CIPS D4 Flashcards
Outline FIVE potential benefits of using Key Performance Indicators (KPIs) as performance measures
• They can provide motivation to achieve or surpass a specified performance level, particularly if they are
linked to incentives, rewards or penalties
• They can provide support for collaborative buyer/supplier relationships by enabling integrated or two-way performance measurement
• They provide the ability to compare year-on-year performance which can allow the identification of
improvement or deterioration trends
• They can allow focus on key areas of results: examples of which might include cost reduction and quality improvement
• They assist the clear definition of shared goals which can facilitate cross-functional and cross-organisational
teamwork and relationships
• They should lead to reduced conflict arising from such causes as confusion of goals/objectives and unclear
expectations
• They can set clear performance criteria and expectations to motivate compliance and improvement
• They can assist the managing of supply risk by controlling quality, delivery, value for money, etc.
• They can support contract management to ensure that agreed benefits are obtained
• They can provide feedback for learning and continuous improvement in the buyer/supplier relationship,
both for the supplier and the purchasing department.
Explain the typical content and use of the following contract schedules: (i) Health and Safety requirements (ii) Non-disclosure agreements (iii) Use of subcontractors
Health and safety requirements: Here a schedule may be used to highlight all parties’ statutory duties
in regard to workplace health and safety (e.g. under the 1974 HASAWA in the UK). The schedule may
also be used to state agreed terms in relation to: the health and safety policies with which both
parties are to comply; arrangements for the monitoring of health and safety standards and staff
training; health and safety records and reporting; the reporting of critical incidents all relevant
standards, law and regulation which apply to the agreement.
Non-disclosure agreements: These are used where strict confidentiality is required because
commercially sensitive information may be exchanged in negotiation and/or performance of the
contract. Here, a separate non-disclosure agreement might be included in the contract as a schedule.
This should define ‘confidential information’ (i.e. information that is specifically applicable to the
contract) and stipulate that the other party will take all necessary steps to keep such information
confidential and apportion liability for damages in the event of breach.
Use of subcontractors: A subcontracting and assignment clause in the main contract might be used to
prevent any assignment or subcontracting of work or service provision by the supplier to a third party
without written consent by the buyer. A separate schedule may set out the details of such an
agreement such as: circumstances in which the supplier may and may not be permitted to
subcontract; notification and notice periods for buyer approval of nominated subcontractors; policies
and standards to which any subcontractor must comply and specimen forms for subcontractor prequalification
or rating.
Outline THREE elements of the opening stage of a negotiation
• Rapport building: attempting to ensure that the negotiation proceeds in an integrative way rather
than in a distributive way.
Assertive communication: clearly stating your opening position as well as your desired outcomes in a
non-aggressive way.
Using questions to elicit information from the other party as well as clarification of issues
Listening actively and efficiently in order to gain maximum information from the other party in order
to understand (e.g.) their body language, tone of voice, feelings, etc. as well as the content of what
they are saying. This would give a good idea of their negotiation objectives and how they will pursue
them.
Using facilitating behaviours to check understanding as well as clarifying any issues, asking for
information and summarising sections of the discussion.
Utilising verbal and non-verbal ‘signals’ to condition the other party. This would include setting the
tone, signalling confidence and intentions, etc.
Creating an atmosphere conducive to agreement. This might involve social interchange; expression of
shared goals; avoiding issues that might irritate the other party and emphasising common ground.
Explain the closure phase of a commercial negotiation.
It ensures that the final summary is as agreed in the negotiation meeting(s). This is a process known
as ratification.
It provides a foundation for the ongoing buyer-supplier relationship, based on mutual commitment
to formally and mutually agreed terms and conditions.
It provides a tool for gaining stakeholder ‘buy in’ to the agreement, on the basis of the authority of
the ratifying parties.
It provides an agenda for action and allocation of responsibilities and accountabilities, so all parties
know what they have to do when the contract operation starts.
The minutes or summary acts as a written record and confirmation of the agreement, should this be
required for follow-up, control and/or dispute resolution.
Formally and mutually agreed points can be incorporated into the development of contracts without
further discussion.
Follow up of any outstanding points from earlier stages in the negotiation.
Evaluation of the negotiation process, activities and outcomes.
Examine FIVE resources required for an effective face-to-face negotiation meeting.
Personnel: Any negotiation requires sufficient staff with the right skills for each stage of the meeting
including participants and support staff (personnel that can provide relevant data). Facilities staff
might also be required to provide (e.g.) refreshments.
Finances: A budget is required for items such as room hire, refreshments, travel to a negotiation that
is not ‘at home’ and any conferencing facilities that may be required. Answers might also discuss fees
for support staff providing expertise or for mediators in negotiations where conflict is to be resolved.
Time: Sufficient and appropriate time should be set aside for a single meeting or series of meetings,
as required. A single meeting can also be broken down within a day if work/options are to be
reviewed. Allocation of time for preparation and for follow-up work and/or follow-up meetings will
also need to be considered.
Information: This is a key resource for communication within the meeting. It is also an activity in
preparation for the meeting such as market analysis, supplier, market, environmental factors,
bargaining positions etc. Such information can help the buyer have some insight into what the
supplier’s pricing structure and negotiation objectives might be.
Space: The venue should be selected to suit the requirements of the negotiation. This could ‘home’ or
‘away’ or on neutral territory. It should be suitably set up and equipped. This is the opportunity to
create the appropriate layout and surroundings to suit the negotiation. Equipment including visual
aids, breakout rooms and refreshments should be made available.
Information and communication technology: In ‘virtual’ negotiations, where participants are able to
see and interact with each other, telephones, tele-conferencing, web conferencing, information
access/sharing equipment, etc. might be required.
Suggest FIVE points that should be considered when preparing for a telephone negotiation compared with a face-to-face negotiation.
Prepare timing of the call by pre-arranging a suitable time for both parties and ensure you have the
correct, preferably direct telephone number to call.
Prepare an agenda for the call and share the agenda – by (e.g.) sending it by e-mail before the call – if
appropriate.
Prepare questions to ensure the understanding of issues by both parties and to overcome the lack of
non-verbal cues. ‘Open’ questions are considered to be useful here.
Make a note of all conversations that have taken place between both parties prior to the call.
Prepare to listen carefully to the other party’s tone and intonation, and be ready to check
understanding of both parties, as they will not be able to seek non-verbal feedback.
Ensure that there are minimal environmental distractions such as background noise if you are making
the call in a busy office. It is best to take the call in a private office.
Prepare stronger cases or arguments as they may prevail to a greater extent in telephone
negotiations.
Take steps to initiate the call as there tends to be a power advantage to the party who makes the call.
Prepare yourself psychologically as telephone calls create psychological pressure to conclude a deal
before hanging up.
Problems with technical, environmental or background noise may interfere with telephone
negotiations so precautions should be taken before the telephone call. This includes ensuring that the
equipment and telephone line are working appropriately.
Examine FIVE types of supplier relationships, within the ‘relationship spectrum’,
that can impact commercial negotiations.
- Collaborative relationships are the ones towards the bottom of the above list. They seek to find and develop
longer term mutually beneficial outcomes as well as working on ways to jointly add value in the supply chain.
Here, relationships should develop trust and obligation; sharing information and improvement targets. In
these relationships, parties are treated equally. This is an equally effective relationship type for a) suppliers
with potential to improve profit for the procurement organisation as well as b) suppliers who pose a real risk
and need to be closely managed. - Adversarial relationships, towards the top of the list are characterised by the desire to ‘win’ even at the
expense of the other party. In such relationships there is a lack of trust and a focus on short-term
transactional deals. Cooperation is limited and mutual interests are not recognised.
Pass grade answers will give an explanation of any FIVE of these relationships including how they might work
in practice.
A best-practice tender procedure would include a number of steps for the preparation of he invitation to tender.
Outline FIVE steps that should be included in a best-practice tender procedure.
• Preparation of detailed specifications and draft contract documents. The purpose of these is that potential
bidders can present a realistic quotation that includes all important features
• Advertisement of the requirement: this should include tender procedures that should be followed and the
required tender process timetable
• Sending out pre-qualification questionnaires, in response to expressions of interest from potential suppliers
if it is a selective tendering process. Timescales for response should also be included
• Issuing of invitation to tender (ITT) and tender documents to those potential suppliers responding to the ITT
within the prescribed time frame
• Arrangement for receipt of tenders (as sealed bids), for opening by the tender evaluation team after the
submission closing date
Analysis and comparison of each tender with a view to selecting the ‘best offer’
• Arrangements for post-tender clarification, verification of supplier information and/or negotiation where
required
• Criteria for contract award to the supplier providing the ‘best’ quotation. This part of the process might
include de-briefing unsuccessful tenderers
Explain the purposes of a documented specification within a commercial agreement.
• Defining the requirement in a way that encourages all stakeholders, including users, to consider what they
really need and whether this is the best solution.
• Communicating the requirement clearly to suppliers so that they can plan to conform and perhaps use their
expertise to develop innovative or lower-cost solutions to the requirement.
• Minimising the risk and cost associated with any doubt, ambiguity, misunderstanding or dispute as to the
nature of the requirement and what constitutes satisfactory quality and fitness for purpose.
• They provide a means of evaluating the quality or conformance of the goods or services supplied so that
they can be accepted if they conform to the specification or be rejected if they do not conform.
• They can support standardisation and consistency where goods or services are provided by more than one source of supply.
Explain FIVE differences between integrative and distributive approaches to negotiation.
• Emphasis - integrative negotiation aims to achieve goals common to both parties, distributive
negotiation aims to achieve goals at the expense of the other party
• Strategy formation, in integrative negotiation, is based on openness, trust and information sharing
whereas in distributive negotiation there tends tom be secrecy, low level of trust and withholding
information
• Desired outcomes – in integrative, desired outcomes are expressed early so all parties understand.
Distributive outcomes are often misrepresented so the other party is not clear of what they are
Strategies – integrative strategies are flexible and aimed at reaching an agreement whereas distributive
strategies are Inflexible and uses ploys to gain advantage
Tactics – integrative buyers will refrain from threat tactics preferring a rational solution of issues and a
‘pull’ influencing approach whereas a distributive buyer will use threats, bluffs and ultimatums which
reflect a ‘push’ influencing style
Integrative negotiators take flexible positions, to further the interests of the other party and develop
options. Distributive buyers are often inflexible and take a fixed position
• Approach – integrative approach is cooperative, assertive but not aggressive versus hostile and
aggressive
• Logical extreme – integrative approach is what is good for either party is good for both parties whereas
distributive seeks to block the other party from reaching their goals
• Attitude – integrative negotiation has a ‘win-win’ attitude whereas distributive negotiation has a ‘we win/you lose’ attitude.
• If an integrative negotiation reaches impasse then options such as introducing a mediator/arbitrator is
explored whereas in distributive negotiation, the negotiation might be terminated.
Discuss TWO reasons why a buyer might develop a ‘best alternative to a negotiated agreement’ (BATNA) when preparing for a negotiation.
• BATNA may be used as ‘leverage’ and would allow more assertive negotiation especially if the other party
wishes to conclude quickly
• BATNA prevents the need to accept terms which may be below a minimum acceptable position for the
buyer
• It gives the buyer a decision rule of when to refuse a ‘take it or leave it’ situation offered by the other party.
It provides a benchmark to avoid accepting a deal with unfeasible concessions which would damage the
feasibility of the deal and the on-going relationship
• It avoids a win-lose outcome and the risk of reaching an impasse.
Explain FIVE cultural differences between the parties to a negotiation that may impact on the negotiation process or outcome.
- Power distance: the extent to which the unequal distribution of power is accepted by members of a society or organisation. Cultures with greater power distance will concentrate decision making at the top level
meaning that all decisions will have to be finalised by the leader. This tends to lead to a slower negotiation
process. - Uncertainty avoidance: how much members of a society or organisation are threatened by uncertain and
ambiguous situations. If a negotiator comes from a culture with high uncertainty avoidance, they are likely to
seek stable rules and procedures for the negotiation. - Individualism/collectivism: this relates to the tendency to take care of oneself versus the tendency to work
together for the collective good. Some cultures tend towards individualism and others tend towards
collectivism. In a collectivist culture, negotiations with the same party can continue for years and a change of
negotiator may mean a change in the relationship. In individualistic societies, negotiators are considered to be
interchangeable. In commercial negotiations, negotiators from individualistic cultures are likely to negotiate
on their own whereas those from collectivist cultures are more likely to want to negotiate on a team basis. - Masculinity/femininity: this relates to the extent to which highly assertive masculine values predominate
as opposed to sensitivity and concern for others’ welfare. Negotiators from ‘masculine’ cultures are more
likely to favour distributive negotiations over integrative negotiation. Potentially, this is important because a
negotiator needs to be in a position of knowing whether the other party is likely to take a distributive or
integrative approach so that a suitable strategy, along with suitable tactics, may be developed. - Long-term orientation: the extent to which thrift and perseverance are valued (long-term orientation) over
respect for tradition, fulfilling solid obligations and protecting one’s ‘face’ (short-term orientation)
Discuss THREE merits of performance specifications in commercial agreements
• It can be much quicker to write a performance specification; and a performance specification is likely to
be a very much shorter document than a conformance specification, making it much easier and cheaper
for all interested parties to handle, amend, read and understand it.
• A performance specification places all risks of non-achievement of performance squarely with the
supplier. If the required performance is not met, then the supplier must remedy the situation, wholly at
their time and cost.
• A performance specification allows for innovation and new approaches to achieving desired/required
performance and to dealing with any problems that arise. This encourages flexibility and innovation in
the marketplace.
• The efficacy of the specification does not depend on the technical knowledge of the buyer (unlike
conformance specifications). The supplier may know best what is required and how it should be
manufactured.
• The potential supply base is wider than might be the case with a conformance specification. The
expertise of different suppliers might provide a wide range of solutions as to how a particular function
should be performed.
Explain why a ‘delivery note’ is a very significant ‘form’ in the ‘battle of the forms’
• The general principle (‘last document rule’) means that most often the supplier is in the
stronger position. The delivery note (when goods are physically delivered) is usually the last
‘form’ in the ‘battle’ (the last counter offer) so that this can be the document that determines
whose terms and conditions apply to the deal. The delivery note will hold the supplier’s terms.
• Goods inwards staff and other ‘receivers’ of goods and deliveries are often unaware of the
significance of the delivery note as a legal document and part of the contract. The risk here is
that the delivery note is not checked and then signed/accepted ‘sight unseen’ which means that the terms may not be in the interest of the buyer
Describe TWO ways in which a buying organisation might attempt to avoid entering into the
‘battle of the forms’.
• The buyer must send acknowledgement forms with all enquiries to potential suppliers. These
hold the buyer’s terms and conditions of purchase. Suppliers are required to sign and return
indicating acceptance.
• The buyer should reject quotations including the seller’s terms and the seller asked to sign an
agreement to meet the buyer’s terms.
• The buyer must send acknowledgement forms with all purchase orders to potential suppliers.
These hold the buyer’s terms and conditions of purchase. Suppliers are required to sign and
return indicating acceptance. If the seller uses its own acknowledgement and terms then the
buyer must write back confirming that delivery will be made on the buyer’s terms.
• The use of framework contracts (in their several different forms).
• By negotiated agreement, this can result in a combination of terms from both parties.
• Stamp delivery notes ‘goods received on buyers’ terms and conditions’ on receipt of goods.
