Supply Chain Management Lecture 12 – Negotiation

Alexa Kirkaldy

Lecture 12 - Learning ObjectivesOn completion you will be able to:

• Be able to define negotiation• Explain what is involved in adversarial and collaborative approaches

and identify where they are appropriate• Identify likely substance and relationship goals• Identify the steps required to prepare for successful negotiations• Explain types of behaviour that will lead to constructive negotiation

Definitions of Negotiation“The process whereby two or more parties decide what each will give and take in an exchange”

“Any form of verbal communication in which the participants seek to exploit their relative competitive advantage and needs to achieve explicit or implicit objectives within the overall purpose of seeking to resolve problems that are barriers to agreement.”

Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.548.

Approaches to NegotiationAdversarial, distributive or

win-lose• Appropriate where

– no ongoing relationship– quick, simple solution to

disagreement needed• Strategy based on secrecy• True goals unclear• Unpredictable behaviour,

negotiating ploys, threats, bluffs, fixed positions

• ‘Us against them’

Collaborative, integrative or win-win

• Appropriate where– long-term relationship – Creative solution to mutual

problem required• Strategy based on openness• Goals disclosed• Predictable behaviour,

negotiating ploys avoided, flexible

• ‘We’re in this together’

Content of Negotiation• Substance goals – content issues of negotiation

– How important is the outcome to them (collectively and individually?)

– Price– Contractual– Delivery

• Relationship goals – outcomes relating to working together

– What is the basis of the relationship between the parties (now and desired)

– Partnership– Preferred supplier status– Integration - collaborative design, planning, forecasting and

replenishment– Sharing of technology, risk

Substance GoalsPrice Content of Negotiation

Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.551

Substance GoalsContractual Content of Negotiation

Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.551

Substance GoalsDelivery Content of Negotiation

Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.552

Negotiation Style Model

Low High

Low

High

Concern for Substance

Co

nce

rn f

or

Rel

atio

nsh

ip

N3ACCOMMODATEBuild friendly relationship

N2COLLABORATECreative problem solving

N1DEFEATBe a winner at any cost

N5COMPROMISESplit the difference

N4WITHDRAWTake what you can get

Dr Dawei Lu, MSc Supply Chain Management module

Let

tin

g t

hem

get

wh

at t

hey

wan

t (T

hey

win

)

Getting what I want (I win)

Preparing for Successful Negotiation

1. Develop specific objectives

2. Establish effective negotiating team

3. Gather information

4. Analyse strengths & weaknesses

5. Recognise the other side’s needs

6. Determine the facts & issues

7. Establish a position on each issue

8. Plan the negotiation strategy

9. Select appropriate tactics

10.Practice the negotiation

Fawcett, Ellram and Ogden, “Supply Chain Management”, 2007, pp 363-365

Conducting Successful Negotiations

1. Fact finding

2. The Recess

3. Narrowing the differences

4. Hard bargaining

Fawcett, Ellram and Ogden, “Supply Chain Management”, 2007, p 367

Negotiation Range

Most Favoured Position (MFP)

Least Favoured Position (LFP)

MFP LFP

LFP MFP

Potential Agreement

zone

MFP LFP MFPLFPConflict Zone

Dr Dawei Lu, MSc Supply Chain Management module

Types of Behaviour & ResponseBehaviour Likely response

Proposing – shall we ….? Development in form of support or reasoned negative identifying difficulty

Development – building on or supporting other’s proposals

Further development or seeking further information

Reasoned negative – explaining areas of difficulty

Can invoke similar negative behaviour, try to remain reasonable, seek more information

Emotional negative – attacking or defensive, critical, ‘rubbish’

Tends to evoke similar response, hard to return to constructive behaviour

Clarifying – checking for understanding, summarising

Supportive development or can lead to disagreement if situation misunderstood

Seeking information – facts opinions, ideas, what if?

Usually results in information being given

Giving information – open disclosure

Can be in response to seeking information or could break the ice

Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.563

Post Negotiation• Document - draft agreement or contract, circulate,

confirm• Sell agreement to key stakeholders• Implement and monitor

Successful negotiation according to Fisher and Ury (1983)

• Wise agreement• Efficient• Harmonious

Lecture 12, Key Points & Tips• One of the most important activities in relationship building is

negotiation.• Negotiation is a formal communication process where two or more

people meet to discuss issues and come to an agreement.• Traditionally negotiation in supply chains was an adversarial, win-

lose activity to determine the specifics of an important contract. Adversarial approaches can still be appropriate for one-off contracts where a quick, cheap solution is required.

• In supply chains negotiation is a key tool in building competitive, world class partnerships and needs a collaborative, win-win approach.

• The goals of negotiation relate to both the substance (price, contractual, delivery) and to the relationship and the level of concern for these goals will affect the outcome.

Lecture 12, Key Points & Tips• Pre-negotiation preparation can represent up to 90% of a successful

negotiation. • The type of behaviour adopted during the negotiation can play a

large part in achieving a successful outcome. Negotiation skills can be developed and improved via specialist training.

• Negotiating ploys will be easy to spot for a skilled negotiator.• You need to be aware the two main approaches to negotiation, the

steps involved in preparing for a negotiation and give examples of the types of behaviour that are likely to lead to constructive negotiations.

For next TuesdayRead the case study on negotiation

– Two questions

Possible oral presentation questions• How important is contract negotiation in

this industry and how is it approached?

• How can negotiation be improved in this industry?