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NEGOTIATION IN PURCHASING MGT Contents

Introduction
Key terms used in negotiation
Objectives of Negotiation
Content of Negotiation
Negotiation process
Approaches to Negotiation
Negotiation Tactics/Ploys
Qualities of a good negotiator
Bonny Bagenda SEM II 2016/17

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Introduction
QUOTE Whatever business you are in, whether you are an
entrepreneur or a manager in a large company, you
In business, you don't get are negotiating all the time.
Think about your daily responsibilities: How much of
what you deserve, you get what really matters involves negotiating? If you are
like most other business people, you are constantly
what you negotiate negotiating for support and resources internally even
(Chester L. Karrass) as you deal with external constituencies such as
customers, suppliers, investors, banks, and
government agencies.
Negotiation skills are vital to your success.

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Definition of Negotiation
In a general context negotiation is a bargaining
process between two or more parties, each
with its own viewpoints and objectives
seeking to reach a mutually satisfactory
agreement on or settlement of a matter of
common concern.

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Definition of Negotiation Terms Used in Negotiation

The process whereby two or more BATNA (best alternative to a
parties decide what each will give and negotiated agreement)
take in an exchange between them. Positions
Rubin and Brown (1975)
Interests
In a purchasing context it is the process
of arriving at an agreement of the Needs
conditions of a contract through Wants
discussion between the buyer and seller
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BATNA
The acronym BATNA was coined by Fisher and
Ury to represent your main source of power in
negotiation. BATNA stands for Best Alternative
To a Negotiated Agreement.
It is what you are going to do if you do not
reach an agreement.
Your BATNA is your best option outside the
current negotiation. If you are negotiating a
deal, it is an alternative buyer or seller.
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BATNA
The stronger the BATNA, the greater the
ability to walk away from an
unsatisfactory negotiation.
Need to ensure that a negotiators
BATNA is never revealed to the other
party
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BATNA
The BATNA can be identified in any
negotiation situation by asking the
question what will we do if this
negotiation is not successful
All settlements must be judged in light of
all other viable alternatives
The stronger the BATNA, the greater the
range of alternative courses of action.
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Positions
Positions are what negotiators say they
want. Your position is what you ask for in
a negotiation.
A negotiators opening offer
Represents the optimistic or target value
of the issues being negotiated
The stated demand at the negotiation
table
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Interests
An interest is why negotiators want what they want.
The unspoken motivation or reason that underlies
any given position
Unlikely to be expressly stated or acknowledged
during the negotiation
Play detective and try to discern the other partys
interests through a series of open-ended, probing
questions
Always focus on the other partys underlying
interests, not his/her stated positions
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Why Negotiate?
There are many valid reasons for negotiating at
different stages of the purchase .
By far the most important of these is that a
negotiated agreement normally results in
stronger ownership by the parties than when
the agreements are forced. As a result a
negotiated agreement is more likely to be
successful and enduring in operation
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Needs vs. Wants
Needs those negotiated outcomes that
the negotiator must have in order to
reach a successful conclusion
Wants those negotiated outcomes that
a negotiator would like to have
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Why Negotiate?
Some of the common reasons for negotiating in
purchasing are;
To clarify issues between the parties
To develop relationship and deepen understanding
between the parties
To improve on the current offer (price conditions,
service levels)
Where unusual or complex circumstances exist and
these need to be explored by the parties
When substantial risks are involved in the purchase
and parties look to reduce or transfer the risk
exposure
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Why Negotiate?
When there are concerns over supplier performance
When variations to the contract are contemplated
Total contract value or volume is large
Purchase involves complex technical requirements,
perhaps even product and process requirements and
specification still evolving
Purchase involves capital-intensive plant and
equipment

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Objectives of Negotiation Objectives of Negotiation

(a) Certainty
The aim of negotiation is firstly to
achieve certainty, to record what is
being supplied, when, in what
quantities and to what standard, and
the consequences of delay or failure to
meet agreed requirements.
(b)The best deal
Seeking clarity does not conflict with
the view that negotiations should
achieve the best deal, it merely points
out that both parties to a negotiation
have to understand what is that they
have agreed to.

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Objectives of Negotiation Objectives of Negotiation

(c) Creation of long term relationships
between the parties Other objectives include
For example partnering in industries like obtaining the best possible quality,
aerospace and IT is essential, due to the best price and
complexity of the products and related timely delivery
projects.
Such negotiations will focus on the long
aspect of the negotiation so as to create a
permanent settlement to the conflict in place.

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What can be negotiated/Content of What can be negotiated/Content

Negotiation of Negotiation
Negotiating the right deal with your suppliers Delivery schedules and lead times
doesn't necessarily mean getting what you want Expected product and service quality levels
at the cheapest possible price. Performance metrics
You may want to negotiate other factors such as Technological support needed
delivery times, payment terms or the quality of
the goods. Contract volumes
Most business owners would view a good deal as Special packaging
one that meets all their requirements. But there Loss and damage liability
are many other factors to consider, such as Payment terms and currency issues
whether you want to do business with a
particular supplier again.
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What can be negotiated/Content of

Negotiation Stages in the Negotiation Process
Payment schedules
Transportation mode selection
Carrier selection
Warranties and replacements
Penalty clauses
Performance incentives
Contract length
Contract renewal mechanism
Conflict resolution mechanism

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Pre-negotiation QUOTE
Effective preparation is a key aspect of
negotiation; this preparation should It Wasnt Raining When Noah
include research about the company you Built the Ark:
are negotiating with and will include Negotiation Planning Builds
factors such as their market share and Negotiation Success
penetration, financial health and stability, A good negotiator plans a
corporate structure and goals, stock strategic approach but prepares
pricing etc. for the unexpected.
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Pre-Negotiation Phase Pre-Negotiation Phase

Negotiation always takes place within a context : some Key aspects in Preparation for Negotiation
of the important issues to consider in understanding
the context of negotiation include: Setting the Range - How far parties in a
What is the nature of the purchase you are making in
terms of its level of risk, the level of expenditure and negotiation process are willing concede
the complexity of the good or service that is being before they disagree or exit the
purchased?
What is the nature of the supply market - fully negotiation. A skilled negotiator will
competitive, dominated by a few large suppliers etc.
consider a wider range for negotiation
Is this negotiation a one-off or will you need to
maintenance a long-term relationship with this that is twice as much for each issue in
supplier?
Have you ever negotiated with this supplier before?
order to exhaust the available options
What is their typical approach to doing business? and come up with a better deal
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Pre-Negotiation Phase Pre-Negotiation Phase

Key aspects in Preparation for Negotiation Key aspects in Preparation for Negotiation
Differentiating between facts and Perception of strength and weaknesses of
assumptions both parties
Preparation entails gathering and assessing Forming a negotiation team deciding who
as many facts as possible. But time and is to negotiate
resources often make full research
unrealistically cumbersome or impossible. Selecting the negotiation venue
In every negotiation one must assume
certain things about the other person in
order to make progress.
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Pre-Negotiation Phase Actual Negotiation/Discussion Stage

Collecting information (the current Bargaining - at this point, the parties
agreement, delivery, contractual, express the specific terms on which they
financial, specification, personal will settle by looking or stating their entry
information among others) and exit points (range).
Its at this stage that the issues of offer and
Setting objectives
acceptance are handled.
Deciding on Strategy and Tactics
However, failure to agree will see the
Dummy run (testing of the strategies) so parties back to the drawing board (pre-
as to come up with BATNA negotiation phase).
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Actual Negotiation/Discussion Stage
Considerations
Avoiding arguments and instead proposals
should be made to overcome them i.e.,
suggest solutions to settle the arguments.
Proper handling of debates to avoid deadlock
deals.
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Rules for bargaining
Do not indicate that your are prepared to move
quickly from your position
Move slowly making the other party work for every
concession they get
Avoid putting markers down a marker is usually a
figure- price, delivery period, a number of days
which is your ideal position in a negotiation (What
figure do u have in mind)
Get a return for every concession you make
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Actual Negotiation/Discussion Stage
Avoid destructive debate such as attacking or
blaming the other party.
Suggestion of an agenda if there is none.
Establishment of a rapport with the other side
and then watch how they will want to proceed
with the negotiation.
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Actual Negotiation/Discussion Stage
Deadlocked negotiation
This occurs where parties see no prospects of further
movement or concessions. This could be because;
Views/positions of the parties involves are
irreconcilable
Personality clashes between the negotiators
Because a party to the negotiations is taken beyond
his authority and so can move no further he needs
to consult
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Actual Negotiation/Discussion Stage How to Overcome Deadlocks

Some techniques to overcome deadlocks Considering the consequences of

include; non-agreement for both parties
Taking a break for each party to refocus. being represented.
Use of humour to lighten up the
atmosphere. Obtaining third party assistance
Breaking down an issue into sub-issues
for easier understanding.

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Post Negotiation Post Negotiation

This is the stage in which parties implement
Implementing the agreement by setting up
was agreed upon during actual negotiation
joint implementation teams and performing
phase. It involves;
obligations.
Producing a report on what was agreed upon .
Seeking commitment to making the
Establishing procedures to monitor the
agreement work.
implementation process and corrective
Preparing contracts in line with the final measures where the process differs from the
agreement of the parties. original plan

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TYPES/APPROACHES TO
NEGOTIATION
TYPES/APPROACHES TO There are four different approaches to negotiation and
the outcome of the negotiation depends on the
NEGOTIATION approach.
AVOIDANCE
COMPETITIVE
COLLABORATIVE
Bonny Bagenda ACCOMMODATIVE

SEM II 2016/2017

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AVOIDANCE APPROACH
If one is able to meet ones needs without
negotiating at all, it may make sense to use an
avoidance strategy.
Avoiding is best when:
The issues are not important.
There are more pressing issues to tackle.
There is no chance of achieving your
objectives.
The potential aggravation of negotiating
outweighs the benefits.
You need time to collect more information.
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ACCOMMODATIVE APPROACH Accommodative approach

Win-lose strategy (I lose, you win)
The negotiator wants to let the other
win, keep the other happy, or not to
endanger the relationship by pushing
hard to
achieve some goal on the
substantive issues
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Accommodative Strategy is often used;
When the primary goal of the
negotiation is to build or strengthen the
relationship and the negotiator is willing
to sacrifice the outcome.
If the negotiator expects the relationship
to extend past a single negotiation
episode.
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Collaborative/integrative/partnership
COLLABORATIVE APPROACH
approach
Integrative Bargaining This is a win-win negotiation approach where
Win-Win Bargaining (I win, you win) there is equal (or balanced) value to both
parties based on their respective evaluations
Is where each party gains without a corresponding
of the variables that were traded.
loss
for the other party.
This type of negotiation usually works when
you have an ongoing relationship with the
counter party.

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COLLABORATIVE APPROACH
(i) There are a sufficient amount of
resources to be divided and both sides can
win
(ii) The dominant concern here is to
maximize joint outcomes.
(iii)The dominant strategies include
cooperation, sharing information, and
mutual problem-solving.
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DISTRIBUTIVE/ADVERSARIAL APPROACH
This is a win-lose negotiation approach
where one party is considered to have
gained at the expense of the other.
With this approach, the assumption is
that every time one party wins, the other
loses and this is why the other party is
always referred to as an adversary.
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COLLABORATIVE APPROACH
With this type of negotiation,
everyone gets something they want.
You are not out to only help yourself,
but to also help your partner.
This kind of negotiation helps build
lasting relationships and improve
business for everyone.
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Distributive/adversarial approach
Each party in this negotiation
wants to get as much as he can
for his side. For example, if you
are buying something, you want
to pay the lowest price possible
while the seller wants to get the
highest price possible.
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Distributive Approach Distributive Approach

(i) One side wins and one side loses.
Negotiate in a hurry (ii) There are fixed resources to be divided so
Use when you wont negotiate with these that the more one gets, the less the other gets.
people again (iii) One persons interests oppose the others.
Get the best deal without regard to the other (iv) The dominant concern in this type of
sides win Negotiating is usually to maximize ones own
interests.
(v) The dominant strategies in this mode include
manipulation, forcing and withholding
information.
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Distributive versus Distributive versus

Integrative Negotiation Integrative Negotiation
Aspect Distributive Collaborative

Basic Goal is to win as much as Goal is to achieve mutually

assumption possible agreeable solution

Recognized Maximize tangible resource Maximize returns for

patterns of gains organization
negotiation Makes high opening demands Focus on common interests
Uses threats, confrontation Uses non-confrontational
and argumentation debating techniques

Key Does not consider Considers

behavioural needs/interest/attitudes of needs/interests/attitudes of
elements other side. other side

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Negotiation Tactics/Ploys
Negotiation tactics are the detailed methods
employed by negotiators to gain an advantage
over other parties.
A ploy is a manoeuvre in a negotiation process
aimed at achieving a particular result from the
other party.
It is during the actual negotiation process that
parties will from time to time be faced with one
side using a ploy or tactic to try and gain
advantage over the other
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Negotiation Tactics/Ploys
Silence
When you have asked a question wait for an
answer. Silence can put a lot of pressure on
the other party
Never respond too quickly to an offer.
Pausing or even suspending negotiations
can convey that youre not desperate to
close the deal and that you have other
options.
Silence can force a surprising amount of
pressure on the other party as well
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Negotiation Tactics/Ploys
Mike Tyson once said "Everybody's got a
plan--until he gets hit.
In negotiating a deal, there is need for a
plan that survives the stress of the first
encounter and continues to add value
throughout the negotiation process.
There is need to plan both defensively,
against common ploys, and offensively,
to push our agenda forward.
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Negotiation Tactics/Ploys
Building block technique
The buyers will progressively ask for a better
offer step by step e.g. for additional quantities
during scarcity and an increased range of
products to be supplied.
For example, the buyer may make such a
request, you have charged me a good price
for 1 year contract but what if we extended it
for 3 years.
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Negotiation Tactics/Ploys
Recess - When you feel that the
negotiation has reached a standstill or
may be the other party has offered
something you were not expecting, it is
advisable to call a recess.
During the recess, have a short meeting
with the team to decide how to move the
negotiation forward.
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Negotiation Tactics/Ploys
One more thing
This tactic is used to get the supplier
make a further move when the deal is at
its conclusion.
For example, one may make such a
comment well I think we are almost
there, there is just one more thing we
need to discuss. This may be on delivery,
terms of payments that have not been
agreed upon.
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Negotiation Tactics/Ploys
Onus transfer - This tactic is used
to obtain empathy.
Fore example, if you were in my
shoes what would you do.
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Negotiation Tactics/Ploys
Deadlines - Suppliers tend to make
comments such as you must sign the
contract by the end of the month to get
the 20% discount.
Example
I must have your answer before we leave today.
I am talking to Steve later. He will want to know
what we have agreed.
The product will be released at the end of the
week. If you can't deliver by Thursday, it will be
too late.
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Negotiation Tactics/Ploys
Bad news/Good news
Here, a negotiator outlines a
doomsday scenario under which
your entire deal falls apart due to
one major problem... and then
proceeds to give you the good news
compromise in which you are asked
to give away substantial concessions.
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Negotiation Tactics/Ploys
Higher authority (I need to talk to my people)
Many people think it shows weakness to say they
cannot make the decision on the spot and
sometimes agree to deals they later regret.
Master negotiators know that they must always
have higher authority in their armory.
It is powerful to place the blame on someone else
for not being able to agree to a request, because
it means you can stay in rapport with the other
side. It means that they may alert you to other
issues that you have not been aware of.
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e.g
A buyer had agreed to purchase our client at
an agreed price, but then learned of a patent
that our client was arguably infringing.
The buyer opened negotiations by describing
a worst case scenario in which the patent
owner gets a temporary restraining order and
puts our client out of business.
Clearly, he argued, it would be in our client's
interest to cut their price by 30% to
compensate for the patent risk.
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Customer:" I'm not happy with the repair fee.
It is far too high for the amount of work done.
I refuse to pay this much.
Engineer:" I just work here. If you don't pay,
you cannot have your machine. I have no
authority to change the costs."
A neat deferral to higher authority. What can
you do?
Customer: "Who can?"
The only way to counter this tactical ploy is to
ensure that you probe for all decision makers
during your information gathering phase.
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Negotiation Tactics/Ploys
Good guy Bad guy (good cop / bad
cop)
With two people in a meeting, one
person is nice, the other person is
aggressive.
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Negotiation Tactics/Ploys
Flinching on the price
Flinching is jargon in negotiating, for acting
surprised when the other side makes an offer.
It comes in all formats. From gentle your
joking to the more aggressive outrage that
some people seem to enjoy.
When someone says, it costs X, you might
simply squint and draw breath before asking,
How much? in an enquiring, surprised tone
of voice.
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Owner: "I am sorry, but I don't want to waste
more time on this. I have to go. I just don't think a
meaningful offer is at hand. See you."
Sales person: "I must apologise. He is a difficult
man. If it were my wish I would like to see you get
the house. I'll see what I can do."
Buyer: "Do you think you can convince him to do
the deal?"
Difficult and dangerous. The buyer may end up
asking the sales person to negotiate on his behalf
with the owner. The best way to counter is to
simply tell the other party that you know what
they are doing.
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Client: "How much did you say !! $ 2950!
That's really expensive."
The salesperson frequently follows this
up with a concession.
Sales person: "Of course, the price also
includes delivery and installation."
Client: "That's still a great deal of
money!"
Sales person: "We might be able to to
include some extra software."
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Negotiation Tactics/Ploys
Broken record
This tactic is linked to the
conditioning process where it is
assumed that when you insist or
keep requesting the same thing over
some time, eventually the other
party begins to believe it e.g. offering
products on credit.
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Sales person: "So with all the features the
price is Ugx 10,000,000?"
Customer: "That's very good. It's better than I
thought."
Sales person: "Naturally, we need to add
delivery at Ugx 500,000 and an installation
fee of Ugx1,000,000."
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Negotiation Tactics/Ploys
Nibbling
Just when you think you have got agreement,
the other side comes back and ask for another
concession.
You may have agreed the price and they then
ask for another discount. You may have
agreed the delivery date and then they ask for
it earlier. You may have agreed the payment
terms and then they ask for the money earlier
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Negotiation Tactics/Ploys
Surprise !
The vendor calls you up and says theyre in
your neighbourhood and can meet now or just
shows up at the reception desk. The goal is to
catch you off-guard and unprepared so they
can soften you up for another ploy down the
road.
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Tactics/Ploys for collaborative
Negotiation
Expanding the pie
Here resources are scarce and
parties try to expand the existing
ones e.g. financial and human
resources, technical resources like
providing equipment to suppliers.
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Tactics/Ploys for collaborative
Negotiation
Non-specific compensation,
Here one party is repaid by the other
in some unrelated means in return
for compromise eg bulk buying in
case of suppliers prices being low or
using long term contracts to thank
the supplier.
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Example
Two business competitors on an industry
standards committee agree to settle
differences and promote the standard as this
will help increase the number of total
customers, thereby giving each a greater
market value.
A husband and wife who are negotiating
about holidays and the ability to take time off
work reframe the situation as 'getting away
together' and end up with a decision that
when one goes away on business the other
will go along too.
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Tactics/Ploys for collaborative
Negotiation
Logrolling
Here several issues are at stake with
different priorities, each party concedes on
low priorities in exchange for concession
from the other party on issues of higher
priority.
Eg price, quality between the supplier and
the buyer respectively and give up on
delivery, quantity, installation etc.
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Tactics/Ploys for collaborative
Negotiation
Cost cutting, in return for concessions one
partys costs are reduced or eliminated eg if
the buyer wants low prices he has to
collaborate with the supplier and formulate
ways of how to reduce costs thus leading to
low prices.
Costs may be fuel costs, raw material costs,
inventory costs, production cost and seek
ways for reducing these costs.
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Qualities of a Good Negotiator
Must be prepared and should have done research.
You know your goals and have set limits to the negotiation.
You listen carefully and take notes so that there are no
misunderstandings in the communication process.
Is flexible in dealing with issues as they arise
You close the deal and dont allow the dealer to re-open
negotiations.
Ability to deal with pressure
Understands people well
Good observer
Ability to handle confrontation
Has sound business judgment
Timely-can handle time effectively
Creative thinking
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