L4M5 Flashcards
Application of commercial negotiations
It is a key skill in the procurement team, regardless of the sector/industry/function
The current staff may be required to negotiate with suppliers, internal users, budget holders, contract managers and other internal/External stakeholders
Various approaches to negotiation to achieve objectives
Commercial negotiation incorporate elements of cost accounting, economics, maths, psychology, organisational behaviour, communications, politics, sales and procurement
Negotiation is not always an option - only negotiate when the alternative is worse.
Negotiation is not free – there is a cost associated with negotiation on price
Application of commercial negotiation
Greater awareness of process provides greater insight into what is happening in a negotiation and therefore how to influence the outcome.
Negotiation process begins at first communication and ending at contract exit.
Negotiation has various definitions.
Common factors:
Involves 2 or more parties and a channel of communication.
Objective to come to an agreement of settlement on an issue.
Should be viewed as a process.
Involves a degree of co-operation between parties.
Something of value os exchanged.
All parties will have needs sufficiently satisfied- mutual agreement.
Agreement all parties can sign up to.
Negotiation- content vs process
Content and subject matter varies between negotiations
Subject matter or technical experts may be used
Process (Stages and sequence of events remain the same.
Negotiation in the sourcing process
Step 1: understanding need / develop high level specification - negotiate other internal stakeholders.
Step 2: Market / commodity and options and research - informs the negotiation process.
Step 3: Develop strategy - decision regarding whether and what to negotiate.
Step 4: Pre-procurement (market test/engagement) - where supplier conditioning begins.
Step 5: Develop documentation- limited negotiation.
Step 6: Supplier selection - limited negotiation.
Step 7: Issue ITT/RFQ - limited negotiation
Step 8: Bid/tender evaluation- negotiation can take place
Step 9: Contract Award - negotiation can take place.
Step 10: Delivery of goods/services - negotiation can take place.
Step 11: contract performance review - negotiation can take place.
Step 12: supplier relationship management - negotiation can take place.
Step 13: End of contract - negotiation can take place.
Step 7:
Negotiation - Contract management cycle
Even in less contracts there is likely a need to negotiate with supplier again after contract award.
Areas where negotiation take place in the contact management cycle:
Step 1: Planning and scope
Step 2: Stakeholder readiness
Step 3: Contract administration
Step 4: Relationship management
Step 5: Performance management
Step 6; payment and incentives
Step 7: Risk and Resilience
Step 8: Contract changes and development
Step 9: Supplier Development
Step 10: Supplier relationship management
Step 11: Exit and termination
Step 12: Asset management
Sources of divergent positions
Content
Price Quality Payment terms Risk share Volumes and commitment Dispute resolution / contract governing law
Sources of divergent positions
Process of negotiation
Agenda and governance - who decides what can be negotiated, how meeting is chaired, time allowed. Lack of faith.
Conflicting negotiation styles - win-win, win-lose
Cultural differences
Timescales/location
Negotiation medium
Team size and makeup
How negotiation will be closed out - how will we know negotiation is over. Default position if negotiation failed.
Thomas-Kilmann
Assertiveness vs Co-operativeness
Assertiveness - based on what we want
Co-operativeneas - helping others get what they want.
25 possible combinations
Competing (High assertive/ low cooperation - objective to win.
Accommodating (high cooperative/ low assertive) -objective to yield.
Avoiding (low assertive / low cooperative) - objective to delay.
Compromising (centre) - objective to find middle ground
Collaborating (high assertive/ high cooperative)- objective to find win- win solution.
Stakeholder influence on negotiations.
Commercial negotiation objectives should be driven by the business needs of the organisation. Not just instincts of procurement.
Internal stake holders - influence on negotiation process and content, controlling all parameters.
Connected stakeholders - significant stake in organisational activity.
External stakeholders - diverse objectives and degrees of influence.
Influence on negotiations typically more remote and general.
Stakeholders holder managements and engagement
Mendelows matrix
Level of influence vs level of interest
High power / low interest - engage
Low power / low interest - build awareness
Low power / high interest - inform
High power / high interest - engage
Stages in stakeholder management/ engagement
Identify stakeholders
Identify stakeholders needs and expectations
Identify stakeholders level of influence and interest (Mendelows matrix)
Identify stake holders current commitment and required level of commitment for project success. (Stake holder support level scale)
Identify relationship owner for each stakeholder
Decide how to engage / communicate
Record actions and provide status updates
Benefits of negotiating in a team
Less intimidating
Less unplanned concessions
Individuals can focus on specific areas
Stage manage team / use tactical ploys
Risk of procurement fraud and sharp practice reduced
Learning environment for junior or new staff
Negotiating team roles
Team leader - negotiation decision maker / responsible for outcomes
Chief negotiator - spokesperson, leads negotiation, agrees changes to negotiation plan with leader.
Commercial lead - commercial / financial subject matter expert
Technical lead - specialist knowledge
Observer - checks body language and reactions
Scribe - records important comments and info for minutes and analysis.
Collaborative approach
Win-win
Collaborative approaches to managing conflict can be understood as those that include all parties satisfied at the end.
Seems that both parties can benefit
Generally assumed is the best approach to achieving your objectives.
Win-win as common sense.
Balance of power is really equal between parties -
Should be aware of the bargaining position and what they want to achieve in negotiating
Achieve a good deal for both parties
Impact on relationships of different behaviours
Integrative solutions are generally more satisfying for both parties and can only succeed by sister each other
Create versus claiming diagram. Moving along the Ark Create more value, then claim in for you is less contentious and subject to conflict even if they split it 50-50.
