ST PAULS UNIVERSITY

BSP 312: NEGOTIATION IN PURCHASING AND SUPPLIES

INSTRUCTOR: MORIASI MARANGA

1. Introductions to negotiation

2. Factors to negotiation

3. Negotiation process

4. Specific tactics to negotiation

5. Measuring and Evaluating the negotiation process

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SERVANTS OF GOD AND HUMANITY

LESSON 1

1. INTRODUCTION TO NEGOTIATION

Negotiation is a formal process that occurs when parties are trying to find a mutually

acceptable position or solution to a complex conflict.

It is a problem solving technique in which two or more partners voluntarily discuss their

difference with the attempt to reach an acceptable settlement.

Negotiation is one of the most commonly used methods of decision making in purchasing

environment. Disputes could arise between organizations due to price, quality, and delivery.

1.1 Characteristics of negotiation

i) There must be two or more parties

ii) There must be a conflict

iii) There is the use of techniques

iv) There has to be a possibility of the parties reaching an agreement.

1.2 Approaches to negotiation

a) Collaborative/integrative negotiation

This is an approach which results to a win-win situation where both parties are more concerned

about each others interest and they resolve the dispute in a more efficient manner. The

approach is cooperative as well as efficient.

Weaknesses of collaborative approach

i) The tendency to compromise leads to the company losing a lot

ii) Avoiding confrontation is generally viewed as a failure

iii) It is impossible to set goals/objectives of the negotiation

iv) It could be time consuming for an organization.

b) Distributive/Adversarial bargaining

This is an approach that results in a win-lose situation and the negotiation is capitalized with a

lot of tough demanding and generally selfish attitude. There is no concern for the other party.

The main emphasis of this approach is competition and each party tries to make sure the other

party loses.

Weaknesses of adversarial approach

i) It harms relationships. This approach is generaly not good in purchasing

ii) It leads to mistrust between buyers and suppliers

iii) It leads to a breakdown in communication

iv) It may lead to court cases if not handled well

v) It restricts access to joint gains

vi) The feeling of frustration and anger that goes with this negotiation can cause a

collapse of the negotiation.

Key differences between collaborative and adversarial

i) In collaborative, negotiation is led by the interest of both parties whereas in

distributive negotiation is governed by self interest.

ii) In collaborative negotiation, the parties are open to negotiation whereas in

distributive the parties are not open to negotiation.

iii) In collaborative negotiation, there is sharing of information whereas in adversarial

negotiation there is little or no sharing of information.

iv) In collaborative negotiation, the gains are shared jointly whereas in distributive

negotiation only one party gains.

v) In collaborative negotiation, the focus is on a long term relationship whereas in

distributive negotiation, the focus is a short term and may be even a one-time affair.

Determinants of the approach to use

- The time available

- The culture of an organization

- The resources available

- The value of the relationship

- The availability of what you are negotiating for

- The goals of the negotiation.

When it is not advisable to negotiate

i) When you would lose everything

ii) When the demand being made is unethical e.g stolen items, bribery

iii) When you are not interested in achieving any outcome

iv) When waiting will improve your position

v) When you lack the people or the resources to negotiate

vi) When there is no trust

Assignment:

a. Describe a situation that you have been involved in negotiation, especially one

that related to purchasing an item or service.

b. Evaluate the type of approach you used, if that approach worked, and a better

approach that you would have chosen.

LESSON 2

2. FACTORS TO NEGOTIATION

The following are the factors to negotiation, In a purchasing environment:

1. Negotiators

2. Negotiating situation

3. Time

Others are;

4. Venue

5. Knowledge

i. Negotiators

These are the actual people doing the negotiation. Buyers and suppliers are individuals acting

on behalf of their organization and therefore their personalities will influence the outcome of

the negotiation.

Factors influencing negotiators definition are:

a) Personality

These are the qualities and characteristics that define a person.

Factors that describe personality perception are:

- Appearance (external) e.g height, color, dressing, general physical appearance.

- Behavior e.g polite, aggressive, loud, arrogant

- Authority given by the company e.g a senior and a junior. Authority can affect

negotiation because of the following reasons:

. The negotiators could be seen as merely acting as agents of authority.

. When the negotiators are senior, they tend to have sole responsibility of the outcome.

. When the negotiators are junior, they are seen to have little power over the negotiation

outcome.

ii. Negotiating situation

It refers to the strengths and weaknesses of the participants in the negotiation. It is determined

by different factors which give either parties a better position.

The buyers’ strong positions

i) If the demand is not urgent and can be postponed

ii) When the supplier is anxious to obtain the business

iii) When there are many potential suppliers

iv) When the buyer is a monopoly- if the buyer is the only one who uses the item or few

other people.

v) When the demand of the item can be met by substitutes

vi) When the buyer can make or buy the item

vii) When the buyer has a good reputation in the market e.g prompt pay, bulk purchases

viii) When the buyer is well briefed of the supplier’s weaknesses.

The suppliers’ strong positions

i) When the demand for the item is urgent

ii) When the supplier is indifferent about accepting the business

iii) When the supplier is a monopoly or a semi-monopoly

iv) When there are many buyers in the market

v) When the supplier has a good reputation in the market

vi) When the supplier is well briefed on the buyer’s weaknesses.

iii. Time

Time affects negotiation in two ways. These are:

i) The buyer might negotiate under constraints of urgency. They may as well negotiate

when there is enough time.

ii) The negotiation outcome is usually based on the previous outcomes or future

expectations.

iv. venue

The venue chosen for the negotiation should be neutral and convenient for both parties.

v. knowledge

Both parties should have knowledge on the subject matter.

The buyer should have knowledge on the product, price, market e.t.c

Both parties should have knowledge on the other party.

Assignment:

Search over the media for various procurement deals. Taking a suitable case, analyze the way

various negotiating factors came into play in during the negotiations.

LESSON 3

3. THE NEGOTIATION PROCESS

The negotiating process isd a procedure that takes place in phases.it has 3 phases. These

are:

1. Pre-negotiation phase

2. Actual negotiation phase

3. Post-negotiation phase

a) PRE-NEGOTIATION PHASE

In normal successful negotiations, a thorough preparation is necessary. This phase involves

planning and researching so that the negotiators can gain information of what is to be

purchased. The issues involved in this phase include:

i) Analyzing the position of both parties

ii) Study the market to identify the prices

iii) Identify if there are any alternatives or substitutes

iv) Identify the individuals to negotiate

v) Identify/set the objectives of the negotiation

vi) Identify a suitable venue for negotiation

vii) Determine the tactics to use e.g aggressiveness

viii) Have a rehearsal of the negotiation(optional)

b) ACTUAL NEGOTIATION PHASE

This phase involves the actual negotiation and involves the use of techniques and ploys. The

issues involved in this phase include:

i) Use of questions

A successful negotiator will know when to answer directly or vaguely. The use of questions can

also be used to change the course of the negotiation and to get more information from the

other party.

ii) Use of diversions

Sometimes, negotiations tend to move out of course e.g when a stalemate is looming, a

diversion is necessary e.g cracking a joke or taking a coffee break.

iii) Use of positive statements

Positive statements can favorably influence the course of negotiation. A competent negotiator

uses positive statements to get good results

iv) Be a good listener

Good listening encourages positive results in a negotiation. A good listener will always have

positive gestures, actions and body language. When a good listener observes these, they can

get some clue.

v) Be considerate to the suppliers

Being considerate also ensures that something good will be achieved out of the negotiation.

vi) The use of ploys

This is a maneuver to achieve a certain outcome e.g blackmail.

c) POST NEGOTIATION PHASE

This is the time after the actual negotiation. The issues involved here are:

i) Draft a clear agreement of the issues that were discussed

ii) Get both parties to commit e.g by signing

iii) Prepare a procedure for monitoring the process of the agreement

iv) Identify factors that may affect the performance of the agreement

v) Implement the agreement.

Assignment:

Research on the various ploys that a sharp negotiator employs in a negotiating process

LESSON 4

4. SPECIFIC TACTICS TO NEGOTIATION

Negotiation in purchasing is an art. It usually takes the approach of any of the following tactics,

some of which are used in combination.

i. Compromise

This is when the negotiator agrees to terms without much argument. Compromise is normally

used when:

i) The time is limited to continue bargaining.

ii) The need is urgent and the opponent seems to take long

iii) There is likely to be a deadlock

iv) The price is reasonable and there is no need to continue bargaining

v) The terms are favorable to both parties.

ii. Bargaining

This is the act of discussing with the other partner for better terms. This is used when a party

feels that there could be room for improvement in the terms offered.

iii. Coercion

This is the use of threats, manipulation in order to achieve the desired outcome. It is commonly

used in distributive negotiation especially when the buyer knows that the supplier is anxious to

get the business.

iv. Emotion

This is appealing to the feelings of the opponent to give in to the demand. This approach could

be tricky some times because organizations exist to make profits.

v. Logical reason

This is when you have a step by step discussion in a logical manner to make the opponent see

things in a logical manner.

Assignment:

Evaluate the relative advantages and disadvantages of each specific technique.

LESSON 5

5. MEASURING AND EVALUATING NEGOTIATION

Negotiation should be monitored well in order to find ways of improvement. The process of

measuring negotiation takes a defined process.

Importance of evaluating negotiations

i) Evaluation provides feedback which allows individuals to improve

ii) It allows for action to be taken before relationships are broken

iii) It provides a basis for rectification especially when skills improvement is required

iv) It helps to create and sustain a good negotiating atmosphere based on lessons

learned from the negotiation

v) It helps to identify the aspect of performance that can be focused on in future.

NB: Evaluation should be a continuous exercise which should be conducted before and after

every negotiation.

Variables to be evaluated

a) Goals

It is evaluating the objectives that were set against those that were achieved.

b) Finance

Under finance, we measure the cost that you have achieved against what you budgeted.

c) Human Resource

Some of the factors evaluated here are:

- Skills of the negotiators

- Role of the members in the team

- Motivation levels of team members

d) Planning

- Do a SWOT analysis

- Market analysis

- Techniques adopted

e) Control

It stipulates the basis for improvement in the negotiation.

NB: Measurement and evaluation of negotiation needs to:

i) Focus on the process and not individuals

ii) Focus on facts and not options

iii) Focus/emphasize on analyzing alternative scenario

iv) Focus on problem solving techniques.

The process of performing an evaluation involves the following questions:

1. Preparation stage?

- Did the analysis of the market identify all variables?

- How accurate was our costing?

- Were all team members involved in the preparation?

- Did we choose appropriate techniques or ploys?

2. Actual negotiation stage

- Did we ask appropriate questions?

- Did we understand the answer that we were given?

- Did all team members participate properly?

- Did we explore all the variables?

- Did we all focus on common goals?

- Were we creative in negotiating?

- Was there trust between the parties?

- Were our proposals accepted by the other party?

- Did we accept their proposals? Were they greedy?

3. Post negotiation stage

- Did we conclude effectively?

- Did we summarize the agreements effectively?

- Were the objectives met? How many?

- Has there been any change in the market since the time of negotiation?

A negotiation is successful under the following circumstances:

Negotiation can be said to be successful if the following circumstances occur

i) When we understand the needs of the other party

ii) When the goals set are realistic and achievable

iii) When there are sufficient similarities between the set goals and the outcome of the

negotiation

iv) When our priorities are similar to the other party

v) When you are able to persuade the other party

Assignment:

Discuss a satiation when negotiation may not be successful, and thus not wise to negotiate.

Come out clear on such circumstances that may bar one from negotiating.