objectives (MDOs) and fall-back positions
(BATNAs) should relate to each of these areas and
should
be the basis for assessing suppliers' likely positions to
identify possible concessions.