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L4M5 - Commercial Negotiation > Chapter 1.1 > Flashcards

Chapter 1.1 Flashcards

Analyse the application of commercial negotiations in the work of procurement and supply

1
Q

Name the 6 stages of commercial negotiation

A
  1. It begins internally between the organisation’s stakeholders
  2. This then flows through to the first communication between the buyer and the supplier
  3. This flows through to the final signing of the contract
  4. Mobilisation
  5. Contract management
  6. Contract exit
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2
Q

What does negotiation involve?

A

Two or more parties and a channel of communication.

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3
Q

What is the objective of negotiation?

A

To reach an agreement or settlement of one or more issues where there is disagreement and/or divergent views

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4
Q

What should negotiation be viewed as?

A

A process

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5
Q

What happens through the negotiation process?

A

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

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6
Q

What is the result of a successful negotiation process?

A

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

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7
Q

Name 2 aspects of the content of negotiation

A
  1. What you are negotiating about
  2. Unique to each negotiation
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8
Q

Name 2 aspects of the process of negotiation

A
  1. How the negotiation is managed
  2. Generic stages all negotiations go through
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9
Q

What is there pressure on public-sector bodies to do during negotiation?

A

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

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10
Q

What is the CIPS Procurement Cycle?

A

The cyclical process of key steps when procuring goods or services

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11
Q

How can you negotiate in the private sector?

A

The buyer may directly approach specific suppliers to negotiate without having to issue any tender documentation

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12
Q

Name the 13 steps of the CIPS Procurement cycle

A
  1. Define business needs and develop specification
  2. Market analysis and make or buy decision
  3. Develop strategy or plan
  4. Pre-procurement market testing
  5. Develop documentation and detailed specification
  6. Supplier selection to participate in tender
  7. Issue tender documents
  8. Bid and tender evaluation and validation
  9. Contract award and implementation
  10. Warehouse, logistics and receipt
  11. Contract performance and improvement
  12. Supplier relationship management
  13. Asset management
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13
Q

How does negotiation fit into the defining business needs and developing specification?

A

This step involves mainly internal negotiation with stakeholders

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14
Q

How does negotiation fit into the market analysis and make or buy decision

A

This step informs the negotiation process

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15
Q

How does negotiation fit into the develop the strategy and plan

A

This step is where the decision regarding whether and what to negotiate is made

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16
Q

Supplier conditioning

A

The process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances

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17
Q

Prior Information Notice (PIN)

A

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

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18
Q

How does negotiation fit into develop documentation and detailed specification?

A

There is typically limited commercial negotiation activity here, especially in public sector procurement

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19
Q

How does negotiation fit into supplier selection to participate in tender

A

There is typically limited commercial negotiation activity here

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20
Q

How does negotiation fit into issue tender documents

A

There is typically limited commercial negotiation activity here

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21
Q

Expression of interest (EOI)

A

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

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22
Q

Request for information (RFI)

A

A document used to gather information about suppliers and their capabilities prior to a formal procurement process

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23
Q

Invitation to tender (ITT)

A

A formal invitation sent to suppliers inviting them to make an offer to supply goods or services

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24
Q

Request for proposal (RFP)

A

A document used to canvass potential solutions from suppliers when the specification is still unclear

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25
Q

Pre-qualification questionnaire (PQQ)

A

A document sent to potential suppliers to find out their suitability to be included in the procurement process

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26
Q

Request for quotation (RFQ)

A

An invitation to suppliers to bid on specific products or services

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27
Q

How does negotiation fit into bid and tender evaluation and validation?

A

Commercial negotiation activity can take place here, although in the case of the public sector, buyers should ensure they follow any appropriate regulations

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28
Q

How does negotiation fit into contract award and implementation?

A

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

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29
Q

How does negotiation fit into warehouse, logistics and receipt

A

Negotiation associated with the delivery of goods or services is often overlooked but is critical to the effective delivery

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30
Q

How does negotiation fit into contract performance and improvement

A

Commercial negotiation activity can take place here

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31
Q

How does negotiation fit into supplier relationship management?

A

Commercial negotiation activity can take place here

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32
Q

How does negotiation fit into asset management?

A

Commercial negotiation activity can take place here

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33
Q

Name 5 procurement procedures

A
  1. Open procedure
  2. Restricted procedure
  3. Competitive dialogue
  4. Competitive procedure within negotiation
  5. Innovation partnerships
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34
Q

Can you use commercial negotiation with open and restricted procedure?

A

Under normal circumstances, no

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35
Q

What is contract management?

A

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

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36
Q

Name the 12 stages of the CIPS contract management cycle

A
  1. Planning and scoping
  2. Stakeholder readiness
  3. Contract administration
  4. Relationship management
  5. Performance management
  6. Payment and incentives
  7. Risk and resilience
  8. Contract changes and development
  9. Supplier development
  10. Supplier relationship management (SRM)
  11. Exit and termination
  12. Asset management
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37
Q

Supplier relationship management (SRM)

A

Holistic management of relationships formed between buyers and suppliers based on the criticality of the goods or services being procured

38
Q

How does negotiation fit into the planning and scoping?

A

Agreement on scope of work to be done, responsibilities and obligations, what if scenarios

39
Q

How does negotiation fit into stakeholder readiness?

A

Expectations management with stakeholders

40
Q

How does negotiation fit into the contract administration

A

Operational management and any minor schedule or specification changes required

41
Q

How does negotiation fit into relationship management

A

Only relevant if there is potential benefit in a closer working relationship with a supplier

42
Q

How does negotiation fit into performance management?

A

The buying organisation must review the performance of the contractor against what they promised to deliver as per the contract that was agreed/negotiated

43
Q

How does negotiation fit into payment and incentives

A

Negotiation of improvements in performance or additional services or goods (if permitted) in return for additional payments or other financial incentives

44
Q

How does negotiation fit into risk and resilience

A

External environment or other changes may mean risk share needs to be revisited, requiring negotiation

45
Q

How does negotiation fit into contract changes and development

A

Core area for negotiations within contracts

46
Q

How does negotiation fit into supplier development

A

Improvements in supplier capability, capacity and product/service range can be negotiated

47
Q

How does negotiation fit into supplier relationship management

A

Negotiations with long-term strategic critical suppliers should be carried out in a partnering style, with a win-win starting point assumed

48
Q

How does negotiation fit into exit and termination?

A

Exit and termination of suppliers can raise multiple risks (particularly in services) that need to be managed with certain items negotiated/confirmed with suppliers

49
Q

How does negotiation fit into asset management?

A

In some situations the buyer will need to negotiate with a supplier post-contract end

50
Q

Name 8 sources of divergent positions when negotiating (the content of negotiations)

A
  1. Price
  2. Quality
  3. Payment terms
  4. Risk share
  5. Volumes and commitment
  6. Contract terms and conditions
  7. Dispute resolution/contract governing law
  8. Delivery characteristics
51
Q

Name 7 sources of divergent positions when negotiating (the process of negotiations)

A
  1. Agenda and governance
  2. Conflicting negotiation styles of participants
  3. Cultural differences
  4. Timescales/location
  5. Negotiation medium
  6. Team size and make-up
  7. How negotiation will be closed out
52
Q

Name 5 potential negotiation situations that arose wiithin the stages of the contract management cycle and procurement cycle

A
  1. Buyers may see an opportunity to improve their position relative to their competitors or suppliers
  2. Suppliers may see an opportunity to improve their position relative to their competitors or buyers
  3. Buyers and suppliers may hold different assumptions or attitudes regarding what should happen at each stage
  4. Mutual benefits may be achieved through negotiation at the relevant stage
  5. Buyer and supplier objectives are in conflict at the relevant stages
53
Q

Game theory

A

A technique where one party tries to create their negotiating position by second-guessing the strategy or direction of the other party

54
Q

Explain game theory

A

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

55
Q

What can game theory help with?

A

Resolving conflict and also has applications in commercial negotiations

56
Q

Thomas-Kilmanm conflict resolution model

A

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

57
Q

What are the two dimensions of the Thomas Kilmann model

A
  1. The vertical axis ‘Assertiveness’ is concerned with conflict responses based on our attempt to get what we want
  2. The horizontal axis ‘Cooperativeness’ is concerned with conflict responses based on helping others get what they want
58
Q

Name the 5 elements of the Thomas Kilmann model

A
  1. Competing - objective to win
  2. Accommodating - objective to yield
  3. Avoiding - objective to delay
  4. Compromising - objective to find middle ground
  5. Collaborating - objective to find a win-win solution for both
59
Q

What does the competing style of negotiation mean?

A

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)

60
Q

When would you take a competing approach?

A

In situations where you know you are relatively strong

61
Q

What does the accomodating style of negotiation mean?

A

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

62
Q

When would you take a accommodating approach?

A

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

63
Q

What does the avoiding style of negotiation mean?

A

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

64
Q

When would you take a avoiding approach?

A

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

65
Q

Why can avoiding be a useful strategy?

A

If timing is sensitive and you know that your position will be stronger or the other parties will be weaker at another time

66
Q

What does the compromising style of negotiation mean?

A

Accepting that in order to get something from the other party you will have to give something to them and make concessions

67
Q

When would you take a compromising approach?

A

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

68
Q

When is compromising a valid approach?

A

When long-term relationships are at stake and it is important to find some common ground on which to base an agreement

69
Q

What does the collaborating style of negotiation mean?

A

It requires conflict resolution skills based on mutual respect, a willingness to listen to others, and creativity in finding solutions

70
Q

How should you approach a collaborative negotiation?

A

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.

71
Q

What is key to achieving a collaborative agreement?

A

Both parties need to understand the other’s perspective. Win-win means that both parties walk away having achieved 100% of their goals

72
Q

What should commercial negotiation objectives be driven by?

A

the business needs of the organisation and not just the instincts of procurement

73
Q

Define stakeholders from a negotiation perspective

A

Persons or groups that have an interest (or stake) in the outcome of the negotiation you are leading or participating in

74
Q

What is a prerequisite before entering into negotiations with suppliers?

A

Knowing you have the explicit support of your internal stakeholders regarding objectives

75
Q

Name the 3 sets of stakeholders CIPS distingueshes

A
  1. Internal stakeholders
  2. Connected stakeholders
  3. External stakeholders
76
Q

What are internal stakeholders

A

A broad stakeholder category that encompasses all those directly connected with the organisation. managers and employees are perhaps the most obvious of these.

77
Q

In a non-profit organisation are volunteer workers classed as internal stakeholders?

A

Yes

78
Q

When is internal stakeholder support important?

A

At the initial negotiation of the contract and throughout the life of the contract right through to exit

79
Q

What are connected stakeholders?

A

Those who, by contractual or commercial relationships, have a significant stake in organisational activity

80
Q

What level of influence do connected stakeholders have on procurement negotiations?

A

Low level of influence

81
Q

Who are external stakeholders

A

Individuals who can influence of be affected by an organisation but who themselves are not directly connected to the organisation

82
Q

What is the key objective of stakeholder management?

A

To achieve active involvement and commitment of key stakeholders to programmes/projects and negotiation

83
Q

What is an essential step of preparation for a major negotiation?

A

Developing a thorough understanding of the stakeholders

84
Q

How can you develop a thorough understanding of stakeholders?

A

A workshop with key business leads or by engaging with them on a one-to-one basis

85
Q

What are the 7 steps in stakeholder management and engagement?

A
  1. Identify key stakeholders
  2. Identify stakeholders needs and expectations
  3. 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)
  4. Identify stakeholders current level of commitment and required level of commitment for project success
  5. Identify a relationship owner for each stakeholder
  6. Decide how to engage and communicate
  7. Record actions and provide status updates
86
Q

What does the stakeholder support scale measure?

A

Stakeholder commitment

87
Q

Name the 5 stages of the stakeholder support level scale?

A
  1. Resistant/unaware
  2. Neutral
  3. Positive aware
  4. Collaborative
  5. Positive advocate
88
Q

What does a stakeholder engagement plan do?

A

Targets the most important stakeholders to win over so they move from being less supportive to being more supportive

89
Q

Name 6 advantages to working in a team

A
  1. Less likely to be intimidated
  2. Less likely to make unplanned concessions
  3. Individual team members can focus on specific areas
  4. You can stage-manage your team and use certain tactical ploys
  5. The risk of procurement fraud and sharp practise is reduced, and ethical behaviour is increased as there are more witnesses
  6. Junior or new staff can learn a lot from observing/acting in a note-taking position
90
Q

Name 6 common negotiation team roles

A
  1. Team leader
  2. Chief negotiator
  3. Commercial lead
  4. Technical lead
  5. Observer
  6. Scribe

L4M5 - Commercial Negotiation (12 decks)

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