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Purchasing and Negotiation
by S.A. Rehman Khan
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In the world of business, there are negotiations and then there are negotiations. On one hand, there is a simple negotiation for commodities and services where factors like price, terms and delivery are easy to define and the outcome of the process is almost predetermined. However, in today‘s hypercompetitive global economy, the scope and significance of negotiation can involve intense, high-stakes interactions revolving around a series of complex issues affecting multiple parties. When facing these more sophisticated situations, negotiators need highly developed negotiation skills and strategies to guide them through the intensive five-step process that is often the difference between getting what you want and settling for what the other side will give you. In today’s super-competitive economy, both your company and your suppliers will be angling for the best deals they can negotiate. Here's how both can win! Suppliers are frequently far better trained with negotiation skills than the purchasers (procurement personnel) who deal with them.
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Evaluate price, delivery, specifications, terms, and any deviation from your requirementsIt is an accepted fact that any company will spend 80% of its money with 20% of suppliers, the next 15% of the money with the next 15% of suppliers and the final 5% of money with the 65% of the suppliersSmall companies that dont order through multiple units can form purchase consortiums with other firms in their industryLets look at each step in detailSilence often makes the other party nervous and may result in further discussion and concessions by themThe 3 Fundamental Steps to Contract Negotiation Process Learn the 3 steps to the contract negotiation process which will help you to successfully negotiate contracts with suppliersThere are two developmental techniques that are useful for this process
A thorough knowledge of the other party's proposal can be a source of advantage at the bargaining table, especially if you know their proposal better than they doHowever, in todays hypercompetitive global economy, the scope and significance of negotiation can involve intense, high-stakes interactions revolving around a series of complex issues affecting multiple partiesBring new value to the supplierSuch a graph might look like Figure 1For instance, a large chemical company was working with a single, recalcitrant supplierThe Voorhees
But before that a quick answer to: The following summarize some basic negotiation tactics: Sequencing, or prioritizing, the issues for discussion can be approached one of four waysWhen the chemical company tried to increase its order, the supplier claimed to have limited capacity and demanded a price premiumThe Challenge Companies that have gotten into a weak position with suppliers need to strategically redefine the relationship, tackling the problem as an enterprisewide challengeThis is also part of being analyticalBe sure of opponents authority:The authority of the vendor to sign the contract is much superiorThe supplier agreed to a multiyear contract with prices that would not fluctuate more than 10% annually, and the chemical company got a 10% discount from the original quote
You will now have objectives that are measurable rather than a vague desire to "Do the best you can." 3Avoid Emotional ReactionsIf you have received a proposal take the time to analyze it in depthThis helps you develop a feel for their negotiation strategyThe lessons from cross cultural negotiations can also be applied when negotiating with those from unfamiliar industries or unfamiliar marketsThis puts you in the other party's shoes and helps you estimate what is likely to be important to themSecond, preparation and planning are the most important parts of negotiatingShe and her team put their heads together with the marketing team and presented the supplier with an offer that was hard to refuse: In exchange for a 10% price reduction globally, the company would use the suppliers cans in the new marketsGuess what? Sellers have figured out how to thwart yesterdays procurement negotiation tacticsDefine and Organize the Issues 79c7fb41ad
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