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L4 > L4M5- Chapter 1- Approaches in negotiation > Flashcards

L4M5- Chapter 1- Approaches in negotiation Flashcards

1
Q

Why is negotiation in the public sector more limited?

A

Limited by regulations and legislation

Have to used rule based tendering which usually has restrictions

May be some room to negotiate within the contract management stage but not the pre contract award stages

Unlike the private sector where they are free to negotiate anything (provided it is legal)

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2
Q

What are the stages of the CIPS procurement cycle?

A

Business need
Analysis of market/ make or buy decision
Strategy and plan
Pre procurement market testing
Develop documentation
Supplier selection
Issue tender documents
Evaluate bids

Contract Award
Warehousing, logistics and receipt
Performance management
SRM
Asset management

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3
Q

How would negotiations arise within stage 1 of the CIPS procurement cycle: Define business need and develop spec?

A

Internal negotiation with stakeholders

Challenge whether the product is actually needed

What elements are needed (large opportunity to reduce costs at the design stage)

Negotiation with budget holders over price to pay

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4
Q

How would negotiations arise within stage 2 of the CIPS procurement cycle: Market Analysis and make or buy decision?

A

Informs the negotiation process

Evaluate the bargaining power of the buyer and the supplier

Market analysis (Porters 5 forces)

Local vs national competition

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5
Q

How would negotiations arise within stage 3 of the CIPS procurement cycle: Develop the strategy and plan?

A

Whether to negotiate and what to negotiate

If you have established there is competition in the marketplace and you would benefit from negotiation

Negotiation is not free and the amount of effort and time put in needs to be worth it

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6
Q

How would negotiations arise within stage 4 of the CIPS procurement cycle: Pre procurement market testing?

A

This step is where supplier conditioning can begin

Engage with market before tendering to gain insight into supplier pricing, cost structures, strategies and trends

Engage suppliers to attract more interest

Conditioning suppliers on which elements to focus on e.g. cost, quality, ESG etc

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7
Q

What is 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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8
Q

How would negotiations arise within stage 5 of the CIPS procurement cycle: Develop documentation and detailed spec?

A

Limited negotiation, especially in public sector

Focussed on ITT or RFQ documentation

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9
Q

How would negotiations arise within stage 6 of the CIPS procurement cycle: Supplier selection to participate?

A

Limited commercial negotiation

Normally (via PQQ) this stage is about shortlisting suppliers

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10
Q

How would negotiations arise within stage 7 of the CIPS procurement cycle: Issue tender documents?

A

Limited commercial negotiation

Follows automatically from stage 6

Sent in the form of an RFQ or ITT

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11
Q

What is the difference between RFI, RFQ and RFP

A

Information vs quotation vs proposal

Proposal is a document used to canvass potential solutions from suppliers when the spec is still unclear

RFI is to gather information about supplier capabilities

RFQ- invitation to bid on specific products or services

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12
Q

How would negotiations arise within stage 8 of the CIPS procurement cycle: Bid and tender evaluation?

A

In public sector they need to follow appropriate regulation

This is the first stage where commercial negotiation may start

You have received an ‘opening bid’ from the supplier

Could be initial price or final price (if final then suppliers should know in advance as its effectively their best price)

Suppliers may be invited in to present and answer questions on their bid

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13
Q

What is BAFO?

A

Best and final offer

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14
Q

How would negotiations arise within stage 9 of the CIPS procurement cycle: Contract award and implementation?

A

Commercial negotiation may happen in private sector or under regulation in public

Decisions have been made on the suppliers you want and its about negotiating any final concessions

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15
Q

How would negotiations arise within stage 10 of the CIPS procurement cycle: Warehouse, logistics, receipt?

A

Negotiation with delivery is often overlooked but is critical

Can be internal and external and look at delivery times, unloading facilities, manpower, return of pallets, access, security

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16
Q

How would negotiations arise within stage 11 of the CIPS procurement cycle: Contract performance and improvement?

A

Commercial negotiation can take place here

Getting agreement on what the data shows (could be disagreements)

may be driven by factors like lack of cooperation/ stakeholder issues

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17
Q

How would negotiations arise within stage 12 of the CIPS procurement cycle: SRM?

A

Commercial negotiation can take place here

Sometimes suppliers will bid low- knowing that during the contract they will be able to do changes, variations and add ons

Even in a less complex contract there is likely to be changes/ negotiations after the contract is awarded

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18
Q

How would negotiations arise within stage 13 of the CIPS procurement cycle: Asset management?

A

Commercial negotiation can take place here

Need to manage any transfers from existing suppliers to new ones

Leverage over the outgoing supplier will be weak

Need to ensure the orderly transition of data, staff, assets

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19
Q

There are restrictions on when buyers can negotiate in the public sector, which types of tender can no negotiation be done?

A

Open

Restricted

Others are:
Competitive dialogue
Competitive with negotiation
Innovative partnerships

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20
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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21
Q

What are the 12 stages of the CIPS contract management cycle?

PRAR

PIR

CDS

EA

A

Strategy Structure Resources
1. Planning and scoping- responsibilities and obligations

  1. Stakeholder readiness- expectation management with stakeholders and clear understanding of the agreed contract
  2. Contract administration- Minor schedule or spec changes required
  3. Relationship management- Is there a benefit in a closer working relationship. What is attractive to the supplier other than payment e.g. speed of payment, technology

Implementation
5. performance management- Unless managed performance can decline over time and there may be disagreements with the supplier which are subject to negotiation

  1. Payments and incentives- Negotiation of improvements in performance or additional services or goods in return for additional payments
  2. Risk and resilience- External environment or other changes may mean risk share needs to be revisited

Development
8. Contract changes and development- core area for negotiations within contracts

  1. Supplier development- Improvements in the supplier capability, capacity and range
  2. SRM- e.g. long term strategic critical relationships should have a partnership style and a win win mentality

Life cycle management
11. Exit and termination- what risks exist, ownership of assets etc

  1. Asset management- Post contract ends, e.g. management of assets outside of warranties, advice on disposal, upgrades, compatability
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22
Q

What are the key considerations in contract management?

A

Developing and management of contracts

Risk assessments/ mitigation

Sustainability/ ESG/ Ethics

Procurement cycle

Category management

Procurement systems and technology

Strategy and policy

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23
Q

The 12 stages of the CIPS contract management cycle can be broken down into 4 sections, what are they?

A

Strategy, Structure, resources
1-4
Planning and scoping
Stakeholder readiness
Contract administration
Relationship management

Implementation
5-7
performance management
Payments and incentives
Risk and resilience

Development
8-10
Contract changes and development
Supplier development
SRM

Life cycle management
11-12
Exit and termination
Asset management

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24
Q

Give examples of things that might be sources of divergent positions between buyer and supplier in the content of negotiations?

A

Price
Quality
Payment terms
Risk share
Volumes and commitments
Contract T&Cs
Dispute resolution
Delivery characteristics

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25
Q

Give examples of things that might be sources of divergent positions between buyer and supplier in the process of negotiation?

A

Agenda and governance- who decides whats discussed, is there confidentiality

Conflicting negotiation styles- win win vs win lose

Cultural differences- misunderstandings based on customs, unintended insults, punctuality, dress codes

Timescales/location- how many meetings required, how long, on whos premises

Negotiation medium- what interface to use

Team size and make up- who should be present

How negotiations will be closed out- how to identify when it is over, is there a time limit, what happens if the negotiation fails

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26
Q

Why do negotiation situations arise?

A

Buyer/ supplier seeks an opportunity to improve their position relative to their competitors or suppliers

Buyers/suppliers have different assumptions or attitudes regarding what should happen at each stage

Mutual benefits could be unlocked through negotiation

Buyer/supplier objectives are in conflict

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27
Q

What is the thomas kilmann model?

A

A model used to determine the style of approach to avoid conflict

Assertiveness vs cooperativeness
Avoid
Accommodate
Compromise
Compete
Collaborate

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28
Q

What is game theory?

A

A technique of creating your negotiation position by second guessing the strategy or direction of the other party

Each are pursuing their own interests

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29
Q

Give examples of each element of the thomas kilmann model

A

Compete- objective to win e.g. when you can easily change supplier and not critical so you can push suppliers for a better deal

Accommodate- objective to yield- you have a weak negotiation position so do not want to waste time (could often be for internal negotiations)

Avoid- Objective to delay- maybe when you have favourable (low costs) and want to delay any new commercial terms

Compromise- Find a middle ground- e.g. after a period of avoiding (because of great terms) you may move to make some concessions in price

Collaborating- win win solutions- example is expanding the pie. It is generally seen as the most effective starting position assuming the relationship is important

30
Q

What is a stakeholder and why should they be consulted on negotiations?

A

A stakeholder will have a vested interested in the outcome of a negotiation

Also need to be sure it is the best business outcome, not just the procurement person negotiating thoughts on what the best outcome is

31
Q

What are the 3 types of stakeholders in a negotiation?

A

Internal

External- can influence the organisation but not connected to it

Connected- other than suppliers themselves, these tend to have low influence on procurement

32
Q

What are the steps in stakeholder management and engagement?

A

Identify key stakeholders- everyone who will be affected or have influence or interest

Identify needs and expectations

Identify level of influence and interest (mendelow)

Identify current level of commitment for project success (mainly keep satisfied box who need to become interested)

Identify a relationship owner for each stakeholder (who engages who)

Decide how to engage and communicate

Record actions and provide status updates

33
Q

What is the mendelow matrix?

A

Interest vs power

Minimum effort
Keep satisfied (high power)
Keep informed (high interest)
Manage closely

34
Q

What is the stakeholder support level scale?

A

Can be used by a procurement individual internally to estimate the gap and progress towards level of stakeholder support

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

Move up the scale to a more desired state via effective engagement plans

35
Q

What are the advantages of working as a team in a negotiation?

A

Less likely to be intimidated
Unlikely to make unplanned concessions
Individual team members can focus on specific areas
Can stage your team for tactical ploys
More witnesses ensuring ethical behaviours are upheld
Junior staff can learn from observations

36
Q

What is an integrative approach?

A

Approach to negotiation used when the interested parties are attempting to create more of something of value to share, known as collaborative or win win

37
Q

What is a distributive approach?

A

Approach to negotiation used when the interested parties are attempting to divide something up or distribute something of value, also known as zero sum or win lose

Assumes a fixed size ‘cake’ or ‘pie’ that must be distributed amongst the parties so if one loses the other gains

38
Q

What is zero sum?

A

Zero-sum is a situation, often cited in game theory, in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero

39
Q

What is the principled style of negotiation?

A

It is effectively the codification and application of an integrative approach to negotiation (win win)

Agreement can be reached without damaging relationships

It does assume all parties are reasonable, open to logical approaches, want to reach an agreement and are focussed on the best outcome in the long term

40
Q

What are the 4 fundamentals of principled negotiation? PIOC

A

PEOPLE
Separate people from problems

INTERESTS
Focus on interests, not positions

OPTIONS
Generate options for mutual benefit

CRITERIA
Use objective criteria

41
Q

Explain the first fundamental of principled negotiation: separating people from problems:

A

Shouldn’t necessarily start with both sides starting position and try and find a place in the middle- this is called positional bargaining

Best to find ways of ‘helping you to help me’

Don’t take things personally, both sides are negotiating for the employer not themselves

42
Q

What are the problems that can occur with separating people from problems in principled negotiation?

A
  1. Trying to impress your own team instead of clearly stating the position to the other party and working towards an agreement
  2. Not actively listening in order to understand the other party, and only picking up contentious points
  3. Misunderstanding, rephrasing or summarising inaccurately
43
Q

Explain the second fundamental of principled negotiation: focus on interests, not positions:

A

Distinguishing between positions the position the party holds in the negotiation and their underlying interests

e.g. The position may be they need a 10% CPI to be profitable but the underlying interest tends to be more flexible, like they just want a CPI

Framing a negotiation on the interests and ultimately why they are taking a position (e.g. on price, quality etc) helps have productive conversations

44
Q

Explain the third fundamental of principled negotiation: invent options for mutual gain::

A

Thinking creatively about the benefits both parties get from doing business and aims to find a solution that will benefit both parties

Creating multiple variables/tradeables can create an easier negotiation as there is less of a focus on individual points

e..g can reduce cost of the product (favours buyer) but payment terms need to change (favours supplier)

45
Q

What is a tradeable?

A

A negotiation variable (e.g. price, contract length etc) that can be traded during a negotiation

46
Q

Explain the fourth fundamental of principled negotiation: Insist on using objective criteria:

A

The central characteristic of an objective criterion is that it can be independently verified

What success looks like needs to be defined (more the objectives not necessarily the specific performance numbers

47
Q

What would be some examples of competitive, win lose, zero sum, distributive negotiations?

A

One off deals e.g property or land deals

Purchasing where price is the only variable e.g. commodities

Trade unions pay negotiations

Government budget distribution (distributing a fixed amount of funds from the budget to different departments)

48
Q

What is a price taker?

A

Someone who has little to no purchasing power

E.g. Consumers cannot influence prices that suppliers offer

49
Q

What are French and Ravens 6 personal bases of power? (CHERRIL)

A

Legitimate- belief you have rights e.g. authority, rank, grade in the military. In commercial it may be the job title

Reward- compensation that can be provided to change the others behaviour e.g. larger organisations have power to reward larger more profitable long term contract

Coercive- can punish the other for non compliance (the flip to reward)

Expert- high level of skill and knowledge

Informational- control of the information required for the other to complete something

Referent- perceived attractiveness, worthiness and right to the others respect (sometimes referred to as charisma in leaders)

Hereditary- power passed down through generations

50
Q

What is organisational power?

A

In commercial negotiations it can be described as the capability of those representing the organisation to influence behaviours and decisions of others outside the organisation, by virtue of their association with their employing organisations

51
Q

What is a BATNA?

A

Best alternative to a negotiation agreement

Often called a plan B, and it is your back up position if no deal can be agreed

52
Q

What are the 3 levels that can be used to understand the market dynamics relating to organisational power?

A

Macro environment- global/national (STEEPLED)

Micro environment- industry forces (Porters 5 forces)

One-one supplier/buyer dynamics

53
Q

Why is understanding the macro environment important in a negotiation?

A

Example is even if you are the largest supermarket chain negotiating a price for avocados just after a crop failure, your position is weakened by this external force

54
Q

What is STEEPLED and how can it be used for understanding the negotiation?

A

Social
Technological
Economic
Environmental
Political
Legislative
Ethical
Demographic

Questions to ask for the negotiation:
Has anything changed that will affect my power in the negotiation?
Has anything changed to affect the other party’s power?

55
Q

What is porters 5 forces?

A

A simple framework for assessing and evaluating the competitive strength and positions of a business organisation in its own industry

Competition/rivalry- number of suppliers, quality differences, loyalty
Power of customers- number of players, number of customers, price sensitivity, ability to substitute
Power of suppliers- size of suppliers, uniqueness of service, cost of change
Threat of substitutes- cost of change, substitute performance
Threat of new entrants- economies of scale, barriers, time and cost of entry

56
Q

What is supplier positioning?

A

Process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the right strategy

57
Q

Supplier positioning is similar to the Kraljic matrix but what makes up the buyers perspective of this matrix?

A

Ranks Expenditure on the X axis against Risk on the Y

Tactical acquisition/ avoid (low risk, low expenditure)

Strategic security/ Protect (high risk, low expenditure)

Tactical profit/ compete (low risk, high expenditure)

Strategic critical/ Collaborate (high risk, high expenditure)

58
Q

Buyer positioning is similar to the supplier preferencing matric, but what makes up the sellers perspective of the buyer?

A

Attractiveness vs volume

Nuisance
Development
Exploitable
Core

59
Q

How can you increase leverage through spend concentration?

A

First step to increase purchase leverage is to review your own organisations spend and if it is split across multiple suppliers

Can be done through:
Vendor base reduction- reduction in number of suppliers
Volume pooling- grouping cross organisational requirements until your order volume is high enough
Volume redistribution- move spend from one supplier to another
Standardisation/harmonisation of spec- could create greater leverage across an organisation
Purchase consortia- may decide to come together and combine their purchase volumes to attract better deals
Stronger relationships- forming fewer, longer term relationships

60
Q

What is a spend cube?

A

A way of presenting data in a 3 dimensional way, used to identify the opportunities where you can increase leverage through analysis

Normally split into:
How much you spend on categories/commodities
Who in your organisation is spending the money
Who are you spending the money with

61
Q

Which factors can make a buyer seem attractive outside just the size of spend?

A

Low risk
Reputation
No capacity for further investment
Simple processes
No strict T&Cs
On time payments
Transparent and collaborative
Ethical behaviours
Exclusivity
Learning opportunities
Useful business contact

62
Q

What is the relationship spectrum?

A

Level of commitment of the buyer vs level of commitment from the supplier

Starts at adversarial, arms length, transactional

Bespoke, single source, outsource in the middle

COllaborative, partnership, codestiny at the top

63
Q

What sort of negotiation approach should be taken for transactional suppliers?

A

No business critical products and alternatives exist

Automated purchasing

Short term, high level relationships

Limited negotiation (may not be worth the effot)

Focus on price and delivery

May be over the phone, email and unlikely to be face to face

Win lose scenarios common (can be win win)

64
Q

What sort of negotiation approach should be taken for Operational suppliers?

A

Tailored products that may be critical

Alternatives exist but switching may be more difficult

Medium term, and more senior stakeholders

Will be a communication line on things like performance

Targeted negotiations

Focussed on cost and other risk elements

Meetings could also be in person

Can be win lose but more likely win win

65
Q

What sort of negotiation approach should be taken for strategic suppliers?

A

Highly significant products that may be unique

Minimal alternatives

High switching costs

Long term strategic relationships

Regular comms, open and full sharing

Regular negotiations

Focussed on total cost for both parties

In person meetings

Win win

66
Q

What are some examples of having a good organisational reputation?

A

Reputation= beliefs or opinions generally held about someone/something

Good quality
Enhanced levels of communication
Brand alignment
Low cost/value for money
Ethics
Reliability
Technology
Customer focus
Engineering excellence
Cultural alignment

67
Q

How do big organisations enhance their reputation?

A

Sponsorship of prestigious events

Recruitment of salespeople with qualifications (e.g. drug companies hiring qualified pharmacists- even though its not a requirement to do the job it instils trust)

Employ high profile sports people, celebrities or leaders

Buying brands or smaller companies to acquire their goodwill (e.g. Mondelez buying green and blacks, but green and blacks make no reference on pack to being mondelez owned)

68
Q

What are the 3 types of trust in a commercial relationship? (developed by Mari Sako)

A

Contractual trust- essentially, you can claim damages if the trust is broken (not the strongest type of trust)

Competence trust- based on the other party’s qualifications or proven capability

Goodwill trust- Knowing the other party has your interest at heart and will not behave opportunistically

If you have a relationship underpinned by all 3 then it is likely to be most durable

69
Q

Give examples of trust building behaviours and signs of strong trust

A

Joint issue resolution
Quick info sharing
Open discussions
Joint planning
Celebrate successes

Strong trust:
Mutual agreements and managed objectives
Both sides renegotiating terms
Real time info sharing
Acceptance there may be some conflict but will be managed
etc (p64)

70
Q

Give examples of trust destroying behaviours

A

Gossip
Emotion led actions
Blame
Shadowing/ oversight/ focus on controls
Avoiding stakeholders in decision making
Avoiding accountability

L4 (23 decks)

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