NEGOTIATIONBPT3133 – Procurement in Industrial Management

STRATEGIES

CHAPTER OUTLINE• What is Negotiation?• Negotiation Framework• Negotiation Planning• Power in Negotiation• Win-Win Negotiation• International Negotiation• The Impact of the Internet on Negotiations

LEARNING OBJECTIVE• Understand when and why a buyer enters

into a sourcing negotiation• Recognize the importance of planning

within the negotiation process• Appreciate the different sources of power

that are present during negotiations

INTRODUCTION• Negotiation is a skill that is essential to all

purchasing and supply managers• Negotiation is a vital part of every sourcing process• Negotiation is an ideal way to convey the buyer’s

specific sourcing requirements and specifications to its supply base

WHAT IS NEGOTIATION?“is an interactive communication process that may

take place whenever we want something from someone else or another person wants something

from us”OR

“is the process of communicating back and forth for the purpose of reaching joint agreement about

differing needs or ideas”OR

“is a decision-making process by which two or more people agree how to allocate scarce resources”

NEGOTIATION

NEGOTIATION FRAMEWORK

Identify or anticipate a purchase requirement

Determine if negotiation is required

Plan for the negotiation

Conduct the negotiation

Execute the agreement

5 PHASE NEGOTIATION PROCESS

NEGOTIATION PLANNING1. Develop specific objectives2. Analyze each party’s strengths and weaknesses3. Gather relevant information4. Recognize your counterpart’s needs5. Identify facts and issues6. Establish a position on each issue7. Develop the negotiation strategy and

accompanying tactics8. Brief other personnel9. Practice the negotiation

NEGOTIATION PLANNING

• Power is the ability to influence another person or organization

• Sources of negotiation power:a. Informationalb. Rewardc. Coercived. Legitimatee. Expertf. Referent

POWER IN NEGOTIATION

WIN-WIN NEGOTIATIONWin-lose negotiation• Two or more parties are competing over a fixed

value with the winner taking the larger share• Also known as a zero-sum or fixed-sum game (if

one party gains, it is only at the expense of the other party)

Win-win negotiation• Seeks to expand the value or resources available

to all participants through collaborative negotiation• Also know as integrative bargaining

WIN-WIN NEGOTIATIONCharacteristics of Win-Lose and Win-Win Negotiation

INTERNATIONAL NEGOTIATION

• Negotiations with suppliers located literally anywhere on the globe take on added complexity and challenge when the parties have different languages, customs, laws and cultures

• Important considerations in negotiating a global sourcing agreement is culture shock

• Requires additional planning and preparation to be successful

THE IMPACT OF THE INTERNET

1. Tend to equalize the interactions between the parties because normal visual cues and sources of power are not as evident

2. Engage in more risky behaviours and are more aggressive in their demands

3. Active listening and effective feedback are more difficult to conduct

4. Engage in behaviours that indicate that they are communicating in real time even when they are not

5. Often feel less accountable for the outcomes because of perceived disconnect with their counterparts in a different locale

6. Tend to take on a more adversarial, “us-versus-them” mentality

7. The negotiator at the other end of the electronic connection is relatively anonymous

NEGOTIATION SKILLS• Successful negotiators criteria:– They should be rated as effective by both sides– They should have a track record of significant

success– They should have a low incidence of

implementation failures.

Behavioral / Interactive Factors :Image

IntegrityStatus

Self-actualization

Corporate issues

& Human issues

The resolution of conflicting interests through negotiation is motivated by:• Individual personality needs of negotiators• Personality compatibility among negotiators

representing opposing parties• Negotiators’ perceptions and expectations of the

opponent• Persuasive mechanisms employed to modify the

bargaining positions and values of the opponent to achieve a more favorable convergence of interests

NEGOTIATION SKILLS

Negotiation Ploys Methods of Dealing with Ploys

Nice guy / hard guy Either match style or adopt contrast style

Add on Carefully check what you are getting for your money before agreement

Deadlines Avoid revealing what time you have to finish. Agree to meet another time

Russian front Do not accept poor deals. What is your best alternative to a negotiated agreement?

Empty larder Ask for an explanation of any constraints in a deal. Offer what you can within those constraints

Approval from a higher authority

Establish opposite number’s full authority before negotiation

NEGOTIATION SKILLS

Manipulative Techniques and Ploys

Posture Possible Meaning

Leaning forward when making a point Interested; wants to emphasis a point

Avoiding eye contact May be embarrassed; not telling the truth

Arms folded; body turned away from you Defensive; no compromise. Not interested

Body turned towards you leaning forward Interested; warning towards your comments

Looking away at watch or at a window Wants to leave or avoid any further discussion

Hands supporting head and leaning back in chair

Confidence

Stroking nose regularly with a finger – avoiding eye contact

May be lying

Good eye contact; fingers stroking face Interested in what you are saying

NEGOTIATION SKILLSThe Interpretation of Postures

SUMMARY• Negotiation process involved 5 phases• Negotiation may not always be the appropriate way

to reach an agreement – persuasion, complete acceptance, coercion or problem solving may prove sound alternatives

• Negotiation style depends on the objective to be achieved

• Individuals who are skilled at negotiation are destined to be among an organization’s most valued professionals