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49
CHAPTER 10
Negotiations
Objectives of this chapter
• To understand negotiating as a ‘mutuality of wants, resolved by exchange’
• To identify the activities carried out during the different stages of negotiation
• To analyse the characteristics of a skilled negotiator
• To recognise the key points of discussion stage behaviour and recognise negotiating
ploys
• To introduce the concept of body language and how it can be interpreted
• To view how negotiating technique is influenced by long-term interests
List of Cases, Research Boxes and Figures in this chapter
Mini Case Studies
UK engineering group
Research Boxes
Nil
Figures
• Figure 10.1 The basic phases of negotiation
• Figure 10.2 The phases of negotiation – multi-meeting
• Figure 10.3 The phases of negotiation – single meeting
• Figure 10.4 Ranges of possibility
• Figure 10.5 Two views of the negotiation process
Teaching Notes
It is generally accepted that a key competence in a procurement executive is an ability to
negotiate. Negotiations may involve dealing with a single issue or many. They may be
conducted on a one-to-one basis or between teams of negotiators representing different interests,
and may be conducted over the telephone in a matter of minutes, or take many months to
complete. It is also worth mentioning that negotiations are not necessarily confined to the
buyer–seller relationship; many buying negotiations take place on an intra-organisational basis,
involving the reconciliation of the views of supplies staff and colleagues. In this chapter, we
explore the nature of negotiation, and give some practical guidance.
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There have been many attempts to define negotiation, for example, ‘to confer with others in
order to reach a compromise or agreement’ (Oxford Encyclopedic English Dictionary); or ‘the
process by which we search for terms to obtain what we want from somebody who wants
something from us’ (Kennedy, 1991). The latter definition points up a key factor: that
negotiation implies some mutuality of wants, resolved by exchange.
Key concepts
Phases of the negotiation process
It is useful to consider negotiation conceptually as a three-phase process (see Figure 10.1). The
first of the three phases is the preparatory stage, when the information is analysed, the
objectives are set and strategies developed.
The meeting phase is concerned with the process of discussion, further information collection
and analysis, and with the reaching of agreement between the parties. The final stage involves
the implementation of the agreement within and between the organisations represented in the
previous phase.
Key considerations in preparation for negotiations
Kennedy (1991) identifies three key considerations in preparation for negotiation:
1. What do we want? This question may not be as easy to answer as we might at first imagine.
Our wants may not become crystal clear until we enter discussion with the other side. They
may, for example, include:
(a) A lower price
(b) An improved relationship
(c) A bigger discount
(d) Faster delivery
(e) Changes in quality.
The range of negotiable variables in most buyer–seller relationships or transactions is very
wide.
2. How valuable is each of our ‘wants’ to us? Perhaps, for example:
(a) Prompt delivery = high priority
(b) Lower price = medium priority
(c) Quality changes = low priority.
3. What are my entry and exit points? Your entry point is really your ‘opening bid’. Once
disclosed, you are unlikely to better it, so the bid obviously requires careful thought. The
exit point is your ‘walk away’ position. It is clearly desirable that this should be identified
and understood at the preparatory phase, if only to obviate the possibility of striking a
bargain which may be regretted later. If your exit point and your opposite number’s exit
points do not overlap then the probability of achieving a deal is severely reduced, though of
course an apparent gap can be closed through negotiation, and an overlap achieved. The
following questions are typical of those which the negotiator might ask of himself or herself
and his or her colleagues in a buying negotiation.
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The current agreement (where one exists)
• What is the duration of the current agreement?
• What is the financial history regarding part transactions (e.g. pricing history)?
• What cost data are available?
• What has the supplier’s delivery performance record been like?
• What has their quality record been like?
• What disputes have arisen over the period of the contract? Are they pertinent as far as
the coming negotiation is concerned?
• By what date should agreement be reached?
• With whom will we be negotiating (e.g. name the individuals; what is known about
them)? Some specification issues
• Has the supplier been given the opportunity to improve the value in the specification?
• What aspects of it are critical?
• Which can be varied to achieve the same function?
• How is conformity with specification to be measured?
• Who will do that measurement and where?
• If the item is a special item, is it possible to replace it with a standard? Some delivery
issues
• How frequently do we wish the supplier to deliver?
• In what quantities?
• How will the material/components be delivered?
• Who is responsible for packaging/pallets/containers?
• Which is the delivery address?
• Are there restrictions there (e.g. timing of delivery, size of lorry)?
• If the purchases are to be delivered in a container/rail truck, what is the position
regarding
• demurrage?
Some financial issues
• In what currency is the transaction to be made?
• If a foreign currency, what rate of exchange is to be agreed?
• What dates are important in this respect?
• What credit terms apply?
• What are the general terms of payment (e.g. against letter of credit, free on board)?
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© Pearson Education Limited 2015
• Does the supplier require stage payments?
• If so, are these terms negotiable?
• Is there a set discount for early payment?
• How could this be improved?
Some contractual issues
• Who is responsible for insurance?
• What is the level of cover? For what?
• Under which country’s law is the contract made (in the case of a purchase from a
foreign supplier)?
• Are customs requirements clearly stated?
• Has the method of transportation been agreed satisfactorily?
• Do the contract terms clearly delineate responsibility for elements of purchase cost?
• Has the offer been accepted by the supplier in a manner which ensures a valid contract?
• Have your administrative requirements been clearly stated and understood?
Some personnel issues
• With whom are you going to negotiate (individuals)?
• What do you know about them?
• If a team is to be involved, what will it comprise?
• Do these people have the authority to come to an agreement?
• Which of these people will be responsible for ensuring that what is agreed is
implemented?
• Which people at the supplier’s factory/office are to be the key contacts?
• What should our team comprise?
• Who is to lead?
Some general issues
• What are our strengths and weaknesses?
• What are those of the other party?
• What is the duration of the agreement to be negotiated?
• What published data are available?
• What is the current contractual position?
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• By what date should agreement be reached?
• What are the major issues?
What key assumptions have been made?
What information do we need to verify those assumptions? Having assembled and analysed the
relevant information it is then necessary to:
• Set objectives for the coming negotiation(s)
• Develop strategies/tactics in order to achieve those objectives
• Prepare relevant data for easy reference
• If more than one person is to be involved in the negotiation, to develop a method of
working which is understood and agreed by all concerned
• Make the necessary arrangements for the meeting phase.
In other words, everything is negotiable.
Positional bargaining or principled bargaining?
In their best-selling negotiation text Getting to Yes, Fisher and Ury discuss positional
bargaining, which can be characterised as a process whereby the participants each adopt
positions such as ‘I want £1000 for this machine’ or ‘Your machine is not worth much more
than £500’. And then an exchange takes place, each party talking then listening in turns and
changing their position somewhat. Agreement might ensue; it might not. A danger is that the
parties will entrench themselves, so that no further movement is easily possible, even though it
might be desirable.
