Negotiation Slide 1 © The Delos Partnership 2005 Supplier Relationship Management Module 7 –...

Negotiation Slide 1 © The Delos Partnership 2005

Supplier Relationship Management Supplier Relationship Management Module 7 – Negotiation & Agreements

• Three interrelated skills• Planning & Checklist• Body Language• Doing, Acting & Renegotiating• Contrasting Situations• Agreements


Three Interrelated Skills Three Interrelated Skills

CommunicationCommunication& Bargaining& Bargaining

Power Power

Meeting Meeting SkillsSkills

Negotiation Negotiation

Presentation Presentation SkillsSkills


When the 3 skills are needed When the 3 skills are needed internallyinternally

Colleagues - Peers – BossColleagues - Peers – Boss

Projects

Priorities

Conflicts

Budgets

Appraisals / Pay Review

Situation...Situation...

Face to Face – Different levels of seniority

Over the phone

Using e

Anytime


When the 3 skills are needed When the 3 skills are needed externallyexternally

Customer & Supplier...Customer & Supplier...

Dealmaking

Price Changes

Performance Assessment

Visits

Projects

Situation...Situation...

Face to Face – Different levels of seniority

Over the phone

Using e

Anytime


The Expert Negotiator …The Expert Negotiator …

Delos Negotiation TipsDelos Negotiation Tips

• Knows the Product Position• Plans thoroughly• Uses the Power of Silence• Gives something to get

something • Knows everything is negotiable• Listens Actively• Uses the Pareto Principle• Is not afraid to walk out

• Knows that information is power• Knows there no more than 3 key issues• Never makes first offers • Never accepts first offers• Adapts the approach• Uses competition – real & imaginary• Buys time by limiting authority• Implements declaring the other side a

winner


PP

DDCC

AA

PLAN THE DEAL PLAN THE DEAL AND THE AND THE NEGOTIATIONNEGOTIATION

DO THE DEAL AND DO THE DEAL AND FINALISE THE FINALISE THE NEGOTIATION.NEGOTIATION.

CHECK THE DEAL CHECK THE DEAL AND AND NEGOTIATION NEGOTIATION OUTCOME.OUTCOME.

ACT TO IMPLEMENT ACT TO IMPLEMENT THE DEAL AND THE DEAL AND NEGOTIATION NEGOTIATION OUTCOME AND OUTCOME AND START TO START TO RENEGOTIATE…RENEGOTIATE…

CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE TIMES TIMES

Negotiation PDCA – is Critical Negotiation PDCA – is Critical

DD

PP

CC

AA


Negotiation Planning


SUPPLIERS SUPPLIERS VIEWVIEWWHENWHEN

SELLINGSELLINGTO YOU TO YOU

Customer Matrix Position

Negotiation & Market Dynamics

Credit status / Payment risks

Technical & Implementation Competency

Growth Potential

Market Segments Selling Price Options

Competition Options

Supplier Positioning

Total Value Potential

Risks & Cost of Change

Technical Options

Internal customers needs

Other Supplier Options

Competition strategy

PROCUREMENTPROCUREMENTVIEW WHENVIEW WHEN

BUYINGBUYINGFROM FROM

SUPPLIERS SUPPLIERS

Take a Two Way View Take a Two Way View


InternalInternalValueValue

& Knowledge& Knowledge

Pricing

DeliveryPerformance

Need to Improve

Terms

FutureRequirements

QualityPerformance

PotentialNew

Relationship

What is the Negotiation Purpose? What is the Negotiation Purpose?


CustomersCustomers

SuppliersSuppliers

Businessor

PersonalGoals

Businessor

PersonalGoals

• Business &/or Personal Goals • Projects and Priorities• Risk or Total Value Improvement

• Business &/or Personal Goals • Projects and Priorities• Risk or Total Value Improvement

Negotiation Deciders & Drivers

Negotiation Stages

The Negotiation ProcessThe Negotiation Process


Strategy & Negotiation StagesStrategy & Negotiation Stages

1. Product1. Productand Serviceand ServicePositioningPositioning 2. Market2. Market

EvaluationEvaluation& Leverage& Leverage

3. Team 3. Team & Skill & Skill

SetsSets

4. Tactics, 4. Tactics, PloysPloys

& Approach & Approach

5. Close Out, 5. Close Out, Joint Actions & Joint Actions &

Check Check


Negotiation Skill SetsNegotiation Skill Sets

Product Product & &

ServiceService

PeoplePeople

FunctionalFunctional

• Existing and Future Requirements in use

• Global market knowledge of deals, moves, pricing

• Life Cycle, Innovation and Manufacturing know-how

•

• Conflict Resolution Skills

• Interpersonal and Relationship Management

• Culture and Values

• Your business

• Your competitors

• Legal – Financial – Six Sigma – I.T. – Facilities /HSE


Balanced Negotiation TeamsBalanced Negotiation Teams

Product Product & &

ServiceService

PeoplePeople

FunctionalFunctional

•

• Customer

• Technical & Manufacturing

• Supply Chain & Procurement •

• Facilitator

• Good Guy – Bad Guy

• Arbitrator

•

• Your Boss

• Marketing & Sales

• Lawyer – Finance & I.T. Support – H.S.E person


Body LanguageBody Language


Body LanguageBody Language

Just be your natural self in business !


Eye ContactEye Contact

• Signals Sincerity

• Should be natural

• Too much looks like aggression

• Avoiding it makes you look shifty

• Difficult – Focus on the bridge of the nose


Hands Hands

• Hands on side of chin = listening patiently

• Steepling - Fingers Together = Confidence & Authority

• Steepling – Can help you relax

• Hand under chin & eyes closed – ZZZZ Probably Asleep


LyingLying

Gestures to stop or deflect words

Hand to Mouth

Averted Gaze

Arms Folded

Hesitation

Experienced operators lie with a steady gaze


Negotiation Checklist Negotiation Checklist

• What does the negotiation support - Business or Personal goals, Vision, Strategy & Priorities?

• Who is the customer and is there a URS?

• Does the negotiation support and fit with the Business Model?

• Has Six Sigma methodology been used (DMAIC) ?

• Who is the customer and is there a URS?

• Has a risk analysis, CDA and Set Up been completed?

• Has a RACCI chart been completed?

• What are the current performance and total value measures?

• Who needs to be involved on both sides and what are the meeting logistics & agenda?

• What are the three key goals to be achieved?

• Is there a Financial plan to show the "Cost of Change"?


Communication StrategyCommunication Strategy

• Treat people the way you would like to be treated• Build the relationship over time• Maintain uncertainty until you have the deal you want• Coach your colleagues into doing the same• Know the facts...• Always be professional and respectful

DD


Do the DealDo the Deal

• Emphasise the value you are giving - minimize the value you are receiving.

• Communicate your conditions first followed by your offer.

• Use the power of silence, take adjournments but keep the time from offer to contract / agreement within a reasonable time period.

• Maintain control of the process and continually recognise the area of negotiability.

• Ensure key offers are put in writing & put your final acceptance in writing.

• Use language such as "suggest" "recommend" "propose" and when making commitments "estimated" and "reasonable endeavours".

DD


Check the deal and outcomeCheck the deal and outcome

• Measure the total cost, benefit / disbenefit / outcome over time

• Maintain secrecy & confidentiality by communicating the outcome on a “ need to know “ basis.

• Ensure that you and your negotiation partner are committed to the outcome from organizational top to bottom.

• Create a joint communication & plan using “ Racci “ chart principles.

• Keep control by writing the agreement / contract and using your terms & conditions and lawyers.

• Maintain an open mind on the deal / outcome you have negotiated.

• Build trust by communicating positive benefits of the outcome and sticking to the deal.

CC


Act and RenegotiateAct and Renegotiate

• No implementation = no credibility. This removes the basis of trust and chances of successful deal making in the future.

• Assess joint performance through an assessment scheme. Do not communicate your full benefits.

• Check on the impact of new technology, market changes, currency movements, new suppliers etc which will soon make the negotiation obsolete.

• Realise that the key to lowering costs is regular renegotiation of key elements and responsible market testing.

• Do not provide any information on the deal or negotiation outcome to other suppliers or competition.

• Decide when to renegotiate based on an assessment of value received, the supplier strategic status and future total cost potential.

AA


Negotiation - SummaryNegotiation - Summary

• Understand the Product and Service Status• Take a two way view• Measure risks and benchmark on a global total value basis.• Build a financial model which shows the cost of change and net

change benefit over time.• Use direct and where safe to do so indirect leverage.• Maintain strict secrecy & confidentiality.• Ensure you have built a team and team consensus. Select only one

point for contact.• Evaluate the financial, innovation and lowest cost status of suppliers.

Quality & delivery should be givens.• Use the right performance improvement measures..


Negotiation ExcellenceNegotiation Excellence

Some different Negotiation Situation examples follow


SUPPLIER

• High level relationship

• Offers concessions

• Drives for Closure

• Special Offers

• Wants long term deal

CUSTOMER

• Uses maximum leverage

• No compromises

• Will walk away

• Aggressive

• Short term deal

Business Value

Low High

Customer isa

Key Account

Product & Supplier

are Leverage

Contrasting Business Situations Contrasting Business Situations


SUPPLIER

• Premium pricing

• Cash with order

• Low attention

• Irregular supply

• No concessions

CUSTOMER

• Supply Assurance

• Pay a premium

• Constant attention

• Conciliatory

• Desperate for agreement

Business Value

Low High

Seller has a critical high cost product

Customer is

exploitable

Dominant Supplier...Dominant Supplier...


• Low Attention

• e Consortia

• Outsource – Sell Off

• R2P Freedom to Act

Business ValueLow

High

Development

Nuisance"C" Items

Strategic"A" Items

Leverage"A & B" Items

• Value Proposition

• Build Trust

• Long Term Perspective

• Up front investment

• Senior Teams

• Shared objectives

• P&L and Balance Sheet

• Exclusive Innovation

• 80/20 – e Auction

• Play the Market

• Aggressive

• Short Term

Str

ateg

ic I

mpo

rtan

ce

High

Relationship Overview Relationship Overview


Deal Effectiveness*Deal Effectiveness*

Deal Type

RegionMarket Minus

Cost Plus MFNGain

Sharing

Europe (EMEA) ? ? ? ?

North America ? ? ? ?

Asia Pacific ? ? ? ?

Latin America ? ? ? ?

* Can also be applied to Categories


Deal Type ExplanationDeal Type Explanation

Deal Type Explanation

Market Minus

The most common deal, where the product or service is owned by the supplier who determines market pricing that will operate in each segment & country. The seller provides a list price and specifies the price validity period. Prices vary, depending on specification, packaging and delivery terms. In return for volume/value or in recognition of the customer status, the supplier is prepared to offer the buyer discounts from the national market price.

Cost PlusCost plus deals are normally based on an "open book" principle, where the seller is prepared to allow the buyer access to product or service variable and fixed costs at the producer point. The buyer and seller then agree the profit margin to apply, distribution costs and how to share & apportion cost changes – which can be either up or down.

Most Favoured Nation

This is where a seller guarantees to provide the buyer with the lowest price within the agreed market segment. The mechanism is that the seller provides the buyer with an opening monthly price – and after the month end has closed, proactively provides the buyer with information on net prices achieved in the segment. The seller then credits the buyer back to the best net segment price and is prepared to offer further discounts for guaranteed value or volume.

Gain Sharing

The principle of gain sharing is based on seller and buyer collaboration where both operate effectively as "one company" to ensure the product or service is innovated, produced and distributed at the best possible cost without the application of profit (collaborative supply chain). The two parties agree in advance on I.P. ownership, how to subsequently apportion profit on the volumes required by the buyer, how to share margin on sales in the rest of the market and market strategy/ restrictions on sales to other customers or segments.


The need for AgreementsThe need for Agreements

Key CustomerKey CustomerAgreementsAgreements

Supply & Service Level Supply & Service Level C.D.A.C.D.A.

DevelopmentDevelopment

Supply Side Assurance Supply Side Assurance

1. Supplier1. SupplierCDACDA

3. Set Up3. Set UpPurchase Purchase OrdersOrders& Ts & Cs& Ts & Cs

4. Supply & Service 4. Supply & Service Level AgreementLevel Agreement

2. Risk Mgt2. Risk Mgt

5. Development5. DevelopmentAgreementAgreement

6. Exploitation6. ExploitationAgreementAgreement


Performance based agreementsPerformance based agreements

Confidentiality

Quality

Delivery

Cost

Supplier Supplier Assurance Assurance

and Performanceand Performance

Supply & Service Level is defined – Volumes, Quality, O.T.I.F., Price (Cost)


Define value & volume requiredDefine value & volume required

• Estimated Supply Volume (Number of products, SKU’s & Service Level

• Exact Quality required

• Price or Cost (Invoice and Net with currency defined)

• Delivery – ex works, CIF, delivered

• Turnaround times required (lead time in calendar days)

• Inventory (buffer stocks, supplier managed inventory)

• Payment terms (from date of acceptance)

• Preferred supply plants

• Agreement period – based on supply / demand


Questions ?Questions ?

Negotiation Slide 1 © The Delos Partnership 2005 Supplier Relationship Management Module 7 –...

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