Negotiation

Negotiation is a dialogue between two or

more people or parties intended to reach a
beneficial outcome over one or more issues
where a conflict exists with respect to at least
one of these issues. This beneficial outcome
can be for all of the parties involved, or just for
one or some of them.

All pictures and some texts have been taken from internet
 Preparing for a Successful Negotiation

Depending on the scale of the disagreement, some preparation may

be appropriate for conducting a successful negotiation.
For small disagreements, excessive preparation can be counter-
productive because it takes time that is better used elsewhere. It
can also be seen as manipulative because, just as it strengthens
your position, it can weaken the other person's.
However, if you need to resolve a major disagreement, then make
sure you prepare thoroughly. Using our free worksheet, think
through the following points before you start negotiating:

•Goals: what do you want to get out of the negotiation? What do

you think the other person wants?

•Trades: What do you and the other person have that you can
trade? What do you each have that the other wants? What are you
each comfortable giving away?
•Alternatives: if you don't reach agreement with the other person, what alternatives
do you have? Are these good or bad? How much does it matter if you do not reach
agreement? Does failure to reach an agreement cut you out of future opportunities?
And what alternatives might the other person have?

•Relationships: what is the history of the relationship? Could or should this history
impact the negotiation? Will there be any hidden issues that may influence the
negotiation? How will you handle these?

•Expected outcomes: what outcome will people be expecting from this negotiation?
What has the outcome been in the past, and what precedents have been set?

•The consequences: what are the consequences for you of winning or losing this
negotiation? What are the consequences for the other person?

•Power: who has what power in the relationship? Who controls resources? Who
stands to lose the most if agreement isn't reached? What power does the other
person have to deliver what you hope for?

• Possible solutions: based on all of the considerations, what possible compromises

might there be?
 Negotiation and its Importance- Cont’d
 Weak agreements with
companies and individuals
always break down. They bring
nagging dissatisfaction and
aggravation into your business
and personal lives.
 Strong agreements help you
reach and exceed your own
objectives, and leave the other
party gaining more satisfaction
at the same time.
 Strong negotiation skills are
the keys to success in
business and life.
 The strength of your
agreements, understandings
and relationships mean the
difference between success
and failure
 Skills for Successful Negotiating
• Effective speaking • Self-confidence
• Effective listening • Emotional intelligence
• A sense of humor • Persistence/Determination
• A positive attitude • Patience
• Respect • Creativity
 Negotiation Terms

 Procedure: Way of doing something.

 Understanding: It is an expression of
mutual viewpoint and attitude on an
issue.
 Agreement: It is a conclusive
commitment to mutually acceptable
terms.
 Analysis - where are we now?
 Objectives - where do we want to be?
 Strategies - which way is best?
 Tactics - how do we ensure arrival?
 Control - are we on the right track?
 Negotiation Terms-Cont’d
 Positions
 What you want
 best goods, price, service
 close deal, future business, successful
partnership
 Interests
 Why you want it
 Make more money; acquire customers;
drive competitors out of the market
 independence, satisfaction, adventure,
creation
 Issues
 What you disagree about
 Quality, price, future benefits
 What you’re competing about/for
 Market position, survival
 Stakeholders
 Everyone interested in outcome --
shareholders, workers, executives,
customers, suppliers; family
 Negotiation Team

• Specifying roles and

responsibility of all negotiation
team member is important.
• A good negotiation team may
include following personnel:
Team Leader: Who will lead the team and the
authority to make decisions

Specialized support: (e.g. technical,

commercial and financial) who will provide the
necessary expertise

Summarizer: Who will be taking notes and

summarizing the discussions

Observer: Who will observe but play a very

important role of listening to other side’s
comment and watching for verbal and non-
verbal signals
 Negotiation Stages
Actual negotiations take place in different stages:

1. Opening stage

2. Testing stage

3. Proposal stage

4. Bargaining stage

5. Agreement stage
 Opening Stage

 When you will be attending a negotiation, you

must be punctual
 Please keep it in mind first impression is
very important
 Showing politeness and respect and
providing welcome help to create a favorable
climate for the discussion to take place
 You must provide refreshment and make an
effort to make the other part feel
comfortable
 Small talk to know each other will make a
positive atmosphere for smooth negotiation
 Agreed agenda may be communicated to all
participants
 If both parties propose their own agendas at
the opening stage, the first thing to do is to
“negotiate” these and make a joint agenda
Negotiation: Anchoring is important

 Make the first offer

 Make it aggressive
 Set the bargaining range
 Resist being anchored
 anchors are most
compelling in conditions
of uncertainty
 Know your BATNA
 Opening Stage: list of “do” and “don’ts”

Opening stage
Do’s Do not---
In case you are hosting, be Be over demanding
welcoming and show respect and
interest Impose any unnecessary
conditions
Make refreshment ready
Raise contracts with other
Make purposeful short talk
supplier
Check authority of other part to
negotiate Make the other side feel unsafe
and uneasy
Be warm as a person, but be
focused on the issue Start detail discussion before
Check and agree on the agenda, agreeing on agenda
expected outcome and timescales
 Testing Stage: Points to note

Testing stage: During this stage both sides should test their
perceptions and various issues at stake. It is better to ask
appropriate questions to obtain any missing information, and
develop new options from the information received.

At testing stage, the main activities are to:

Explore topics/issues of common ground

Get felling for the underlying needs and interests of the other side

Ask questions to identify their needs, interests and expectations

Clarify perceptions and assumptions of both sides

Give due attentions to the answers, statements and questions
Demonstrate concern for needs and interests of other’s side
 Proposal Stage: list of “do” and “don’ts”

Proposal stage: Normally, in a purchase negotiation,

supplier makes the proposal first. However, you can
make the first proposal if it is justified.
Do’s Do not---
 Summarize as and when Reject a proposal quickly
required
Immediately make counter
 Make link of different variables proposal against proposal of
other’s side
Build on the ideas being offered
Apply irritating phrases like “ we
Clarify any points where
need a fair and reasonable offer”
necessary
or is that all you can offer?
Take sufficient notes Supplier
Recess your options when
necessary
 Bargaining Stage: list of “do” and “don’ts”
Bargaining stage: This stage can be short if both sides
have moved fairly close during the proposal stage

Do’s Do not---
 Try to attach conditions to Get caught by new issues
concessions: If we do this, then we
will do that Make unplanned concessions for
other’s side
 Try to give away on variables,
which may be little value to you, Lose sight of your negotiation’s
but more valuable to the other side goal
offered
Emphasize on all variables involved
and link them whenever possible
Try to make numerous small
concessions, rather than a major
one
 Agreement Stage: list of “do” and “don’ts”

Agreement stage: It is a critical stage, when a final agreement is

reached. In fact this is not the end, but the beginning of a working
relationship.
Do’s Do not---
 Observe for closing signals from the other Force to accept the agreement
side
Fall trap of a “quick deal”
Ensure that all the issues have been
resolved Give or ask additional concessions,
once they are finalized
 Be aware of temptation other party and if
necessary re-open the negotiation on a Ask them what a good they could
particular issuer have had if only they had done
Make a joint closing summary something
If they do not have the final authority, get
an agreement in principle
Specify roles and responsibilities for
follow-up actions
The top 5 Negotiating Styles
 The top 5 Negotiating Styles

Competing (I win – You lose)

This style of negotiation is best described as competitive and is one of the most
used styles in negotiating. Negotiators using this style are looking out for their own
needs, asking themselves ‘what do I need to get from this discussion / process?’.
They use a variety of tactics to get what they want and their concern for the
relationship is low.

This style is most effective when results are needed quickly, or you are certain there
is no room for negotiation. Good examples of this style are buying a new car or a
lawyer representing their client or commodity based selling.
2. Accommodating (I Lose – You Win)
This style of negotiation is all about the relationship and is the opposite of the
Competing style. Accommodating negotiators believe that the only way to
ultimately get what they want is to give everything to the other party and maybe in
time they will do the same or stay. This style, is naturally, well liked by the opposite
party.
Examples of this style are when a person knowingly injures another person and
willingly offers to pay all medical expenses hoping the injured party does not sue.

3. Compromising (I Lose / Win Some – You Lose/ Win Some)

This style values the relationship and acknowledges that there is a loss but it is
better to compromise then completely lose. A compromising style results in both
parties getting more or less half of what they originally wanted. This style is
common when the negotiating parties have a high level of trust between each
other and are time poor. This style should not be confused with Collaborating (I
win – You win).
4. Collaborating (I Win – You Win)
Collaborative negotiators are innovators! They recognise that both parties have
needs that must be met and take the time to find creative solutions to this
common problem.
Most business to business negotiators plan for this type of negotiation. An
example of this style is Honda Motor Company which is known for being
completely focused on a collaborative approach to working with their suppliers
resulting in greater commitment and cooperation and well built cars!
5. Avoiding (I Lose – You Lose)
This style can be more difficult to spot as it can go under cover for a time; it is a
‘passive aggressive style’. The user of this style is unassertive and uncooperative.
They do not immediately pursue their own concerns or the other parties nor do they
ever address the conflict.
An example of this style is two co-workers who cannot agree on the delivery of a
project and avoid communicating with each other but happily talk to other co-
workers about it!
GUNS- A Simple Negotiating Process
 Spend Analytics

PURCHASE PRICE COST ANALYSIS

(PPCA)
OR CLEAN SHEETS
PPCA: KNOWLEDGE WE WILL COVER …

 What PPCA is
 How to calculate PPCA

 How to analyse PPCA

 How you will use this as part of your category sourcing strategy

ISP Steps we will cover:

0 1 2 3 4 5
Engage Stakeholders & Implement &
Align with Business Highlight opportunities Source Develop & Measure
Develop Strategy Deliver value

23

 
PURCHASE PRICE COST ANALYSIS DEFINITION

PPCA: What it is …

A tool for establishing a detailed understanding of a suppliers

cost to supply or provide what you buy from them …

PPCA: Focuses on …

• One Process
• One manufacturing line
• One supplier
• One product / or one specific service
WHAT ASPECTS WOULD YOU LOOK AT TO BUILD PPCA?

Basic Product Information

Specifications
Design
Other Physical
attributes
Etc…
WHAT ASPECTS WOULD YOU LOOK AT TO BUILD PPCA?

Basic Product Information

Manufacturing Processes

Plastic Resin
Molding Fixing wad in Packing and
the cap Dispatch

Colorant

Paper Wad
WHAT ASPECTS WOULD YOU LOOK AT TO BUILD PPCA?

Basic Product Information

Manufacturing Processes

Direct Raw Materials

Plastic Resin
Molding Fixing wad in Packing and
the cap Dispatch

Colorant

Paper Wad
WHAT ASPECTS WOULD YOU LOOK AT TO BUILD PPCA?

Basic Product Information

Manufacturing Processes

Direct Raw Materials

Financial Metrics

Plastic Resin

Fixing wad in Packing and

Molding
the cap Dispatch

Colorant

Paper Wad
PPCA / CLEAN SHEET EXAMPLE

Wastage
7%
Overheads and
Profit Margin Plastic Granule
19% 35%

Direct Labor
10%

Packing & Dispatch

3%
Equipment
4% Colorant Paper Wad
2% 20%

* Example for illustration papoose only

PPCA / CLEAN SHEET EXAMPLE

Corrugate Cost Model RFQ Results

19.3
16.8
2.0 16.8 13.2

3.3

1.4

3.0

6.3 0.4

Material Direct Equip- Change- Over- Logistics Current Potential PotentialS

Total Supplier Supplier upplier
Labour ment over head
PURCHASE PRICE COST ANALYSIS

PPCA: Why would you analyze it?

 Purchase Price cost analysis is an effective means of collecting, analysis and

utilising cost information
 Can be used to identify savings or cost improvement opportunities.
 Can be used tactically as a lever in negotiations or drive down price
 Can be used strategically in SRM and improvement initiatives

 Used to assess the cost make-up of suppliers product or service

 What is driving suppliers costs

 What is the right price to pay

INTRODUCTION TO TCO

1. What does the concept of Total Cost of

Ownership (TCO) mean?

2. Why is TCO important?

3. How should you develop, and analyse

TCO, as part of your category review?

Definition of TCO:
Total business cost of a spend category over
its ownership lifetime, including all
relevant internal, external and joint costs
and the value created.
 TCO ANALYSIS FOR A CATEGORY

Material Variable Fixed Over- Profit Ex- Freight Tax & Insur- Landed Test-ingRe-jects Inven- Other Unit cost
base manufact manufact heads works Duty ance Price tory of
costs uring uring price Stocks material
costs costs /service
purchase
d

External Costs Joint Costs Internal Costs

 The cost heads given are an example, think about what they would be for your category …
 This model can be applied to Directs and Indirects purchasing
CREATE RECOMMENDATIONS FOR MANAGING COST

Recommended actions

Market price (£ per unit) • Consolidate Suppliers

External Specifications / Design • Leverage Scale
Usage levels • Eliminate Middle Mkt
• Standardize
• Revise Specifications

Internal handling
Material Disposal
TCO Internal Inventory Levels • Indentify major internal costs
Non Compliance with and develop ideas to reduce
contracts

Consignment
Shipping • Hold joint workshops with
Joint Packaging suppliers to identify and
Returns reduce cost
R&D
Production Variance /
instability driven costs
TCO – CATEGORY MANAGEMENT KEY FOCUS POINTS

 Competitive negotiations: bid everything to current

Supplier Management
and new suppliers

 Stay ahead of your suppliers: develop your own

knowledge of cost to drive fact based negotiations

 Consolidate spend: drive more leverage across your

category

 Deep knowledge of your supply base: understand

what is happening in your space and how to use to
drive value in your category

Typical Savings Impact 30%

TCO – CATEGORY MANAGEMENT KEY FOCUS POINTS

Demand Management
 Rationalize demand: understand the dynamics of
demand in your category, who buys what, from where
and when, and how? Determine best way to manage
this.

 Optimize business requirements & specifications:

deep knowledge of your category will allow you to
advise and challenge, fit for purpose materials /
services keep TCO down and drive cost out.

Typical Savings Impact 40%

TCO – CATEGORY MANAGEMENT KEY FOCUS POINTS

Process Management
 Eliminate non compliant spend: ensure compliance
with category strategy and preferred suppliers

 Track savings: understand the exact savings for your

category and the impact to your business partners
bottom line

 Manage working capital, trade payables: optimize

payment cycles to get fully benefit vs. carrying costs.

Typical Savings Impact 30%