Supply Chain Management Lecture 12 – Negotiation Alexa Kirkaldy

Lecture 12 - Learning Objectives On completion you will be able to: Be able to define negotiation Explain what is involved in adversarial and collaborative approaches and identify where they are appropriate Identify likely substance and relationship goals Identify the steps required to prepare for successful negotiations Explain types of behaviour that will lead to constructive negotiation

Definitions of Negotiation “The process whereby two or more parties decide what each will give and take in an exchange” “Any form of verbal communication in which the participants seek to exploit their relative competitive advantage and needs to achieve explicit or implicit objectives within the overall purpose of seeking to resolve problems that are barriers to agreement.” Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.548.

Approaches to Negotiation Adversarial, distributive or win-lose Appropriate where no ongoing relationship quick, simple solution to disagreement needed Strategy based on secrecy True goals unclear Unpredictable behaviour, negotiating ploys, threats, bluffs, fixed positions ‘Us against them’ Collaborative, integrative or win-win Appropriate where long-term relationship Creative solution to mutual problem required Strategy based on openness Goals disclosed Predictable behaviour, negotiating ploys avoided, flexible ‘We’re in this together’

Content of Negotiation Substance goals – content issues of negotiation How important is the outcome to them (collectively and individually?) Price Contractual Delivery Relationship goals – outcomes relating to working together What is the basis of the relationship between the parties (now and desired) Partnership Preferred supplier status Integration - collaborative design, planning, forecasting and replenishment Sharing of technology, risk

Substance Goals Price Content of Negotiation Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.551

Substance Goals Contractual Content of Negotiation Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.551

Substance Goals Delivery Content of Negotiation Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.552

Negotiation Style Model Low High Concern for Substance Concern for Relationship N3 ACCOMMODATE Build friendly relationship N2 COLLABORATE Creative problem solving N1 DEFEAT Be a winner at any cost N5 COMPROMISE Split the difference N4 WITHDRAW Take what you can get Letting them get what they want (They win) Getting what I want (I win) Dr Dawei Lu, MSc Supply Chain Management module

Preparing for Successful Negotiation Develop specific objectives Establish effective negotiating team Gather information Analyse strengths & weaknesses Recognise the other side’s needs Determine the facts & issues Establish a position on each issue Plan the negotiation strategy Select appropriate tactics Practice the negotiation Fawcett, Ellram and Ogden, “Supply Chain Management”, 2007, pp 363-365

Conducting Successful Negotiations Fact finding The Recess Narrowing the differences Hard bargaining Fawcett, Ellram and Ogden, “Supply Chain Management”, 2007, p 367

Negotiation Range Dr Dawei Lu, MSc Supply Chain Management module Most Favoured Position (MFP) Least Favoured Position (LFP) MFP LFP Potential Agreement zone LFP MFP LFP MFP MFP LFP Conflict Zone Dr Dawei Lu, MSc Supply Chain Management module

Types of Behaviour & Response Likely response Proposing – shall we ….? Development in form of support or reasoned negative identifying difficulty Development – building on or supporting other’s proposals Further development or seeking further information Reasoned negative – explaining areas of difficulty Can invoke similar negative behaviour, try to remain reasonable, seek more information Emotional negative – attacking or defensive, critical, ‘rubbish’ Tends to evoke similar response, hard to return to constructive behaviour Clarifying – checking for understanding, summarising Supportive development or can lead to disagreement if situation misunderstood Seeking information – facts opinions, ideas, what if? Usually results in information being given Giving information – open disclosure Can be in response to seeking information or could break the ice Lysons & Farrington Purchasing and Supply Chain Management, Pearson, 2006, p.563

Post Negotiation Document - draft agreement or contract, circulate, confirm Sell agreement to key stakeholders Implement and monitor Successful negotiation according to Fisher and Ury (1983) Wise agreement Efficient Harmonious

Lecture 12, Key Points & Tips One of the most important activities in relationship building is negotiation. Negotiation is a formal communication process where two or more people meet to discuss issues and come to an agreement. Traditionally negotiation in supply chains was an adversarial, win-lose activity to determine the specifics of an important contract. Adversarial approaches can still be appropriate for one-off contracts where a quick, cheap solution is required. In supply chains negotiation is a key tool in building competitive, world class partnerships and needs a collaborative, win-win approach. The goals of negotiation relate to both the substance (price, contractual, delivery) and to the relationship and the level of concern for these goals will affect the outcome.

Lecture 12, Key Points & Tips Pre-negotiation preparation can represent up to 90% of a successful negotiation. The type of behaviour adopted during the negotiation can play a large part in achieving a successful outcome. Negotiation skills can be developed and improved via specialist training. Negotiating ploys will be easy to spot for a skilled negotiator. You need to be aware the two main approaches to negotiation, the steps involved in preparing for a negotiation and give examples of the types of behaviour that are likely to lead to constructive negotiations.

For next Tuesday Read the case study on negotiation Two questions Possible oral presentation questions How important is contract negotiation in this industry and how is it approached? How can negotiation be improved in this industry?