1. Supply Chain Management Lecture 12 – Negotiation
Alexa Kirkaldy

2. 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

3. 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.

4. 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’

5. 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

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

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

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

9. 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

10. 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

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

12. 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

13. 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

14. 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

15. 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.

16. 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.

17. 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?