BA#244:#Supply#Chain#Management#

NEGOTIATION#

We#are#equals#in#the#negoAaAon#table!#

a# process# whereby# two$ (or$ more)$ par,es# come#together#to#confer,#in#a#situaAon#in#which#there#is#some#divergence#or#conflict$of$interest$between$them,#with#a#view# to# concluding# a# jointly$ acceptable$ agreement$(CIPS)#

NEGOTIATION$

PreMnegoAaAon#preparaAon#

Actual#NegoAaAon#/#InteracAon#

PostMnegoAaAon#follow#up#

IMPORTANT!$

STAGES$OF$NEGOTIATION$

What#to#prepare:#• InformaAon#on#the#Market#/#SituaAon#• InformaAon#on#your#counterparts#• Budget#/#Your#Limits#

RELATIONSHIP$SPECTRUM$

Suppliers#in#Private#Firms?#Suppliers#in#Government?#

Boss?#Colleagues?#

Street#Vendor?#What%kind%of%rela/onship%is%best?%

CompeAAve# CollaboraAve#

KRALJIC$MATRIX$

Leverage#items# Strategic#items#

NonMcriAcal#/#RouAne#items# BoVleneck#Items#

Impo

rtan

ce+of+the+Item

+/+Spend+

Low

##High#

Number+of+Suppliers+in+the+Market+High # # # #Low#

ORIENTATIONS$TO$NEGOTIATION$

Distribu,ve$Bargaining$ Integra,ve$Nego,a,on$

Dividing#up#a#fixed#pie;#CompeAAve#

Expanding#the#pie;#CollaboraAve#

ORIENTATIONS$TO$NEGOTIATION$

Yearly#order:#1,000,000#KG##Shoulder:#PHP#152#/#KG##Trimmings:#PHP#132#/#KG#

Best#outcome?#

RANGE$OF$NEGOTIATION$OUTCOMES$

WINRLOSE#

Maximized#profit;#Damaged#working#

relaAonship#

LOSERLOSE#

Compromise;#HalfMsaAsfied#needs#

WINRWIN#

Preserves#the#relaAonship#

WINRPERCEIVED$WIN$

Most#advantageous#to#you#

+#relaAonship#objecAves#

RANGE$OF$OBJECTIVES$

Next:#Set#your#limits!#

RANGE$OF$OBJECTIVES$

• Ideal#or#bestMcase#outcome#• Believable#

Most#Favoured#PosiAon#(MFP)#or##Most#Desired#

Outcome#(MDO)#

• BoVom#line#or#worstMcase#posiAon#• Walk#away#point#and#take#up#BATNA#(alternaAve)#

Least#Acceptable#Agreement#(LAA)#

Understanding#where#you#are#in#this#conAnuum#is#criAcal#######

##

Buyer#

Supplier#

Range#of#NegoAaAon#Zone#of#PotenAal#Agreement#

LAA#MFP#/MDO#

LAA# MFP#/MDO#

Price,#PHP#

Price,#PHP#

RANGE$OF$NEGOTIATION$

TARGET$OUTCOMES$

Limits#• Resistance#points,#walkaway#points,#boVom#line#• CriAcal#Must#Haves#

Target#Points#• Points#you#expect#to#achieve#• ‘Shopping#List’#–#needed#to#sweeten#the#deal#

AlternaAves#• Best#AlternaAve#To#a#NegoAated#Agreement#(BATNA)#• e.g.#alternaAve#suppliers,#alternaAve#offer#

Purchasing$a$Laptop?$

BEST$ALTERNATIVE$TO$A$NEGOTIATED$AGREEMENT$(BATNA)$

• When#you#walk#away,#you#need#a#backMup#plan#(BATNA)#• Provides#leverage#

####‘The#only#reason#we$nego,ate#is#to#produce#something#beUer#than#the#results$we$could$obtain$without$nego,a,on’#

•  Ability#to#exercise#influence$over$others$•  Ability+to+influence+

•  vs.#Authority#–#amount#of#discreAon#given#to#a#person#to#make#decisions#by$virtue$of$the$posi,on$he$holds#in#the#organisaAon#

•  Right+to+influence+

POWER$

#

WHAT$IS$LEVERAGE?$

$$$$$##

•  To#put$pressure#on#the#other#party#to$agree#or#comply#with$the$more$powerful$party’s#wishes#or#demands#

•  Increase#expert#and#informaAonal#power#–  Gather#Market#Intelligence#and#Strong#Data#to#support#your#posiAon,#and#challenge#other#party’s#posiAon#

•  Increasing#legiAmate#power#–  Appealing#to#your#own#legiAmate#authority#or#a#higher#authority#respected#by#the#other#party#

–  Appealing#to#‘fairness’#of#your#posiAon#•  ManipulaAng#structural#factors#in#buyerMsupplier#

–  AggregaAng#volume#–  Emphasis#on#BATNA#

HOW$TO$IMPROVE$YOUR$LEVERAGE?$

#

VENUE$–$YOUR$PLACE$OR$MINE?$

Nego,a,on$is$a$HOME$advantage$

VENUE$–$YOUR$PLACE$OR$MINE?$

Away$

Seeking#concessions##

Inspect#the#faciliAes#

Treatment#reveals#how#they#view#you#

Home$

Comfort#Zone#

Accessibility#of#addiAonal#resources#

Immediate#presence#of#support#networks#

Neutral$Loca,on$

Signals#that#no#party#wishes#to#take#

advantage#over#the#other#

Signals#willingness#to#level#the#playing#field#

#

VENUE$–$YOUR$PLACE$OR$MINE?$

Which$venue$if$you$want$to$remove$a$supplier?$

TEAM$NEGOTIATION$

Roles:#•  Lead#NegoAator#or#Spokesperson#•  Support#or#informaAon#providers#•  Technical#experts#and#advisers#(e.g.#Legal,#AccounAng,#Engineering,#other#stakeholders)#•  Scribe#/#NoteMtaker#/#Secretary#

TEAM$NEGOTIATION$R$ADVANTAGES$

•  ContribuAon# of# Technical#Knowledge#

•  InformaAon#Sharing#

•  Shared# responsibility# for#outcomes#–#less#pressure#

TEAM$NEGOTIATION$R$DISADVANTAGES$

•  DecisionMmaking#takes#longer#–  PreMalign#objecAves#

•  Group#dynamics#can#draw#energy#away#from#the#task#–  Clarify#team#roles#

•  Riskier#decisions#–  PreMalign#objecAves#

If#you#fail#to#plan,#you#are#planning#to#fail#–#Benjamin#Franklin#

PreMnegoAaAon#preparaAon#

Actual#NegoAaAon#/#InteracAon#

PostMnegoAaAon#follow#up#

STAGES$OF$NEGOTIATION$

WHAT$HAPPENS$DURING$A$NEGOTIATION?$

Opening##

TesAng#and#Proposing#

Agreement#and#Closure#

Rapport#–#developing#a#sense$of$rela,onship$or#connec,on#with#another#person##How#to#open?#

Trading#concessions#–#acknowledging#that#the#other# party# will# only# move# if# you# offer#something#in#return##

Tie#loose#ends#

•  Verbal#communicaAon#–  Open#vs.#Closed#quesAons#–  Probing#QuesAons#–  HypotheAcal#QuesAons#

COMMUNICATION$

•  NonMverbal#communicaAon#–  Eye#contact#–  AdjusAng#body#posiAon#–  NonMverbal#encouragement#or#discouragement#

Effec,ve$Communica,on$=$Effec,ve$Nego,a,on$

#Power#Distance#

LOW#•  Viewed# as# an# equal# regardless# of#

posiAon#or#designaAon##HIGH#•  All#decisions#will#have#to#be#finalized#

by#the#leader#•  Slower#negoAaAon#process#

NONRVERBAL$COMMUNICATION$–$INFLUENCE$OF$CULTURE$

Uncertainty#Avoidance##How#much#members# of# the# society# are#threatened#by#uncertain#and#ambiguous#situaAons#(Risk)##HIGH#•  Seek# stable# rules# and# procedures# for#the#negoAaAons#

NONRVERBAL$COMMUNICATION$–$INFLUENCE$OF$CULTURE$

IndividualismMCollecAvism##Tendency#to#take#care#of#oneself#vs.#to#work#together#for#the#collecAve#good##CollecAvist#•  NegoAaAons#with#same#party#can#conAnue#

for#years#and#a#change#in#negoAator#means#a#change#in#relaAonship#

#Individualist#•  NegoAators#are#considered#interchangeable#

NONRVERBAL$COMMUNICATION$–$INFLUENCE$OF$CULTURE$

NEGOTIATION$TACTICS$

Bogey$Tac,c$

NegoAator# blames# the#posiAon# on# a# standard# set#b y# a# t h i r d# p a r t y# o r#something# beyond# his#control#.##e.g.# Management# policy,#budget,#boss’#decision##How#to#Handle#

How#does#it#work?#

Policy#can#be#modified#Refuse# the# deal# if# they# cannot#meet#your#objecAves#

How#does#it#work?#One# of# the# negoAators# is#hardcore#in#his#approach.##When# he# steps# out# for# a#while,#the#good#guy#makes#a n# o ff e r # i n # a # l e s s#threatening#manner.##

How#to#Handle#

Good$Guy$/$Bad$Guy#

Focus#on#your#objecAves#

How#does#it#work?$Asking#for#concessions#one#at# a# Ame# to# make# them#more#palatable.#

How#to#Handle#

Salami$

Salami# back# by# aVaching# a#cost# to# every# concession#demanded#

Express ing# d isbel ief# to#encourage# a# counterpart# to#make#a#beVer#offer.##Pushing# a# counterpart# to#provide# his# best# offer# by#implying#that#the#offer#on#the#table#is#unsaAsfactory.#

How#to#Handle#

Yikes!$You’ve$got$to$be$kidding!$

How#does#it#work?$

You’ve$got$to$do$beUer$than$that$

Focus#on#your#objecAves#

Asking#counterpart#for#help###EmoAonal#blackmail#

How#to#Handle#

Appealing$to$Mother$Teresa$

How#does#it#work?$

Use#Bogey#tacAc#

Supplier#overwhelms#you#with#confusing#informaAon#

How#to#Handle#

Snow$Job$

How#does#it#work?$

Keep# asking# quesAons# unAl#you# get# an# answer# you# can#understand#

•  You#are#either#from#Procurement,#Sales,#or##an#Observer#

•  You#are#buying#or#selling#your#MacBook#Pro#

•  You#will#be#given#a#budget#range.#Buyer#will#try#to#buy#at#the#lowest#price,#and#Seller#will#try#to#sell#at#the#highest#price#

•  You#have#3#minutes#to#close#the#deal;#End#the#deal#by#shaking#hands#

•  Amer#closing#the#deal,#Observer#will#compute#how#far#you#are#from#your#iniAal#offer;#“winner”#is#the#one#nearest#to#iniAal#offer#i.e.#one#with#least#concessions#

NEGOTIATION$EXERCISE$

ACTIVITY$1$

– Seller:#PHP#30,000#to#60,000#– Buyer:#PHP#60,000#to#65,000#

#####Learning#points?#

•  Who#started#the#offer?#•  How#did#you#handle#an#iniAal#offer#that#was#already#advantageous#to#you?#

•  What#went#through#during#negoAaAons?#

OBSERVATIONS$

ACTIVITY#1#######

##

Buyer#

Supplier#

Range#of#NegoAaAon#Zone#of#PotenAal#Agreement#

LAA#MFP#/MDO#

LAA# MFP#/MDO#

Price,#PHP#

Price,#PHP#

RANGE$OF$NEGOTIATION$

ACTIVITY$2$

– Seller:#PHP#43,000#to#55,000#– Buyer:#PHP#35,000#to#40,000#

#####Learning#points?#

•  What#went#through#during#negoAaAons?#•  What#were#the#pressures?#•  What#went#wrong?#

OBSERVATIONS$

ACTIVITY#2#######

##

Buyer#

Supplier#

LAA#MFP#/MDO#

LAA# MFP#/MDO#

Price,#PHP#

Price,#PHP#

RANGE$OF$NEGOTIATION$

DEADLOCK#

ACTIVITY$3$

– Seller:#PHP#35,000#to#55,000#– Buyer:#PHP#30,000#to#50,000#

#####Learning#points?#

•  What#went#through#during#negoAaAons?#•  What#were#the#pressures?#

OBSERVATIONS$

Steidlmeier, P. 1999. Gift Giving, Bribery, and Corruption: Ethical Management of Business Relationships in China. Journal of Business Ethics. 20: 121-132.#

Ar,cle$

END$$$#