When to Negotiate ansd Supply Management’s Role in Negotiation

When to negotiate


Negotiation is the appropriate method for determining the reasonableness of a price when competitive bidding or reserve auctions are impractical.


Most common reasons to negotiate:

When any of the 5 prerequisite criteria for competitive bidding are absent.

When variable factors weigh on price but on quality and service too.

When early supplier involvement is employed.

When the business risk and costs involved can not be predetermined accurately.

When a customer firm is contracting for a portion of the seller’s production capacity rather than for a product the seller has designed and manufactured.


When tooling and setup cost represent a large percentage of the supplier’s total costs.


When a long period of time is required to produce the items purchased.


When production is interrupted frequently because of numerous change orders.


When a thorough analysis is required to solve a difficult make-or-buy decision.


When the products of a specific supplier are designed to the exclusion of others.



In all above situations quality and service are as important as price.


Supply Management’s Role in Negotiation


Depending on the type of purchase, a supply management professional plays one of two distinct roles in negotiation.

1)     he/she is the company’s sole negotiator

2)     he/she leads a cross-functional team of specialists which collectively negotiates on behalf of its company.








The Supply Management Professional Acting Alone


A SMP acts alone for low dollar value non-critical items.  The SMP and the supplier negotiate the details of the contract.


A seller’s value analyst discovers a substantially less expensive method of manufacturing one of the purchasing firm’s products.



The Supply Management Professional as the Negotiating Team Leader


The complexity of a purchasing contract frequently correlates directly with the complexity of the item being purchased.


A typical negotiating team leader consists of two to eight members, depending on the complexity and importance of the purpose to be made.


Team members are customarily members from fields such as design engineering, manufacturing engineering, cost analysis, estimating, finance, production, traffic, supply management, and legal affairs.


The SMP typically act as the leader of the team or the negotiator.