Purchasing_Chapter 13: Negotiation and Conflict Resolution

Negotiation

A process of formal communication, either face-to-face or via electronic means, where two or more people, groups, or organizations come together to seek mutual agreement about issue or issues

• Relationships between people, not just organizations

• Negotiation skills can be learned and enhanced

• Supports implementation of supply management strategies and plans

Bargaining Zone Example

BATNA

That point where it is advantageous to walk away from the negotiation
◦ Best Alternative to a Negotiated Agreement
◦ Bottom line or reservation point

Position 

• Negotiator’s opening offer
  ◦ Represents the optimistic (or ideal) target value of issues being negotiated

• Stated demand at negotiation table

Interests

• Learn to play detective
  ◦ Try to separate other party’s interests through series of open-ended, probing questions
  ◦ Then listen carefully

• Always focus on the other party’s underlying interests, not its stated positions

Need vs Want

• Need
  ◦ Negotiated outcome that negotiator must achieve

• Want
  ◦ Negotiated outcome that a negotiator would like to have
  ◦ May often be exchanged as a concession
  

Triangle Talk

Know Exactly what you want 

• Determine and formalize specific goals and objectives
  ◦ Helps retain clear focus and minimize distraction
  ◦ When written, can be referred to readily during negotiation
  ◦ The more clearly defined, the more likely that priorities can be achieved

• Attempt to distinguish other party’s likely needs and wants
  ◦ Estimate underlying interests to other party’s stated positions

• Beware of expecting other party to think in same way as you do

• Ask probing, open-ended questions to confirm or counter assumptions

Propose Action in a Way that they can accept

• Frame your own needs in terms of other party’s needs

• Make it easy for other party to say “Yes”

• Remain fair, flexible, and reasonable

• Address their needs first
  

The Negotiation Framework

Identify or Anticipate the Sourcing Requirement 

• Purchase requisitions

• New product development

• New facilities

Develop Specific Objectives

• Objective
  ◦ Aspiration or vision to work toward in future

• Typical objectives
  ◦ Acceptable unit price
  ◦ Contract quantities
  ◦ Required delivery lead time
  ◦ Improved supplier quality

• Not all objectives are equally important
  ◦ Need to prioritize
   Must have (needs)
   Would like to have (wants)
  ◦ Serves as basis for concession strategy

Gather Relevant Information

• Previous experience with other party
  ◦ What happened between parties?
  ◦ Was negotiator satisfied with previous outcome?
  ◦ Are we negotiating with same people or with different negotiators?
  ◦ What were important issues to supplier? To buyer?

• Previous experience with other party
  ◦ What were areas of disagreement?
  ◦ Is there anything about previous conduct or protocols that should be changed?
  ◦ What is relative power between parties?
  ◦ Who has most to lose? To gain?

Determine if Negotiation or Competitive Bidding is Required

• Is bid process inadequate?

• Are many non-price issues involved?

• Is contract large?

• Are technical requirements complex?

• Does contract involve plant and equipment?

Planning for the Negotiation

• Better planning → better outcomes

• Electronic communication tools vs. face-to-face negotiations
  ◦ Reduce expensive and time-consuming travel

Regcognize your counterpart’s needs

• Must consider longer-term success

• Issues critical to supplier may not be issues critical to buyer, and vice versa

• Give-and-take must be considered
  ◦ Each party should not expect to prevail in all issues
  ◦ Setting priorities for concessions and issue tradeoffs

Phase of Negotiation

Phase I
◦ Fact finding and information sharing
◦ Clarify or confirm information

• Phase II
  ◦ Recess to assess new information and findings
  ◦ Assess relative strengths and weaknesses
  ◦ Review and revise objectives and positions, if necessary
  ◦ Organize agenda

• Phase III
  ◦ Meet face-to-face or electronically
  ◦ Narrow differences on issues
  ◦ Offer proposals and counterproposals
  ◦ Exchange concessions

• Phase IV
  ◦ Seek agreement
  ◦ Conclude negotiation
  ◦ Agree to follow-on activities

Execute and Follow Up on the Agreement

Provide performance feedback

Build on success of negotiation

Monitor contract provisions

Reaffirm commitment of parties

Negotiation Planning

Develop plan and overall strategy

• Specific strategies

• Research

• Actions

• Tactics

Power in Negotiation 

• Power
  ◦ Ability to influence another person or organization to do something

• Power by itself is neither good nor bad
  ◦ It is actual application or use of power that makes it good or bad

• Sources of negotiating power
  

Sources of Negotiating Power

• Informational power

• Reward power

• Legitimate power

• Expert power

Legitimate Power

• Power based on official position held
  ◦ The higher the job position or title, the greater the power inferred

• May be separate from reward power or coercive power

• Buyer has legitimate power due to his/her ability to award contract

Win-win Negotiation

• Understand each other’s needs and wants

• Focus on common ground rather than personal interests

• Conduct joint efforts to solve problems

• Develop creative solutions that provide additional value

• Engage in open information sharing

International Negotiation

• Added complexity and challenge with different …
  ◦ Customs
  ◦ Laws
  ◦ Cultures

• Extra time and effort required

• Culture shock