Negotiation Strategies

How to deal with co-workers, clients, and suppliers

Richard G. Weissman, C.P.M.

Northeast Supply Chain Conference and Exhibition

September 2004

Richard G. Weissman, C.P.M.

Director, Center for Leadership

Assistant Professor

Endicott College

376 Hale Street

Beverly, MA 01915

978-232-2269

rweissma@endicott.edu

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.

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

WHEN DO YOU NEGOTIATE?

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.

The 5 Ps of Negotiating

• Preparation• Poise• Persuasiveness• Persistence• Patience

Right Associates

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

Problems in Negotiation

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

Brainstorming Exercise

• What are the traits of a good negotiator?

How to be a “Sophisticated Customer”

• Understand YOURYOUR business• Understand THEIRTHEIR business• Follow-up and follow through• Anticipate• Question• Communicate

Phases of Negotiation

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

Planning for Negotiation

• Strategic planning• Administrative planning• Tactical planning

Planning the Negotiation Process

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

Information Quilt

• Public domain, such as the Internet, magazines, newspapers, D&B reports.

• Third parties, such as business associates, friends, or those who are aware of your opponent.

• Your opponent, such as contacts within their organization.

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

Documentation of Negotiation

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

Sources of Power

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

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

associations

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.

Authority

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

Major Modes of Negotiation

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

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.

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!

Nibbles

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

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.

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

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

Framing

• How an object, event, or situation is depicted or presented

1. Emphasize the value of their concessions.

2. Provide a justification for the other party to make concessions.

3. Offer a standard of fairness for dividing the value created by negotiating.

Limits

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

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

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.

Some Negotiation Tactics

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

Ethics

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

Aspects of a Purchase & Sale Agreement

• Quality• Support• Supply• Transportation• Price

Quality

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

Customer Support

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

Supply

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

Transportation

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

Price

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

profit

8 Keys to High Performance Negotiation

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

WHEN DO YOU NEGOTIATE?