Preparation

Preparation

 

Ninety percent or more of the time involved is a successful negotiation is invested in preparation for the actual face-to-face discussions.

 

The negotiator must 1) possess or gain a technical understanding of the item or service to be purchased, 2) analyze the relative bargaining positions of both parties, 3) have conducted a price or cost analysis, 4) know the seller, 5) be aware of cultural nuances, and 6) be thoroughly prepared.

 

Know the item or service

 

The negotiator has to have general understanding of what is being purchased, the production or services involved, and any other issues that will affect quality, timeliness of performance, and cost of production.  A negotiator should know the item’s intended use, limitations if any, and the existence of potential substances.

 

The negotiation should be aware of the item’s procurement history and likely future requirements. Versed in any language about the product or customs relevant to the industry {referred to as phraseology in the book}.

 

The Seller’s Bargaining Strength

 

Sellers bargaining strength is based on three basic factors:

1)     how bad the seller wants the contract

2)     how certain he/she feels of getting it

3)     How much time is available to reach agreement on suitable terms

 

The Buyer’s Bargaining Strength

 

The buyer’s bargaining strength depends on four basic factors:

1)     the extent of competition among potential suppliers

2)     the adequacy of cost or price analysis

3)     the logic and reasoning behind the challenged cost,

4)     the thoroughness with which the supply manager and all other members of the buying team have prepared for the negotiation.

 

Intense supplier competition always strengthens a buyer’s position.

 

Competition is always keenest when a number of competent sellers eagerly want an order.

When needed a supply manager can increase competition by developing new suppliers; making items in-house rather than buying them; buying suppliers’ companies; providing tools, money, and management to competent but financially weak suppliers; and above all, hiring skilled supply managers.

 

The Adequacy of cost or price analysis

 

A comprehensive knowledge of cost analysis and price analysis is one of the basic responsibilities of all supply managers who are involved in negotiations. When an initial contract is awarded for a portion of a supplier’s production capacity rather than for a finished product, cost analysis becomes vital.

 

Caution must be exercised not to over focus on price.  If a collaborative long-term relationship is desired, price must be placed in the proper perspective {or context}: it is only one aspect of the negotiation!

 

Know the seller

 

Professional negotiators should endeavor to know and understand both the perspective supplier firm and its representatives.

 

One of the keys to successful negotiations is to put oneself in the other person’s shoes to understand his or her wants and needs.  This level of preparation pays dividends when one is conducting face-to-face negotiations.

 

Cultural Nuances

 

A clear understanding of the effects and nuances of cultural similarities and differences is an essential skill for a contemporary business manager.

 

 

The Thoroughness of Preparation

 

Knowledge is power.  Knowledge of current economic condition in the market for the product or service

 

Knowledge of current economic conditions in the market for the product or service in question is also an essential element of preparation.

 

Establishing Objectives

 

Proper detailed planning and preparation is the most important step in successful negotiations.

 

The outcome of contract negotiations hinges on relative buyer-seller power, information, negotiating skills, and the way both sides perceive the logic of the impending negotiations. 

 

As a part of the preparation process the negotiating team should establish clear and specific objectives.

 

In negotiating, for each term and condition to be negotiated, the negotiating team should develop three specific positions.

1)     An objective position {or target}

2)     A minimum position

3)     A maximum position

 

 

Identify the Desired Type of Relationship

 

Three primary approaches are transactional, collaborative and alliance.

 

 

 

 

 

 

Five Powerful Preparation Activities

 

The ‘best alternative to be negotiated agreement’, or BATNA

 

This term was coined by Roger Fisher & Bill Ury in their book ‘Getting to yes”

 

 

The agenda

 

Successful negotiation spends considerable amounts of time and effort developing their agendas before face-to-face discussions.

 

All negotiations center on specific issues.  One of the difficult tasks of negotiation is to define FULLY the important issues which are to be included on the agenda and then make sure the discussion is confined t those issues.

 

Most authorities believe that the issues should be discussed in the order of their probable ease of solution.

 

 

“Murder Boards” and “mock negotiations.

 

A murder board consists of senior supply management, finance, manufacturing, quality, engineering, operations, marketing, and general management personnel.

 

The negotiating team presents its agenda, objectives, and tactics for the forthcoming negotiations.

 

Mock negotiations allow the members of a negotiating team to prepare for the negotiation through a simulation of what is likely to occur.

 

 

Crib Sheets

 

Is an extraordinarily powerful preparation tool. The process of developing the crib sheet reinforces and upgrade the preparation process. 

 

Draft agreements

 

The development of one or more ‘ideal’ agreements also is a powerful preparation tool.  The process of developing such agreements help hone the negotiating team, and possessing such a document{s} has been shown to expedite closure of the face-to-face process.