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Definitions of Negotiation

Negotiation can be defined as:

"To communicate with the objective of reaching an agreement by means, where appropriate, of
compromise."

Negotiation is the process of bargaining between buyer and seller. The objective is to reach
agreement on all terms and conditions of the procurement, including the "subject of the
procurement" and the price to be paid.

The classic definition of procurement reveals the five rights of procurement, which are really the
true preferences or true interests of a procurement professional during a procurement negotiation.
At least, they are the minimum.

“Securing supplies, materials, and services of the right quality in the right quantity at the right time
from the right place (source) at the right cost”.

The aim of procurement negotiation in its barest form is to achieve these five rights.

2. When is Negotiation Applicable?

Negotiation requires communicating, which may be in writing, by telephone, or face to face. Face to
face communications may be informal talks or formal conferences.

Negotiations generally are used when:

• There is no price competition.

• The prices obtained through competition appear to be irregular or excessive.

• The prices cannot be established by catalog or in the market place.

• The prices are not set by law or regulation.

Negotiation is a key skill of the purchasing and supply management professional. The ability to
negotiate effectively is so fundamental, that without it, an effective purchasing and supply
management service cannot be provided. Although some people have a natural flair for negotiation
it is a skill which not only needs to be learned through professional training, coaching and experience
but requires refresher training at, at least, five year intervals.

Purchasing and supply management professionals should undertake, or lead, any significant
negotiation with suppliers required by their organisation. Where someone else is to undertake a
negotiation, it is the responsibility of the purchasing and supply management professional to ensure
that they are properly trained and prepared for the experience. There are reputational risks for the
organisation when an untrained individual undertakes a complex commercial negotiation.
Negotiation should be part of most procurement exercises especially those which are of high value,
high risk or are complex. In some cases, negotiation with approved suppliers is preferable to inviting
bids such as when the requirement is difficult to specify.