Negotiation Strategies How to deal with coworkers, clients, and suppliers

1
Negotiation StrategiesHow to deal with
co-workers, clients, and suppliers

• Richard G. Weissman, C.P.M.
• Northeast Supply Chain Conference and Exhibition
• September 2004

2

• Richard G. Weissman, C.P.M.
• Director, Center for Leadership
• Assistant Professor
• Endicott College
• 376 Hale Street
• Beverly, MA 01915
• 978-232-2269
• rweissma_at_endicott.edu

3
Objectives

• Recognize the elements and process of
  negotiation.
• Concentrate on negotiation tools and techniques.
• Negotiate with internal and external clients.
• Focus on process improvement.
• Highlight communication and the human approach to
  negotiation.
• Understand the benefits of successful
  negotiations.

4
Negotiation

• An exploratory and a bargaining process
  (planning, reviewing, analyzing, compromising)
  involving a buyer and seller, each with their own
  viewpoints and objectives, seeking to reach a
  mutually satisfactory agreement on all phases of
  a procurement transaction including price,
  service, specifications, technical and quality
  requirements, payment terms, and elements.
• NAPM Glossary of Key Purchasing Terms

5
WHEN DO YOU NEGOTIATE?
6
Key Point!

• Most negotiations occur over and over again. We
  tend to deal with the same customers, co-workers,
  suppliers, clients, directors, and managers for a
  long time. It is important to recognize and give
  proper weight to the context in which a
  negotiation is taking place. If it is within an
  on-going relationship, the significance of that
  relationship must be considered.

7
The 5 Ps of Negotiating

• Preparation
• Poise
• Persuasiveness
• Persistence
• Patience
• Right Associates

8
Reasons for Negotiation

• Lack of competition
• Price, quality, delivery, and service needs
• Buying production or service capabilities
• High buyer or seller uncertainty

• Urgency
• Long lead times
• Necessity for flexible contracts
• Lack of firm product specifications
• Single source strategies

9
Problems in Negotiation

• Lack of formal negotiation training
• Lack of preparation
• Failure to establish realistic objectives
• Unsound tactics
• Cultural misunderstanding

10
Brainstorming Exercise

• What are the traits of a good negotiator?

11
How to be a Sophisticated Customer

• Understand YOUR business
• Understand THEIR business
• Follow-up and follow through
• Anticipate
• Question
• Communicate

12
Phases of Negotiation

• Presentation phase
• Clarification phase
• Exploration phase
• Proposal phase
• Hard bargaining phase

13
Planning for Negotiation

• Strategic planning
• Administrative planning
• Tactical planning

14
Planning the Negotiation Process

• Basic groundwork
• Develop objectives
• Gain support
• Assemble the team
• Action!
• Verbal agreement
• Written agreement
• Making it work

15
Information Quilt

• Public domain, such as the Internet, magazines,
  newspapers, DB reports.
• Third parties, such as business associates,
  friends, or those who are aware of your opponent.
• Your opponent, such as contacts within their
  organization.

16
Elements of a Written Negotiation Plan

• Brief overview statement
• Objectives
• Positions of strength for both parties
• Internal support requirements
• Development of negotiating team
• Negotiation plan tactics

17
Documentation of Negotiation

• Subject
• Introductory summary
• Particulars
• Procurement situation
• Negotiation summary

18
Sources of Power

• Competition
• Legitimacy
• Commitment
• Knowledge
• Risk-taking

• Time
• Effort or work
• Money
• Negotiation skills
• Friendly associations

19
Negotiating Power

• Negotiating power is relative between the
  parties.
• Negotiating power changes over time.
• Negotiating power is always limited.
• Negotiating power can be either real or apparent.
• The exercise of negotiation power has both
  benefits and costs.
• Negotiating power relates to the ability to
  punish or benefit.
• Negotiating power is enhanced by legal support,
  personal knowledge, skill, resources and hard
  work.
• Negotiating power is increased by the ability to
  endure uncertainty and by commitment.
• Negotiating power is enhanced by a good
  negotiating relationship.
• Negotiating power depends on the perceived BATNA.
  
• Negotiating power exists to the extent that it is
  accepted.
• Negotiation Theory and Skills by James
  C. Melamed, J.D.

20
Authority

• Escalating authority
• Limited authority
• No authority
• Full authority
• Escape from authority

21
Major Modes of Negotiation

• Cooperative (win--win)
• Competitive (win--lose)
• Counterproductive (lose--lose)

22
Getting to Yes

• Fisher, Vry Patton of the Harvard Negotiation
  Project.
• Separate the people from the problem.
• Focus on interests, not positions.
• Invent options for mutual gain.
• Insist on using objective criteria.

23
Problems of Long-Term Relationships

• Loss of objectivity
• Complacency
• Loss of secrecy
• Growing dependency
• Cooperative forces lessen
• Person factors influence decision making
• Organizations locked-in
• Easy!

24
Nibbles

• Cash terms
• Extended warranty
• Service / support
• Spare parts
• Training
• Freight
• Testing

25
Anchor

• An initial offer in a negotiation, often set from
  external experiences.
• The sticker price of an automobile is an example
  of an anchor.
• When anchors are used, creativity in a
  negotiation suffers.

26
Concessions

• Small concessions give the impression that the
  bottom line is not far off.
• Large concessions indicate that a lot more can
  still be conceded before the bottom line is
  reached.
• Rapid or large concessions undermine the
  credibility of the initial offer.
• All concessions teach the lesson that more
  concessions will be made.
• batna.com

27
Signals

• True signals. People send signals instead of
  saying things outright in order to convey
  information while preserving some degree of
  deniability.
• False signals. These signals are designed to
  mislead you.
• Unintentional signals. Signals made in error that
  may be valuable.
• Schatzki, Negotiation The Art of Getting What
  you Want

28
Framing

• How an object, event, or situation is depicted or
  presented
• Emphasize the value of their concessions.
• Provide a justification for the other party to
  make concessions.
• Offer a standard of fairness for dividing the
  value created by negotiating.

29
Limits

• Dollar limits
• Term limits
• Policy limits
• Legal limits
• Engineering limits
• Committee limits
• Miscellaneous limits

30
Agreement in Principle

• May be part of the final agreement.
• May be a way-station toward reaching an
  agreement.
• May be used as a tactical approach to the
  negotiation.
• May be a combination
• Schatzki, Negotiation The Art of Getting What
  You Want

31
BATNA

• Best Alternative to a Negotiated Agreement
• No agreement may be better than a poor agreement.
• The better your BATNA, the higher your leverage.
• Successful negotiations may not result in
  agreements.

32
Some Negotiation Tactics

• Agenda
• Deadline
• Concessions
• Missing person
• Bogey
• Take it or leave it
• Good guy / bad guy
• Best and final offer

33
Ethics

• Misrepresentation of position
• Bluffing
• Deception
• Selective disclosure
• Bribes
• Spying
• Theft
• Humiliation
• Sharp practice

34
Aspects of a Purchase Sale Agreement

• Quality
• Support
• Supply
• Transportation
• Price

35
Quality

• Specification compliance
• Performance compliance
• Test criteria
• Rejection procedures
• Liability
• Reliability
• Design changes

36
Customer Support

• Technical assistance
• Product enhancements
• Research development
• Warranty
• Spare parts
• Training
• Tooling
• Packaging
• End user support

37
Supply

• Lead times
• Delivery schedule
• Inventory programs
• Consigned inventory
• Stocking programs
• Cancellation / reschedule options

38
Transportation

• FOB terms
• Carrier
• Commodity classification
• Freight allowance / costs
• Multiple delivery points
• Timing

39
Price

• Purchase order price
• Discounts
• Foreign exchange
• Escalation / de-escalation
• Duties / taxes
• Cost analysis / material / labor / overhead /
  profit

40
8 Keys to High Performance Negotiation

• Motivate
• Facilitate
• Cooperate
• Educate
• Investigate
• Anticipate
• Communicate
• Administrate

41
WHEN DO YOU NEGOTIATE?