Chapter 1.1 Flashcards
Analyse the application of commercial negotiations in the work of procurement and supply
Name the 6 stages of commercial negotiation
- It begins internally between the organisation’s stakeholders
- This then flows through to the first communication between the buyer and the supplier
- This flows through to the final signing of the contract
- Mobilisation
- Contract management
- Contract exit
What does negotiation involve?
Two or more parties and a channel of communication.
What is the objective of negotiation?
To reach an agreement or settlement of one or more issues where there is disagreement and/or divergent views
What should negotiation be viewed as?
A process
What happens through the negotiation process?
Something of value is exchanged and both/all parties will have their needs sufficiently satisfied so that they can arrive at a mutually agreeable settlement
What is the result of a successful negotiation process?
An agreement both parties can ‘sign up to’; however this does not imply that both parties are equally satisfied or have gained equally from the agreement
Name 2 aspects of the content of negotiation
- What you are negotiating about
- Unique to each negotiation
Name 2 aspects of the process of negotiation
- How the negotiation is managed
- Generic stages all negotiations go through
What is there pressure on public-sector bodies to do during negotiation?
To use rules-based tendering processes which normally have restrictions or even prohibitions on what can be negotiated and when in the process this must be done
What is the CIPS Procurement Cycle?
The cyclical process of key steps when procuring goods or services
How can you negotiate in the private sector?
The buyer may directly approach specific suppliers to negotiate without having to issue any tender documentation
Name the 13 steps of the CIPS Procurement cycle
- Define business needs and develop specification
- Market analysis and make or buy decision
- Develop strategy or plan
- Pre-procurement market testing
- Develop documentation and detailed specification
- Supplier selection to participate in tender
- Issue tender documents
- Bid and tender evaluation and validation
- Contract award and implementation
- Warehouse, logistics and receipt
- Contract performance and improvement
- Supplier relationship management
- Asset management
How does negotiation fit into the defining business needs and developing specification?
This step involves mainly internal negotiation with stakeholders
How does negotiation fit into the market analysis and make or buy decision
This step informs the negotiation process
How does negotiation fit into the develop the strategy and plan
This step is where the decision regarding whether and what to negotiate is made
Supplier conditioning
The process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances
Prior Information Notice (PIN)
A notice released by a buying organisation through the OJEU to make potential suppliers aware of a sourcing competition that it intends to run in the future
How does negotiation fit into develop documentation and detailed specification?
There is typically limited commercial negotiation activity here, especially in public sector procurement
How does negotiation fit into supplier selection to participate in tender
There is typically limited commercial negotiation activity here
How does negotiation fit into issue tender documents
There is typically limited commercial negotiation activity here
Expression of interest (EOI)
An informal notice from a potential supplier that they are interested in supplying goods or services to the buying organisation, possibly following publication of a PIN (Prior information notice) or other notification of an upcoming opportunity
Request for information (RFI)
A document used to gather information about suppliers and their capabilities prior to a formal procurement process
Invitation to tender (ITT)
A formal invitation sent to suppliers inviting them to make an offer to supply goods or services
Request for proposal (RFP)
A document used to canvass potential solutions from suppliers when the specification is still unclear
Pre-qualification questionnaire (PQQ)
A document sent to potential suppliers to find out their suitability to be included in the procurement process
Request for quotation (RFQ)
An invitation to suppliers to bid on specific products or services
How does negotiation fit into bid and tender evaluation and validation?
Commercial negotiation activity can take place here, although in the case of the public sector, buyers should ensure they follow any appropriate regulations
How does negotiation fit into contract award and implementation?
Commercial negotiation activity can take place in the private sector. In public sector procurement, buyers must ensure they follow any relevant regulations which often prevent negotiation at this stage
How does negotiation fit into warehouse, logistics and receipt
Negotiation associated with the delivery of goods or services is often overlooked but is critical to the effective delivery
How does negotiation fit into contract performance and improvement
Commercial negotiation activity can take place here
How does negotiation fit into supplier relationship management?
Commercial negotiation activity can take place here
How does negotiation fit into asset management?
Commercial negotiation activity can take place here
Name 5 procurement procedures
- Open procedure
- Restricted procedure
- Competitive dialogue
- Competitive procedure within negotiation
- Innovation partnerships
Can you use commercial negotiation with open and restricted procedure?
Under normal circumstances, no
What is contract management?
A continuous procurement process that ensures suppliers - and buyers - adhere to their agreed contractual obligations, along with negotiating any future changes that need to take place
Name the 12 stages of the CIPS contract management cycle
- Planning and scoping
- Stakeholder readiness
- Contract administration
- Relationship management
- Performance management
- Payment and incentives
- Risk and resilience
- Contract changes and development
- Supplier development
- Supplier relationship management (SRM)
- Exit and termination
- Asset management
Supplier relationship management (SRM)
Holistic management of relationships formed between buyers and suppliers based on the criticality of the goods or services being procured
How does negotiation fit into the planning and scoping?
Agreement on scope of work to be done, responsibilities and obligations, what if scenarios
How does negotiation fit into stakeholder readiness?
Expectations management with stakeholders
How does negotiation fit into the contract administration
Operational management and any minor schedule or specification changes required
How does negotiation fit into relationship management
Only relevant if there is potential benefit in a closer working relationship with a supplier
How does negotiation fit into performance management?
The buying organisation must review the performance of the contractor against what they promised to deliver as per the contract that was agreed/negotiated
How does negotiation fit into payment and incentives
Negotiation of improvements in performance or additional services or goods (if permitted) in return for additional payments or other financial incentives
How does negotiation fit into risk and resilience
External environment or other changes may mean risk share needs to be revisited, requiring negotiation
How does negotiation fit into contract changes and development
Core area for negotiations within contracts
How does negotiation fit into supplier development
Improvements in supplier capability, capacity and product/service range can be negotiated
How does negotiation fit into supplier relationship management
Negotiations with long-term strategic critical suppliers should be carried out in a partnering style, with a win-win starting point assumed
How does negotiation fit into exit and termination?
Exit and termination of suppliers can raise multiple risks (particularly in services) that need to be managed with certain items negotiated/confirmed with suppliers
How does negotiation fit into asset management?
In some situations the buyer will need to negotiate with a supplier post-contract end
Name 8 sources of divergent positions when negotiating (the content of negotiations)
- Price
- Quality
- Payment terms
- Risk share
- Volumes and commitment
- Contract terms and conditions
- Dispute resolution/contract governing law
- Delivery characteristics
Name 7 sources of divergent positions when negotiating (the process of negotiations)
- Agenda and governance
- Conflicting negotiation styles of participants
- Cultural differences
- Timescales/location
- Negotiation medium
- Team size and make-up
- How negotiation will be closed out
Name 5 potential negotiation situations that arose wiithin the stages of the contract management cycle and procurement cycle
- Buyers may see an opportunity to improve their position relative to their competitors or suppliers
- Suppliers may see an opportunity to improve their position relative to their competitors or buyers
- Buyers and suppliers may hold different assumptions or attitudes regarding what should happen at each stage
- Mutual benefits may be achieved through negotiation at the relevant stage
- Buyer and supplier objectives are in conflict at the relevant stages
Game theory
A technique where one party tries to create their negotiating position by second-guessing the strategy or direction of the other party
Explain game theory
It is the scientific modelling of interactions between different parties each pursuing its own interests. The parties interact and choose their action in view of what they think other parties might do
What can game theory help with?
Resolving conflict and also has applications in commercial negotiations
Thomas-Kilmanm conflict resolution model
A model used to determine the style of approach best suited to resolving a conflicting situation. Note, these approaches directly correspond to Kraljic quadrants i.e use a competitive approach when looking at leverage supply situations, and collaborate with strategic supplier relationships
What are the two dimensions of the Thomas Kilmann model
- The vertical axis ‘Assertiveness’ is concerned with conflict responses based on our attempt to get what we want
- The horizontal axis ‘Cooperativeness’ is concerned with conflict responses based on helping others get what they want
Name the 5 elements of the Thomas Kilmann model
- Competing - objective to win
- Accommodating - objective to yield
- Avoiding - objective to delay
- Compromising - objective to find middle ground
- Collaborating - objective to find a win-win solution for both
What does the competing style of negotiation mean?
Pushing your point of view, adopting a defensive stance immediately with no intention of making concessions, and starting off with the attitude that you want to beat the other side ( a zero sum game)
When would you take a competing approach?
In situations where you know you are relatively strong
What does the accomodating style of negotiation mean?
Conceding to the other party with little debate or ‘fight’, not challenging or strongly putting forward your own point of view and generally giving in and yielding to the other parties point of view
When would you take a accommodating approach?
When you know you are relatively weak or when dealing with internal stakeholders on issues where you are content to concede for the sake of the relationship
What does the avoiding style of negotiation mean?
Discouraging meeting the other party to discuss issues, sidestepping the issue, postponing an issue until a better time, or simply withdrawing from a threatening situation
When would you take a avoiding approach?
In situations where you have established you are paying a low price compared to market. Delaying or avoiding this meeting for as long as possible is in your self interest here
Why can avoiding be a useful strategy?
If timing is sensitive and you know that your position will be stronger or the other parties will be weaker at another time
What does the compromising style of negotiation mean?
Accepting that in order to get something from the other party you will have to give something to them and make concessions
When would you take a compromising approach?
You might adopt this approach after avoiding. When you do eventually meet the supplier who you have accepted is delivering excellent value for money, you may accept that you will have to move and make some concessions on price, perhaps meeting at some middle ground
When is compromising a valid approach?
When long-term relationships are at stake and it is important to find some common ground on which to base an agreement
What does the collaborating style of negotiation mean?
It requires conflict resolution skills based on mutual respect, a willingness to listen to others, and creativity in finding solutions
How should you approach a collaborative negotiation?
Pushing hard on price or other variables is not sensible as there is much more to be gained from making yourself a more attractive customer, so you benefit from your suppliers know how.
What is key to achieving a collaborative agreement?
Both parties need to understand the other’s perspective. Win-win means that both parties walk away having achieved 100% of their goals
What should commercial negotiation objectives be driven by?
the business needs of the organisation and not just the instincts of procurement
Define stakeholders from a negotiation perspective
Persons or groups that have an interest (or stake) in the outcome of the negotiation you are leading or participating in
What is a prerequisite before entering into negotiations with suppliers?
Knowing you have the explicit support of your internal stakeholders regarding objectives
Name the 3 sets of stakeholders CIPS distingueshes
- Internal stakeholders
- Connected stakeholders
- External stakeholders
What are internal stakeholders
A broad stakeholder category that encompasses all those directly connected with the organisation. managers and employees are perhaps the most obvious of these.
In a non-profit organisation are volunteer workers classed as internal stakeholders?
Yes
When is internal stakeholder support important?
At the initial negotiation of the contract and throughout the life of the contract right through to exit
What are connected stakeholders?
Those who, by contractual or commercial relationships, have a significant stake in organisational activity
What level of influence do connected stakeholders have on procurement negotiations?
Low level of influence
Who are external stakeholders
Individuals who can influence of be affected by an organisation but who themselves are not directly connected to the organisation
What is the key objective of stakeholder management?
To achieve active involvement and commitment of key stakeholders to programmes/projects and negotiation
What is an essential step of preparation for a major negotiation?
Developing a thorough understanding of the stakeholders
How can you develop a thorough understanding of stakeholders?
A workshop with key business leads or by engaging with them on a one-to-one basis
What are the 7 steps in stakeholder management and engagement?
- Identify key stakeholders
- Identify stakeholders needs and expectations
- Identify stakeholder level of influence and interest and plot them on a stakeholder map that groups them into four categories (keep satisfied, manage closely, minimum effort and keep informed)
- Identify stakeholders current level of commitment and required level of commitment for project success
- Identify a relationship owner for each stakeholder
- Decide how to engage and communicate
- Record actions and provide status updates
What does the stakeholder support scale measure?
Stakeholder commitment
Name the 5 stages of the stakeholder support level scale?
- Resistant/unaware
- Neutral
- Positive aware
- Collaborative
- Positive advocate
What does a stakeholder engagement plan do?
Targets the most important stakeholders to win over so they move from being less supportive to being more supportive
Name 6 advantages to working in a team
- Less likely to be intimidated
- Less likely to make unplanned concessions
- Individual team members can focus on specific areas
- You can stage-manage your team and use certain tactical ploys
- The risk of procurement fraud and sharp practise is reduced, and ethical behaviour is increased as there are more witnesses
- Junior or new staff can learn a lot from observing/acting in a note-taking position
Name 6 common negotiation team roles
- Team leader
- Chief negotiator
- Commercial lead
- Technical lead
- Observer
- Scribe
