Negotiation Slide 1 © The Delos Partnership 2005 Supplier Relationship Management Module 7 – Negotiation & Agreements Three interrelated skills Planning & Checklist Body Language Doing, Acting & Renegotiating Contrasting Situations Agreements

Negotiation Slide 2 © The Delos Partnership 2005 Three Interrelated Skills Communication & Bargaining Power MeetingSkills Negotiation PresentationSkills

Negotiation Slide 3 © The Delos Partnership 2005 When the 3 skills are needed internally Colleagues - Peers – Boss Projects Priorities Conflicts Budgets Appraisals / Pay Review Situation... Face to Face – Different levels of seniority Over the phone Using e Anytime

Negotiation Slide 4 © The Delos Partnership 2005 When the 3 skills are needed externally Customer & Supplier... Dealmaking Price Changes Performance Assessment Visits Projects Situation... Face to Face – Different levels of seniority Over the phone Using e Anytime

Negotiation Slide 5 © The Delos Partnership 2005 The Expert Negotiator … Delos Negotiation Tips Knows the Product Position Plans thoroughly Uses the Power of Silence Gives something to get something Knows everything is negotiable Listens Actively Uses the Pareto Principle Is not afraid to walk out Knows that information is power Knows there no more than 3 key issues Never makes first offers Never accepts first offers Adapts the approach Uses competition – real & imaginary Buys time by limiting authority Implements declaring the other side a winner

Negotiation Slide 6 © The Delos Partnership 2005 P DC A PLAN THE DEAL AND THE NEGOTIATION DO THE DEAL AND FINALISE THE NEGOTIATION. CHECK THE DEAL AND NEGOTIATION OUTCOME. ACT TO IMPLEMENT THE DEAL AND NEGOTIATION OUTCOME AND START TO RENEGOTIATE… CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE TIMES Negotiation PDCA – is Critical D P C A

Negotiation Slide 7 © The Delos Partnership 2005 Negotiation Planning

Negotiation Slide 8 © The Delos Partnership 2005 SUPPLIERSVIEWWHEN SELLING SELLING TO YOU  Customer Matrix Position  Negotiation & Market Dynamics  Credit status / Payment risks  Technical & Implementation Competency  Growth Potential  Market Segments Selling Price Options  Competition Options  Supplier Positioning  Total Value Potential  Risks & Cost of Change  Technical Options  Internal customers needs  Other Supplier Options  Competition strategy PROCUREMENT VIEW WHEN BUYING BUYINGFROMSUPPLIERS Take a Two Way View

Negotiation Slide 9 © The Delos Partnership 2005 InternalValue & Knowledge Pricing Delivery Performance Need to Improve Terms Future Requirements Quality Performance Potential New Relationship What is the Negotiation Purpose?

Negotiation Slide 10 © The Delos Partnership 2005 Customers Suppliers Business or Personal Goals Business or Personal Goals Business &/or Personal Goals Projects and Priorities Risk or Total Value Improvement Business &/or Personal Goals Projects and Priorities Risk or Total Value Improvement Negotiation Deciders & Drivers Negotiation Stages The Negotiation Process

Negotiation Slide 11 © The Delos Partnership 2005 Strategy & Negotiation Stages 1. Product and Service Positioning 2. Market Evaluation & Leverage 3. Team & Skill Sets 4. Tactics, Ploys & Approach 5. Close Out, Joint Actions & Check

Negotiation Slide 12 © The Delos Partnership 2005 Negotiation Skill Sets Product&Service People Functional Existing and Future Requirements in use Global market knowledge of deals, moves, pricing Life Cycle, Innovation and Manufacturing know-how Conflict Resolution Skills Interpersonal and Relationship Management Culture and Values Your business Your competitors Legal – Financial – Six Sigma – I.T. – Facilities /HSE

Negotiation Slide 13 © The Delos Partnership 2005 Balanced Negotiation Teams Product&Service People Functional Customer Technical & Manufacturing Supply Chain & Procurement Facilitator Good Guy – Bad Guy Arbitrator Your Boss Marketing & Sales Lawyer – Finance & I.T. Support – H.S.E person

Negotiation Slide 14 © The Delos Partnership 2005 Body Language

Negotiation Slide 15 © The Delos Partnership 2005 Body Language Just be your natural self in business !

Negotiation Slide 16 © The Delos Partnership 2005 Eye Contact Signals Sincerity Should be natural Too much looks like aggression Avoiding it makes you look shifty Difficult – Focus on the bridge of the nose

Negotiation Slide 17 © The Delos Partnership 2005 Hands Hands on side of chin = listening patiently Steepling - Fingers Together = Confidence & Authority Steepling – Can help you relax Hand under chin & eyes closed – ZZZZ Probably Asleep

Negotiation Slide 18 © The Delos Partnership 2005 Lying  Gestures to stop or deflect words  Hand to Mouth  Averted Gaze  Arms Folded  Hesitation  Experienced operators lie with a steady gaze

Negotiation Slide 19 © The Delos Partnership 2005 Negotiation Checklist What does the negotiation support - Business or Personal goals, Vision, Strategy & Priorities? Who is the customer and is there a URS? Does the negotiation support and fit with the Business Model? Has Six Sigma methodology been used (DMAIC) ? Who is the customer and is there a URS? Has a risk analysis, CDA and Set Up been completed? Has a RACCI chart been completed? What are the current performance and total value measures? Who needs to be involved on both sides and what are the meeting logistics & agenda? What are the three key goals to be achieved? Is there a Financial plan to show the "Cost of Change"?

Negotiation Slide 20 © The Delos Partnership 2005 Communication Strategy Treat people the way you would like to be treated Build the relationship over time Maintain uncertainty until you have the deal you want Coach your colleagues into doing the same Know the facts... Always be professional and respectful D

Negotiation Slide 21 © The Delos Partnership 2005 Do the Deal Emphasise the value you are giving - minimize the value you are receiving. Communicate your conditions first followed by your offer. Use the power of silence, take adjournments but keep the time from offer to contract / agreement within a reasonable time period. Maintain control of the process and continually recognise the area of negotiability. Ensure key offers are put in writing & put your final acceptance in writing. Use language such as "suggest" "recommend" "propose" and when making commitments "estimated" and "reasonable endeavours". D

Negotiation Slide 22 © The Delos Partnership 2005 Check the deal and outcome Measure the total cost, benefit / disbenefit / outcome over time Maintain secrecy & confidentiality by communicating the outcome on a “ need to know “ basis. Ensure that you and your negotiation partner are committed to the outcome from organizational top to bottom. Create a joint communication & plan using “ Racci “ chart principles. Keep control by writing the agreement / contract and using your terms & conditions and lawyers. Maintain an open mind on the deal / outcome you have negotiated. Build trust by communicating positive benefits of the outcome and sticking to the deal. C

Negotiation Slide 23 © The Delos Partnership 2005 Act and Renegotiate No implementation = no credibility. This removes the basis of trust and chances of successful deal making in the future. Assess joint performance through an assessment scheme. Do not communicate your full benefits. Check on the impact of new technology, market changes, currency movements, new suppliers etc which will soon make the negotiation obsolete. Realise that the key to lowering costs is regular renegotiation of key elements and responsible market testing. Do not provide any information on the deal or negotiation outcome to other suppliers or competition. Decide when to renegotiate based on an assessment of value received, the supplier strategic status and future total cost potential. A

Negotiation Slide 24 © The Delos Partnership 2005 Negotiation - Summary Understand the Product and Service Status Take a two way view Measure risks and benchmark on a global total value basis. Build a financial model which shows the cost of change and net change benefit over time. Use direct and where safe to do so indirect leverage. Maintain strict secrecy & confidentiality. Ensure you have built a team and team consensus. Select only one point for contact. Evaluate the financial, innovation and lowest cost status of suppliers. Quality & delivery should be givens. Use the right performance improvement measures..

Negotiation Slide 25 © The Delos Partnership 2005 Negotiation Excellence Some different Negotiation Situation examples follow

Negotiation Slide 26 © The Delos Partnership 2005 SUPPLIER High level relationship Offers concessions Drives for Closure Special Offers Wants long term deal CUSTOMER Uses maximum leverage No compromises Will walk away Aggressive Short term deal Business Value LowHigh Customer is a Key Account Product & Supplier are Leverage Contrasting Business Situations

Negotiation Slide 27 © The Delos Partnership 2005 SUPPLIER Premium pricing Cash with order Low attention Irregular supply No concessions CUSTOMER Supply Assurance Pay a premium Constant attention Conciliatory Desperate for agreement Business Value LowHigh Seller has a critical high cost product Customer is exploitable Dominant Supplier...

Negotiation Slide 28 © The Delos Partnership 2005 Low Attention e Consortia Outsource – Sell Off R2P Freedom to Act Business Value Low High Development Nuisance "C" Items Strategic "A" Items Leverage "A & B" Items Value Proposition Build Trust Long Term Perspective Up front investment Senior Teams Shared objectives P&L and Balance Sheet Exclusive Innovation 80/20 – e Auction Play the Market Aggressive Short Term Strategic Importance High Relationship Overview

Negotiation Slide 29 © The Delos Partnership 2005 Deal Effectiveness* Deal Type Region Market Minus Cost PlusMFN Gain Sharing Europe (EMEA)???? North America???? Asia Pacific???? Latin America???? * Can also be applied to Categories

Negotiation Slide 30 © The Delos Partnership 2005 Deal Type Explanation Market Minus The most common deal, where the product or service is owned by the supplier who determines market pricing that will operate in each segment & country. The seller provides a list price and specifies the price validity period. Prices vary, depending on specification, packaging and delivery terms. In return for volume/value or in recognition of the customer status, the supplier is prepared to offer the buyer discounts from the national market price. Cost Plus Cost plus deals are normally based on an "open book" principle, where the seller is prepared to allow the buyer access to product or service variable and fixed costs at the producer point. The buyer and seller then agree the profit margin to apply, distribution costs and how to share & apportion cost changes – which can be either up or down. Most Favoured Nation This is where a seller guarantees to provide the buyer with the lowest price within the agreed market segment. The mechanism is that the seller provides the buyer with an opening monthly price – and after the month end has closed, proactively provides the buyer with information on net prices achieved in the segment. The seller then credits the buyer back to the best net segment price and is prepared to offer further discounts for guaranteed value or volume. Gain Sharing The principle of gain sharing is based on seller and buyer collaboration where both operate effectively as "one company" to ensure the product or service is innovated, produced and distributed at the best possible cost without the application of profit (collaborative supply chain). The two parties agree in advance on I.P. ownership, how to subsequently apportion profit on the volumes required by the buyer, how to share margin on sales in the rest of the market and market strategy/ restrictions on sales to other customers or segments.

Negotiation Slide 31 © The Delos Partnership 2005 The need for Agreements Key Customer Agreements Supply & Service Level C.D.A.Development Supply Side Assurance 1. Supplier CDA 3. Set Up Purchase Orders & Ts & Cs 4. Supply & Service Level Agreement 2. Risk Mgt 5. Development Agreement 6. Exploitation Agreement

Negotiation Slide 32 © The Delos Partnership 2005 Performance based agreements SupplierAssurance and Performance Supply & Service Level is defined – Volumes, Quality, O.T.I.F., Price (Cost)

Negotiation Slide 33 © The Delos Partnership 2005 Define value & volume required Estimated Supply Volume (Number of products, SKU’s & Service Level Exact Quality required Price or Cost (Invoice and Net with currency defined) Delivery – ex works, CIF, delivered Turnaround times required (lead time in calendar days) Inventory (buffer stocks, supplier managed inventory) Payment terms (from date of acceptance) Preferred supply plants Agreement period – based on supply / demand

Negotiation Slide 34 © The Delos Partnership 2005  Questions ?