1. Effective Negotiation
Preparation: Section 1
Negotiating in Different
Settings
Understanding the Supplier
Organisation

2. Learning Outcomes
At the end of this session candidates will be able to:
Define the term ‘negotiation’
Describe the different phases of negotiation in order to the identify the range of preparatory activities
Identify and describe the collaborative and distributive approaches to negotiating in business in order to understand different negotiation settings
Compare and contrast the collaborative and distributive approaches to negotiation so as to assess the types of variables to be used in a negotiation
Identify the factors that influence the approach taken in negotiations in order to understand the supply context
Review the purchasing context for negotiations in order to understand the supplier organisation
Identify the range of supplier information required to underpin a negotiation
Apply a Porter's 5 Forces framework to a market to enable evaluation of the competitive environment

3. Negotiation Definitions
NEGOTIATION IS:
The process whereby two or more parties decide what each will give and take in an exchange between them
Rubin and Brown (1975)
An occasion where one or more representatives of two or more parties interact in an explicit attempt to reach a jointly acceptable position on one or more divisive issues about which they would like to agree
Gottschal (1973)

4. Negotiation Definitions
NEGOTIATION IS:
Any form of verbal communication in which the participants seek to exploit their relative competitive advantages and needs to achieve explicit or implicit objectives within the overall purpose of seeking to resolve problems which are barriers to agreement
Lysons (1993)

5. Negotiation Situations
To discuss with a view to mutual settlement (Collins English Dictionary)
Two or more parties
Conflict of interest
Willingness to negotiate
Need to seek agreement
Better outcome through influence and persuasion
Parties seeking to satisfy tangible and intangible outcomes

6. Phases of Negotiation (Diagram from workbook by Tracey G Harwood)
Source: derived from Greenhalgh, 2001 (in Lewicki et al, 2003)

7. KENNEDY'S FOUR PHASES Phases of Negotiation PLAN/PREPARE DEBATE
BARGAIN
PROPOSE
Source: derived from Kennedy (1989), ‘Everything is Negotiable’

8. ACTUAL NEGOTIATION and
Phases of Negotiation
A NEGOTIATION PROCESS
falls into
THREE DISTINCT PHASES
PRE-NEGOTION
ACTUAL NEGOTIATION and
POST-NEGOTIATION
Source: derived from Lysons and Gillingham (2003) ‘Purchasing and Supply Chain Management’

9. A NEGOTIATION PROCESS consists of A NEGOTIATING SITUATION
Phases of Negotiation
A NEGOTIATION PROCESS consists of
THREE IMPORTANT FACTORS
THE NEGOTIATORS
A NEGOTIATING SITUATION
TIME
Source: derived from Lysons and Gillingham (2003) ‘Purchasing and Supply Chain Management’

10. Effective Negotiation
Three criteria are identified for effective negotiation that it be:
A wise agreement: satisfactory to both sides
Efficient: costs and time appropriate
Harmonious: fosters good relationships
Source: derived from Fisher and Ury (1983) ‘Getting to Yes’

11. Collaborative Approach
Agreement is reached by:
Finding common goals
Transparent agenda and issues
Acceptable solutions for both parties
Ethical
Sharing risk and cost savings
Impasse escalation process if necessary such as mediation or arbitration
Friendly, non-aggressive approach

12. Distributive Approach
Negotiation is played out by:
Competing goals
Secrecy and hidden agendas
Low trust
One side winning and the other losing
Head-to-head adversarial approach
Competitive and inflexible negotiation
Characterised by conflict, disagreement and miss-information
Impasse may end in no deal or litigation

13. Seller loses Both parties
Negotiation Outcomes
BUYER (OR EMPLOYEE)
WIN LOSE
Both are Buyer loses
winners Seller wins
Seller loses Both parties
Buyer wins lose
WIN
SELLER (OR MANAGER)
LOSE

14. NEGOTIATIONS Essential skills and qualities include:
Questioning and active listening
Observation
Assertiveness
Influencing
Persuading
Patience
Sense of humour!
Ethics

15. Drivers for Change in Purchasing
Technological advances
Quality and customer focus
Globalisation
Insourcing and outsourcing
Strategic cost management
Supplier relationship development and network management
Value chain and added value focus

16. Impact on Negotiation Fluctuating prices Time preferences
Dynamics in exchanges
Relative interests of each party
Risk aversion factors
Bargaining power
Constraints of macro-environment and organisational policies and procedures

17. Negotiation Pre-contract Contract agreement
Contractual and relationship review

18. Porter’s 5 Forces (Michael Porter, 1985)
New Market Entrants, eg:
• entry ease/barriers
• geographical factors
• incumbents resistance
• new entrant strategy
• routes to market
Supplier Power, eg:
• brand reputation
• geographical coverage
• product/service level quality
• relationships with customers
• bidding processes/
capabilities
Threat of new entrants
Rivalry among existing competitors
e.g. number/size of firms, industry size and trends, fixed v variable cost bases, product/ service ranges, differentiation, strategy
Bargaining power of buyers
Bargaining power of suppliers
Buyer Power, eg:
• buyer choice
• buyers size/number
• change cost/ frequency
• product/service importance
• volumes, JIT scheduling
Product and Technology Development, eg:
• alternatives price/quality
• market distribution changes
• fashion and trends
• legislative effects
Threat of substitute products or services

19. RISK Risk is in the future
NEGATIVE
POSITIVE
RISK
Risk is in the future
The result of probability of something happening and the impact when it occurs
Risk is around us all the time
Some risk is predictable

20. There are 4 ways to attack risk

21. RISK
What is the likelihood of risk happening and what are the possible consequences

22. PESTLE Political Economic Socio-cultural Technological
Legislative and Regulatory
Environmental and ecological

23. RISK: from external environment: PEST, PESTLE, DEEPLIST

24. RISK
SWOT

25. RISK: Probability and impact