NOTES PROCUREMENT CHAPTER 4

CHAPTER 4: PROCUREMENT NEGOTIATION

Definition of Negotiation

• Is a process in which two or more people, with different views, reach an agreement by selective use
different methods of persuasion.

• On the other hand, it is a process of working to reach an agreement that is mutually satisfactory to buyer and
seller

• All the negotiating has to be done faster and ever before.

• Some part of negotiations will be done by e-mail, phone and even text.

• The negotiation usually refers to more than just a price discussion, they also discuss the
topics like quantity, quality, delivery schedule, technical assistance, stocking, methods of
payment and service elements of the transaction as well as price

Different between Bargaining and Negotiating

Bargaining

• Bargaining is an agreement between two or more parties, as to what each party will do for the other, or a thing bought or offered for sale more cheaply than is usual or expected

• Bargaining can be termed as a conversation that aims to reach at a result where either of the two reaps benefits.

• Bargaining is like debating. The person with good manipulation and verbal skills tend to win in that situation.

• Usually bargaining is often done in an informal situation.

Negotiating

• Negotiation, on the other hand, is a discussion that involves consideration and deliberation over multiple issues of a deal.

• Negotiation can be used as a description for situations other than just price and basically for legal
scenarios.

• Negotiation, on the other hand, aims to reach at a result where both parties are in a win-win situation.

• Negotiation is a wider term which is actually communication between two parties looking for a proper settlement

Purpose of Negotiation

To get the fair and
reasonable offer
especially price.

To ensure that the contract is performed in timely manner

To eliminate obstacle
that
might be in future

To exercise control
over the manner
which the contract
is performed

To convince the
supplier to give
maximum co-
operation to the
business partner.

To develop the

cordial relation with
competent supplier.

Benefits of Negotiation

Lower overall
cost of supply.

Better quality,
durability, and
performance.

Shorter lead-times

Contracts that are implemented more effectively and on schedule.

Improved
supplier reliability
and service.

Fewer disputes
with supplier.

Create better
understanding and long-term
relationship.

When do we need a negotiation?

Negotiation Skills

• Gather all the important information that you may need to successfully execute the best possible deal •Need to do some homework and gather information such as your timelines and budget for the deal •Prepare and decide upfront the critical issues for the deal and what your targets are.
• To identify these issues, think what your internal customers are expecting from you then after identifying the critical issues, you should put a target on each issue before you enter a negotiation.

Preparing a negotiation

• Opening the negotiation is all about starting on a friendly note and building a climate for the negotiation,
understanding the offer and listening attentively to what the supplier has to say.
• In most circumstances, let the supplier talk first and try to delay your opening offer as possible.
• Let the supplier give you his one-way concessions and then make your offer.

Opening a negotiation

• After you have understood the supplier’s offer, you should present your offer to them.
• Discuss all the negotiable requirements you identified before starting to negotiate and bargain to get most
favorable offer on each requirement.
• Part of being a good negotiator is to extract information from the other party by asking relevant
questions.
• The question you ask and the manner in which you ask them can affect the results of your negotiation.

Conducting a negotiation

• When the supplier starts accepting your terms and conditions and presents very few counter offers,
the supplier is willing to close the deal
• Before closing the deal, summarize all the points you have discussed to avoid any disagreements at the time
signing the contract.
• If the supplier asks for a concession on a critical component, you must not accept it, you should handle it by
giving a credible explanation.

Closing a negotiation

Negotiation Stages

Introduction stage

• Findings and listing the issues for negotiations
• Understand and get information about supplier's background
• Determine objective , plan strategy and knowing the market
conditions

Discussion stage

• Testing assumptions, questioning for clarification
• Sending and listening to signals, make a proposal
• Exchanging concessions - give and take
• Summarizing regularly

Agreement stage

• Putting in writing and make it formal
• Verifying what has been agreed to - take it or leave it
• Bargaining, agreeing action for implementation

Post Negotiation Stage

• Keeping track of supplier’s performance
• Building a winning relationship
• Continuous improvement
• Do not add anything that was not part of the original agreement