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Planning for contract negotiations is the first step to success. Often the outcome is decided before any face-to-face negotiations occur. Negotiation is one, but important, step in the contractual process.
Negotiation mistakes.
Sometimes contract negotiations are undermined by one of your own team. Here are six common blunders, according to HBS professor James K. Sebenius*:
1. 2. 3. 4. 5. 6.
Neglecting the other side's problem. Letting price bulldoze other interests. Letting positions drive out interests. Searching too hard for common ground. Neglecting BATNAs ("best alternative to negotiated agreement"). Failing to correct for skewed vision.
An aspect often overlooked is the disbanding process and the necessity for a debriefing. It's important to schedule a "lessons learnt" session and it is a good idea to make this outcome available to other teams in the Company.
Standard Agreements These are generally used at all times, except when prior management agreement has been provided. Value for money Most companies have procurement procedures in place the emphasis on the need for value for money as opposed to taking the easiest, the cheapest or most attractive deal. Tendering This is when numerous companies bid for a piece of work or new contract that usually has a high value upon it. The whole tendering process has to be fair and seen to be fair so there
is usually a whole group of procurement procedures surrounding this activity. They are usually broken down to different rules for each level of contract value. E procurement With paperless purchasing becoming more popular there are usually a slew of procedures that you have to follow, many of them especially deal with security. Ad Hoc purchases These are purchases that are not available from the normal suppliers or purchases that are not normally made. To ensure that the purchasing strategy is adhered to and that the maximum profit is still made, these are very heavily monitored and controlled. As you can see a lot of rules and regulations but all companies need them, most companies have them and everyone knows what they need to and can do. Doesnt that make your company a much more profitable company?
Here we need to be clear about how long the whole process may take without making a definite date commitment. To be fair to bidders, proposals for complex systems or services should allow up to 4 weeks for submissions. Long RFPs with complicated and detailed responses need time or the quality of the bid will suffer. This is also where you can state where and when you will notify the successful bidder and expected start date of the project. Pricing Pricing is a main component in the RFP review process. The price offers for each of the proposed solutions need to be easily comparable. You need to provide a pricing template in a structured format which states exactly how to present pricing and cost data. It should be set up in such a way that price offers can be compared from several respondents side by side. When doing an RFP review these five elements need to be covered, not in any particular order. Preparation is key to a successful RFP, short cuts will provide poor and fewer responses and the process may have to be repeated.
5 E-procurement advantages
E-procurement advantages are becoming more evident as the wider understanding of its many uses become apparent. The main reason companies have embraced e-procurement is to increase productivity, provide visibility into day-to-day transactions and make it easier for users to get the supplies that they need. It has not been an easy road for e-procurement as implementation has its challenges and it has taken time for business managers and procurement departments to fully accept it. The advantages of e-procurement are slowly being understood:
Reducing costs
Costs can be reduced by leveraging volume, having structured supplier relationships and by using system improvements to reduce external spend while improving quality and supplier performance. E-procurement eliminates paperwork, rework and errors.
Visibility of spend
Centralized tracking of transactions enables full reporting on requisitions, items purchased, orders processes and payments made. E-procurement advantages extend to ensuring compliance with existing and established contracts.
Productivity
Internal customers can obtain the items they want from a catalogue of approved items through an on-line requisition and ordering system. Procurement staff can be released from processing orders and handling low value transactions to concentrate on strategic sourcing and improving supplier relationships.
Controls
Standardized approval processes and formal workflows ensure that the correct level of authorization is applied to each transaction and that spend is directed to draw off existing contracts. Compliance to policy is improved as users can quickly locate products and services from preferred suppliers and are unable to create maverick purchases.
Using technology
E-procurement advantages can only be fully realized when the systems and processes to manage it are in place. Software tools are needed to create the standard procurement documentation: electronic requests for information (e-RFI), requests for proposal (e-RFP) and requests for quotation (e-RFQ). These are proven methods to source goods and make the framework agreements that offer the best prices. An adequate, fully integrated e-procurement approach is needed for overall success. Additional programs provide the framework for the supplier databases and spend management as well as holding key vendor information and being an electronic repository for contracts. All these facilities cost money and a clear business case must be made for eprocurement. In most cases this is fairly clear that cost savings are possible. It pays for companies to spend money on e-procurement technology, this investment will boost efficiency. The longer term reduction in costs will enable companies to direct their resources to more strategic initiatives. E-procurement advantages are significant bottomline benefits, including cost reduction, process efficiencies, spending controls and compliance.