Practice

1
Practice

• 16. Negotiating techniques and rules of conduct

2
Program

• Characteristics of purchasing negotiations for
  industrial purchases
• Recognizing negotiating situations
• Factors which can weaken the negotiating position
• Preparing for negotiations
• Planning negotiations
• Tactics in purchasing negotiations
• Stages in purchasing negotiations
• Rules of conduct and purchasing ethics

3
Characteristics of purchasing negotiations for
industrial purchases.

• Retail buyers versus industrial buyers
• The purchasing policy of a trading company is
  closely related to its sales policy, because the
  purchase price directly influences the sales
  ability and profitability of the product.This is
  less so in industrial companies because the
  purchasing share in the end product is lower
• Retail buyers have more freedom in decision
  making than industrial buyers.
• The buyer of industrial goods usually has a
  longer term, more intense relationship with its
  suppliers than retail buyers.
• Price is often less important for the industrial
  buyer than good quality, delivery reliability and
  service

4
Recognizing negotiating situations

• Negotiating situations are aimed at
• Bringing together the parties through
  concessions in such a way that both parties can
  look back on the outcome of the negotiation with
  some satisfaction
• Negotiations concern more elements than price
  alone
• Negotiations concern all elements that are
  important in reaching the agreement. Issues like
  quality and delivery reliability, as well as
  after sales service are frequently more important
  than price and terms of payment

5
Factors which can weaken the negotiating position

• Factors which can weaken the negotiating
  position..
• Lack of preparation time.
• Lack of knowledge with regard to market
  developments, the market position of the supplier
  and own companys relative position.
• Lack of knowledge of the suppliers cost
  structure.
• Insufficient information on the suppliers
  organization.
• Too little listening and too much talk on the
  buyers side.
• Insufficient command of foreign languages.
• No or very few alternative sources available.
• Few valid arguments to support the buyers point
  of view.
• A negotiating partner on the buying team speaks
  out of run.
• Insufficient authority to close an agreement.

6
Factors which can weaken the negotiating position

• Three main points which must be predetermined for
  every
• negotiating
• Goals and objectives. Is it clear what the
  negotiations should accomplish? What is the
  minimum result that must be achieved and what are
  the maximum concessions one is willing to make?
• Authority. What authority does the negotiator
  have to make a deal? Does he/ she have the
  necessary support from higher management levels?
• Expertise and knowledge. Do the people who are
  going to conduct the negotiation have the
  required expertise and knowledge? Are they
  experts on the subject? Do they actually know the
  business?

7
Preparing for negotiations

• Its important to find out at an early stage what
  the other partys view of
• the negotiations will be
• What exactly are they hoping to achieve?
• What interests are possibly shared?
• What are the expected potential subjects the
  other party wants on the agenda?
• Its important to find out as much as possible
  about the other party
• New supplier examination of annual reports and
  bank references
• Existing supplier analyze relationship over past
  years and past performance.
• Furthermore having gathered the information,
  think about
• possible points of agreement

8
Planning negotiations

• When the homework is done, planning of the
  negotiations can
• begin. There are 10 steps in this process
• Establish the objectives of the negotiation for
  yourself
• Gather facts that can have a big impact on the
  negotiations
• Asses the power position of each of the parties
• Determine the points of common interest
• Make a list of questions
• Define your tasks
• Decide on the composition and division of roles
  in your negotiating team
• Plan your concessions
• Agree upon the negotiating tactic you will follow
• Indicate how you think you will conclude the
  negotiations

9
Tactics in purchasing negotiations

• Take-it or-leave-it. One party wants to impose
  its terms on the other party, without
  concessions.
• Bogey. The buyer approaches the supplier in a
  very friendly way and comments on his proposal
  positively. However he lets know that, if there
  is to be any business, the proposal has to be
  slightly adjusted.
• Chinese crunch. Here it is declared that an
  agreement is possible as soon as he solves just
  one little problem.
• Auction. the buyer makes the supplier explain why
  they should do business together.
• Good guy-bad guy. Purpose of this tactic is to
  dim the other partys expectations about the
  outcome of the negotiations.

10
Stages in purchasing negotiations

• Four stages can be identified in the course of
  the process
• Exploration. Both parties try to get acquainted.
  Next they try to discover mutual interests and
  intentions. They also try to asses the importance
  of the negotiations for the other party.
• Reflection. This stage consists in digesting the
  information received from the other party. Does
  this information necessitate a revision of your
  objectives?
• Negotiation. Concessions are made on both sides.
  It is important to check how the other party
  responds to concessions made by you.
• Closing. Repeat and summarize the agreements that
  have been made. Is the other party satisfied with
  the results?

11
Rules of conduct and purchasing ethics

• Questions can raise on the side of the buyer as
  to how far one
• should go in a relationship with a supplier.
• Questions that may occur
• How should confidential supplier price
  information be handled?
• How to deal with quotations should we only use
  quotations if we are considering requesting a
  firm bid from a supplier, or do we also use them
  to check current suppliers prices?
• What is the maximum share we as customer want to
  have in the suppliers turnover?
• Do we always strive to have at least two
  suppliers (dual sourcing) or are single sources
  allowed in particular circumstances?

12
Conclusions

• Negotiating is an important aspect of the buyers
  activities and it takes up a large part of his
  time
• Before starting negotiations with a supplier, it
  is important to determine
• The goals and objectives
• What authority the negotiators have to conclude
  an agreement with the suppliers representatives
  (and vice versa)
• What information is required to negotiate
  effectively
• A sound preparation is half of the job!