978-1292016016 Chapter 10

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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.

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

(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

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.

Instructor’s Manual

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)?

Instructor’s Manual

• 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?

Instructor’s Manual

• 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.