Negotiation Plan Development
Negotiation Plan Development
ISCOM/361
Negotiation Plan Development
Elements of business negotiations
The amount of time and quality planning that goes into the negotiation process will ultimately dictate the level of success achieved. The basic elements of business negotiations are as follows:
1. Develop specific deliverables (or outcomes) desired as a result of the negotiation.
2. Gather appropriate data.
3. Layout the facts of the situation.
4. Determine issues and address disagreements.
5. Analyze supplier strengths, capacity, and profitability. Set realistic expectations and establish negotiation points.
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6. Discuss the position of each issue from both the buyer and seller perspective. Prepare counter arguments and determine whose position is stronger. Estimate the range of mutually acceptable results.
7. Plan a negotiation strategy including an itinerary, a list of people who will make up the negotiation team, and reasonable targets for each objective.
8. Ensure all parties of the negotiation team have been briefed on expectations.
9. Conduct actual negotiations.
Specific negotiation tactics pertaining to purchasing relationships
Though managers today have a wide range software platforms, e-sourcing, and technology tools at their disposal, most purchasing professionals can (and will) attest to the fact that success in supply chain management, in large part, is due to strategic supplier alliances. For such relationships to exist, however, much of the negotiation process should involve preparation activities such as developing a strategy and reviewing supplier proposals. Some specific negotiation tactics to use are as follows:
1. Research the supplier company. Familiarize the negotiation team with the supplier’s website, operational facilities, business lines, growth plans and company history.
2. Reach out to the supplier ahead of time to request a list of attendees and discussion topics they expect to cover during negotiation phases.
3. Review and assess the supplier’s performance history.
4. Set objectives. Layout a formal negotiation strategy in writing and do a structured run through well in advance of the meeting with suppliers.
Importance of supplier relationship management in negotiations
The process of strategically planning and managing interactions with third party organizations to maximize supply chain value is commonly referred to as supplier relationship management. The importance and purpose behind supplier relationship management (SRM) is to ensure organizations are properly aligned in a way that will optimize company performance and improve value. Since success in the sector of supply chain management is highly dependent on relationships, adopting a strategic approach to relationship management can result in huge long-term benefits. For example:
1. Vendors typically offer better pricing to loyal customers thus maintaining great relationships can potentially help reduce company spend.
2. Strong supplier relationship management can improve value since maintaining long term relationships can provide insight and visibility into supplier performance including behavioral patterns so that businesses can address potential issues before they arise.
3. SRM also helps with problem resolution because solid relationships with clear lines of open communication reduce availability problems and results in swifter resolution when problems arise.
By recognizing vendors as strategic partners with aligned goals and objectives, businesses can alleviate restrictive procurement and supply chain practices and find ways to add value. Additionally, by aligning businesses goals, businesses are more likely to understand the needs of their suppliers and communicate from a place of mutual understanding as opposed to contention.
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Example of successful negotiation
Over the years, there have been several disputes among businesses that are noteworthy enough to demonstrate the importance of negotiation in business. One such example was back in 1996 when Microsoft won a bid against browser market leader Netscape to partner with AOL. Despite the fact that Netscape was a bigger brand and possibly more financially stable than Microsoft at the time, top Microsoft negotiators concentrated on value add services that Netscape could not math; then put together a creative strategy that enhanced their position and weakened their competitors in the process.
As a result of the successful negotiation, AOL expanded its marketing reach by an additional fifty million people per year and Microsoft met its goal of gaining significant market share in the browser market.
Pitfalls to consider when entering supplier negotiations
Another really important factor in negotiations is to seek out the positives in every objective or circumstance. If a compromise can be found by trading off issues, a value transaction is created. However, oftentimes professional negotiators walk away leaving resources on the table because they can’t seem to arrive at a place of mutual acceptance. Some key drawbacks that result in failed negotiations include:
1. Poor planning.
2. Assuming an offer or suggestion is inflexible.
3. Failing to actively listen or pay attention.
4. Negotiating from a negative perspective or from a position of lack.
5. Being overly eager and making decisions too quickly in the process.
The type of negotiations team that the company should develop (i.e. key members)
Once the company has successfully developed a strategy, the next crucial step is assembling a team to ensure all necessary skillsets are covered and that all seniority levels of supplier representatives are sufficiently matched up. For example, if after research, you find the supplier party has listed a managing director as a participant in the negotiations, it’s crucial that a c level executive also be in attendance for the internal negotiation team. Each team member should be well versed on negotiation strategies and aware of anticipated or expected deliverables.
The negotiation team within any organization is a very important component of the company realizing success. The team should include members with varied backgrounds and diverse skillsets. Ideally, we would like to see at least one member for each of the following knowledge areas:
1. A support team member or anyone with technical knowledge in the suppliers’ line of business.
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2. A Behavioral analyst.
3. A software vendor.
4. An IT representative.
5. A member of procurement or pricing.
6. A member of the legal team.
7. A decision maker or C-level executive.
The most important thing is that the team work together to keep everyone informed. A lead or spokesperson, preferably from procurement, should be identified prior to the meeting. Only by working together in unison can the team maneuver through a successful negotiation.
Financial outlook – the impact on financial results
Entering a negotiation without properly preparing or going into it lacking the necessary confidence can lead to team members agreeing to terms and pricing services that are not in the best interest of the company. Simply put, a negotiation is a compromise; and, while they’re usually not easy conversations to have, they get easier with planning and practice.
By following the strategies outlined here, you are prepared and positioned to make a clear and concise argument with confidence, because you’ve done the background work and have identified your non-negotiables for each situation. Areas to negotiate include loan terms, interest rates, lease agreements, salaries, and supplier relationships.
Bottom line is that negotiating saves money for the business. Developing and following the negotiation plan will allow companies to control costs through awareness and management. Not only will companies generate more of a profit from day to day operations, buy they’ll also be positioned to save on regular monthly expenses such as internet and phone bill.
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References:
How Microsoft Outnegotiated Netscape in the Browser War
https://www.infoentrepreneurs.org/en/guides/negotiate-the-right-deal-with-suppliers/#4
Johnson, P. F., Flynn, A. Purchasing and Supply Management. [University of Phoenix]. Retrieved from https://phoenix.vitalsource.com/#/books/1259876934/
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