The role of power in single sourcing relationships - Negotiation strategies to enhance collaboration...

7/30/2019 The role of power in single sourcing relationships - Negotiation strategies to enhance collaboration during the relat

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The role of power in single sourcing relationships

Negotiation strategies to enhance collaboration during the relationship

3 December 2012

Dennis Bours,[email protected]

BSM022 Purchasing Principles and Law (A), RGU
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Executive summary

John French and Bertram Raven (1959) developed a sources of power schema by which to analyse how

power works (or fails to work) in a specific relationship with five distinct forms of power identified; legitimate

power, referent power, expert power, reward power, coercive power and informational power.

John Ramsay (1994) first explores the role of power in buyer-supplier relations, focusing on the inter-relation

between the two, the attractiveness and availability of resources offered by both, and the factors affecting

the ability of buyers to convert potential power into actual power. It should be noted that establishing

reliable, objective values for potential and actual power is difficult. It is even harder to establish causal links

between the two, given that its not possible to isolate power from other influences like for example a

companys behaviour, business philosophy, shared beliefs, individual behaviour, attitudes and motivation,

and perception of power.

The power-perspective of this paper focuses on the likely base, role and importance of power in cooperative

single sourcing buyer-supplier relationships working towards sustainable long-term relationships. The

objective is to enhance the understanding of the buyers and suppliers relative power positions, related

negotiation preparation to develop a negotiation strategy.

An overview of the advantages and disadvantages of single and multiple sourcing strategies is presented and

used to analyze the strengths and weaknesses of single sourcing negotiation strategies and opportunities and

threats of multiple sourcing strategies, to be explored in the development of single sourcing negotiation

strategies. After reviewing negotiation and negotiation preparation types, recommendations to develop a

negotiation strategy and prepare for negotiations in single sourcing collaborative relationships is discussed

by means of a 5-step approach. The 5 steps and their main elements are presented below and further

detailed in Chapter 4.

1. What is the

situation?

2. Why

negotiate?

3. What are

the priorities?

4. Are there

alternatives?

5. Power.

Long-term relationshipperspective

Focus on problemsolving

Limited number ofissues

Power distribution less

important

Key negotiate issues,broad vs. specific

Recognize buyer-supplier disconnect

What drives parties tonegotiate?

Set outcomes

anticipated

Prioritization of issues

Distinguishingbetween needs andwants

Identify coinage

Buyers and suppliers

alternatives

Ease of access ofalternatives

Suppliers view of

buyers alternatives

BATNA / EATNA


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Table of contents

Executive summary ...................................................................................................................................... ii

Table of contents ........................................................................................................................................ iii

List of figures and tables .............................................................................................................................. iv

1. The role of power ..................................................................................................................................... 1

Power in buyer-supplier relations ............................................................................................................. 2

2. Single sourcing relationships .................................................................................................................... 3

Single sourcing vs. multiple sourcing ........................................................................................................ 3

Advantages and disadvantages ................................................................................................................. 5

3. Negotiation in single sourcing relationships .............................................................................................. 7

Types of negotiation ................................................................................................................................. 8

Types of negotiation preparation ............................................................................................................. 9

4. Recommended 5-step approach to develop a negotiation strategy .......................................................... 7

1. What is the situation?........................................................................................................................... 7

2. Why negotiate? .................................................................................................................................... 8

3. What are the priorities?........................................................................................................................ 9

4. Are there alternatives? ....................................................................................................................... 10

5. Power ................................................................................................................................................. 12

Importance of the study ............................................................................................................................. 13

References ................................................................................................................................................. 14

Further reading .......................................................................................................................................... 18


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List of figures and tables

Figure 1: Recommended 5-step approach to develop a negotiation strategy ................................................ 7

Figure 2: Step 1 - What is the situation? ....................................................................................................... 7

Figure 3: Step 2 - Why negotiate? ................................................................................................................. 8

Figure 4: Step 3 - What are the priorities? .................................................................................................... 9

Figure 5: Step 4 - Are there alternatives? .................................................................................................... 10

Table 1: French and Raven six bases of power .............................................................................................. 1

Table 2 Advantages and disadvantages of single sourcing............................................................................. 5

Table 3 Advantages and disadvantages of multiple sourcing ......................................................................... 6

Table 4: Two negotiation types..................................................................................................................... 8


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1. The role of power

In a classic study, social psychologists John R. P. French and Bertram Raven (1959) developed a sources of

power schema, from which to analyse how power impacts relationships. Five distinct forms of power (Table

1) and its affect on leadership and success were identified; a sixth - information power - was later added(Raven 1965).

Legitimate power

(Also called Positional

power)

The power of an individual because of their relative position and duties of the

holder of the position within an organization, to administer to another certain

feelings of obligation or the notion of responsibility.

Referent power The power or ability of individuals to attract others and build loyalty. It's based

on the charisma and interpersonal skills of the power holder.

Expert power An individual's power deriving from the skills or expertise of the person and the

organization's needs for those skills and expertise.

Reward power Depends on the ability of the power wielder to confer valued material rewards, it

refers to the degree to which the individual can give others a reward of some

kind or remove or decrease things the person does not desire.

Coercive power The application of negative influences and the concept that someone is forced to

do something that he/she does not desire to do. It includes the ability to demote

or to withhold other rewards.

Informational power Based on the potential use of informational resources, influence can occur

through such means as rational argument, persuasion, or factual data.

Table 1: French and Raven six bases of power

Despite critical research identifying gaps in the relations between these six power bases (Podsakoff and

Schriesheim 1985), the French and Raven framework remains highly popular (Turner 2005; Raven 2008).

Related to purchasing, Naumann and Reck (1982) are the first to mention power in purchasing but their

focus is on a buyers power towards and within their own organization. Michael Porter (1985) is the first to

link purchasing power to organizational profitability:

The power of buyers determines the extent to which they retain most of the value created

for themselves, leaving firms in an industry only modest returns.(Michael Porter 1985 p. 9).


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Power in buyer-supplier relations

John Ramsay (1994) first explores the role of power in buyer-supplier relations, focusing on the inter-

relation between the two, the attractiveness and availability of resources offered, and the factors affecting

the ability of buyers to convert potential power into actual power.

A buyer-supplier relationship is an inter-organizational relationship defined by a need from both sides; a

buyer has the need for a product the supplier offers, and the supplier has the need for the money the buyer

is willing to pay for that product. While some earlier research on inter-organizational relationships looked

at power as a one force vector (Gadski 1984), purchasing power should be regarded as an interdependent

force, given both parties possess potential power.

Two important notions Ramsay (1994 and 1996) added to the debate are the concepts of conversion

capability and conversion propensity; the latter being the attempt of either party in the buyer-supplier

relationship to convert potential power into actual power.

Potential power is a function of the attributes of attractiveness and availability of

resources offered. The amplitude of a buyer's actual power is determined both by the amount

of potential power and their conversion propensity.

Anything that increases a buyer's need or desire to buy from a specific supplier or that

reduces the buyer's supplier freedom or inhibits their conversion propensity, tends to increase

the buyer's dependence on the supplier and thus compress the buyer's purchasing power.

Conversely, anything that increases a supplier's need or desire to obtain money from a

specific buyer or that reduces the supplier's customer freedom or inhibits their conversion

propensity, tends to increase the supplier's dependence on the buyer and thus amplify the

buyer's purchasing power. (Ramsay 1994 p. 137, adapted with the notion of conversion

propensity replacing conversion capability as identified in Ramsay 1996)

It should be noted that establishing reliable, objective values for potential and actual power is difficult. It is

even harder to establish causal links between the two, given that its not possible to isolate power from

other influences like for example a companys behaviour, business philosophy, shared beliefs, individual

behaviour, attitudes and motivation, and perception of power (Ramsay 1994 and 1996; Stannack 1995;

Maloni and Benton 1999; Turner 2005; Wolfe and McGinn 2005; Raven 2008; Meehan and Wright 2011).

The power-perspective of this paper will focus on the likely base, role and importance of power in a single

sourcing buyer-supplier relationship. The objective will be to enhance the understanding of the buyers and

suppliers relative power positions and related negotiation strategies.


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2. Single sourcing relationships

The term sole sourcing is sometimes used to indicate a situation in which a supplier has a market

monopoly, ie. there is only one supplier that provides the product (Arnold 2002 in Kleemann 2010 p. 6).

Historically, travel was slow and dangerous, transport and infrastructure wasnt well developed and onlyitems with a high value in relation to their size would be traded, ie. spices, rich textiles, silver, gold and

other metals. Under such circumstances goods were sole sourced due to proximity, monopolies and the

absence of alternatives (Swift and Coe 1994).

Single sourcing and single source purchasing refers to sourcing from one selected supplier, even though

there are other suppliers that provide similar products. It might be for strategic or cost reasons that a

company decides to use only one specific supplier, although there is the possibility to change suppliers.

Multiple sourcing increased once infrastructure and transport options improved and companies decided to

make use of multiple suppliers to spread the risks of supply disruption.

Single sourcing relationships can be competitive - also called adversarial (Leenders and Blenkhorn 1988;

Biemans and Brand 1989; Wilson 1995) or cooperative. In competitive relationship the buyer plays out

suppliers against each other to continue with the one offering the lowest cost. Meanwhile, in the case of

cooperative single sourcing relationships the focus is on lowering cost through cooperation in order to

reduce operational cost of both the buyer and supplier.

The focus of this paper will be on cooperative single sourcing relationships, given single sourcing should

focus on sustainable long-term relationships. Coercive powers used in competitive single sourcing

relationships are not in support of a sustainable long-term relationship.

Single sourcing vs. multiple sourcing

In the 1980s and early 90s there was a clear focus on single sourcing as a strategic sourcing approach

(Morgan 1987; Segal 1989; British Demining Organization 1990), while at the same time there was a focus

on the dangers of relying on only one supplier (Newman 1989; Ramsay 1990).

Leenders and Blenkhorn (1988) introduced reverse marketing; a type of aggressive purchasing in which the

purchasing function actively identifies potential suppliers and offers suitable partners a proposal for long

term collaboration. Others call it proactive procurement or market-driven procurement (Biemans and

Brand 1989).


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From the 90s onwards the focus moved to identifying situations in which one sourcing strategy is preferred

over the other (Tullous and Utrecht 1992; Swift and Coe 1994; Swift 1995; Lee, Keh and Chung 2000; Zeng

2000; Chen, Paulraj and Lado 2004; Linthorst and Telgen 2006; Glock 2011).

Different buying situations, importance of total life cost, supplier learning curves and quality management

considerations result in choosing different sourcing strategies. Multiple sourcing is generally seen as the

main sourcing strategy in cases where initial price is the most important indicator and longer term

partnerships are not the goal. When product reliability, technical support and total product cost are the

most important decision-making indicators, single sourcing is the preferred strategy.

Towards the late 90s more research emerged on the role of supplier relationship management as part of

strategic procurement management (Cox 1996; Goffin, Szwejczewski and New 1997; Chen, Paulraj and Lado

2004; Nollet and Beaulieu 2005; Ramsay 2005; Svahn and Westerlund 2009).

Increased importance of supplier relationship management results in a shift towards reducing the supplier

base; it is more efficient to manage less suppliers and one can focus on managing the characteristics of the

relation, leading to improved cost, quality and delivery performance from these suppliers.


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Advantages and disadvantages

Based on the review of single and multiple sourcing research in the previous paragraph, an overview of the

advantages and disadvantages of single sourcing strategies is presented in Table 2. These elements will be

used to analyze strengths and weaknesses subsequently explored in single sourcing negotiation strategies.

Advantages Disadvantages

Singlesourcing

- Improved buyer-supplier relationships- Increase in product quality- Expanding knowledge and reduction of

total cost

- Lower pricing due to economies of scale- Reduction in product variability- An element of total quality management- Less administration, improved and open

communication and less time spent solving

problems

- Better forecasting, reducing inventory forboth buyer and supplier

- Collaborative problem solving- Encourages joint research- Improved stability for both parties.

- Limited buyer bargaining power- Based on the Japanese win-win relationship

approach, questions arise whether such an

approach works in competitive markets like

the US

- Supplier base erosion and shrinkingcustomer base from a suppliers perspective

- Misdirected cost reduction efforts, due tolack of cost reduction coordination

- Innovation and research does not benefitboth parties equally, and how is the related

cost shared?

- Dependency might limit supplier identity- Suppliers might end the relationship once

they gain specific buyer knowledge.

Table 2 Advantages and disadvantages of single sourcing

An advantages and disadvantages overview of multiple sourcing strategies is presented below in Table 3.

Both advantages and disadvantages can be seen as external to the single sourcing relationship. As such,

advantages and disadvantages of multiple sourcing may be seen as opportunities (in the case of

disadvantages) and threats (in the case of advantages), to be explored in the development of single

sourcing negotiation strategies.


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Advantages Disadvantages

Multiplesourcing

- More guarantees for an uninterruptedflow of products, materials

- Encourages competition among suppliers,which encourages economic efficiency

- Ensures independence from suppliers- In the case of suppliers it limits the risk of

depending on a limited number of buyers

- Gives wider market access to both buyerand supplier.

- Proper management of a large supplier /large buyer base can be difficult

- Longer negotiation times- Short duration of contracts, limiting stability

and increasing administrative cost

- Higher transaction cost- Low level of supplier loyalty, and possibly

also a low level of buyer loyalty

- Reduced scale benefits.Table 3 Advantages and disadvantages of multiple sourcing


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3. Negotiation in single sourcing relationships

Negotiation is a tool used in relationship management to deal with a (potential) conflict. Some definitions

of negotiation are:

"[A] basic means of getting what you want from others. It is a back-and-forth communication

designed to reach an agreement when you and the other side have some interests that are

shared and others that are opposed.(Fisher, Ury and Patton 2003, p.xiii)

A discussion between two or more parties with the apparent aim of resolving divergence of

interestand thus escaping social conflict.(Pruitt and Carnevale 1993, p.8)

The process of discussion and exchange of ideas, attitudes, and positions in an effort to reach

agreement on a particular problem.(Bacharach 2005 in Bacharach 2010a, p.1)

A single sourcing relationship is not just between a buyer and supplier, but often involves interactions

between employees of both companies at all levels; senior managers or directors might have signed an

agreement to formalize the close ties between the companies, engineers might work on products together,

marketeers join forces, buyers and suppliers confer with each other to come to an agreement, but only

some of these activities and interactions might require negotiation. The purchasing and selling relationship

might very well involve most of the negotiation (Smeltzer, Manship and Rossetti 2003; Ramsay 2004;

Kannan and Tan 2006).

In the sourcing relationship we need to differentiate between the transaction and the relationship. The

transaction focuses on the procurement of materials, not taking into account further investment once the

transaction is completed. The sourcing relationship involves ongoing investment after the transaction has

been finished, which will be the focus of developing a negotiation strategy in the next chapter. Effective

buyer-supplier negotiation is a critical element in the development of a long-term single source

collaborative business relation. (Holmes 1995; Campbell 1997; Kannan and Tan 2006).


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Types of negotiation

There are basically two types of negotiation, though different labels are used for each one of them.

The first type is called distributive negotiation, also called positional, hard-bargaining, zero-sum, claiming-

value or win-lose negotiation. Distributive negotiation is competitive and is seen as a process of distributinga fixed amount of value. This is often referred to as a fixed -pie situation; this is it, the only variable is how

to cut the pie. Distributive negotiation tactics rarely assume the pie will be divided in half. Parties in a

distributive negotiation often meet for the first time during the negotiation and chances are they will not

meet again afterwards. The focus isnt on relationship building. (Lax and Sebenius 1992; Pinkley, Griffeth

and Northcraft 1995; Fisher, Ury and Patton 2003)

The second negotiation type is called integrative negotiation, also referred to as interest-based, principled,creating-value or win-win negotiation. Integrative negotiation starts from the idea that value can be

created during the course of a negotiation, often referred to as expanding the pie, opposed to assuming a

fixed amount of value (Lewicki, Saunders and Minton 1999; Thompson 2001; Fisher, Ury and Patton 2003).

"Integrative refers to the potential for the parties' interests to be [combined] in ways that create joint value

or enlarge the pie."(Watkins and Rosegrant 2001, p.31)

The main differences between distributive and integrative negotiation are presented below in Table 4.

Distributive negotiation Integrative negotiation

Maximize gains within the limits of the issue Maximize returns, but this includes joint gains

Starts with high opening demands, with limited

interest to compromise

Starts with trying to objectively understand the

other partys merits and interests

Threat, coercion, confrontation, manipulation and

argumentative approaches are used

Non-confronting discussion techniques are used

Parties not open to persuasion on content Parties open to persuasion on content

Focus on quantitative, competitive goals Focus on qualitative goals and a long-term

collaborative working relationship

Table 4: Two negotiation types


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Fisher, Ury and Patton (2003) advocate four fundamental principles of integrative negotiation:

1) separate the people from the problem;2) focus on interests, not positions;

3) invent options for mutual gain; and4) insist on objective criteria.

Integrative negotiation is generally accepted as the way forward when longer term relationships are a key

element of the negotiation, though integrative and distributive negotiation do not exclude one another.

Even when expanding the pie there will be a moment when parties must distribute what was created,

though if enough has been created distribution will be easy (Lewicki, Saunders and Minton 1999;

Thompson 2001; Watkins and Rosegrant 2001).

A key difficulty with a mixed negotiation strategy in sourcing relationships, identified by Ramsay (2004), is

that open sharing of information (specifications, company and market information) between buyer and

supplier in the integrative phase might be used coercively in the subsequent distributive phase, though

other research downplays that risk (Gettinger, Koeszegi and Schoop 2012). Ramsay (2004) might be right,

but it should be noted that his focal perspective and lack of basic data collection information only allows

reporting on the data collected and one has to be careful to draw general conclusions from this work.

Both buyer and supplier in a single sourcing relationship should have an equal level of interest in and

perspective on the virtues of a long-term cooperative relationship, opposed to quick short-term gains.

Types of negotiation preparation

Three approaches can be distinguished in negotiation preparation processes.

The first approach focuses on the position with which to enter a negotiation to get to a specific outcome,

while a second approach focuses on measuring the outcome of negotiations. Both approaches focus mainly

on what the negotiator wants to achieve. A third preparation approach focuses on the negotiation process.(Lewicki and Littler 1985; Fells 1996; Lewicki, Saunders and Minton 1999). Fells (1996) research shows

negotiators generally focus less on the how. Research by Smeltzer, Manship and Rossetti (2003) shows in

an analysis of 29 cases that the majority of these negotiations were not well planned.


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4. Recommended 5-step approach to develop a negotiation

strategy

A 5-step approach to develop a negotiation strategy and prepare for negotiations in cooperative single

sourcing relationships is discussed from a buyers perspective, taking into account the role of power, the

fundamental principles of integrative negotiation, types of negotiation preparation, specific elements,

strengths and weaknesses of single sourcing as sourcing strategies, and the opportunities and threats of a

multiple sourcing strategy.

The five steps are adapted from Bacharach (2010b), adjusted with information from reviewed literature.

Figure 1: Recommended 5-step approach to develop a negotiation strategy

1. What is the situation?

What is the situation, the context in which the negotiation with a single source supplier will take place?

Figure 2: Step 1 - What is the situation?

1. Long-term relationship perspective: One important element of single sourcing relationships is that theparties want to develop and further cultivate a long-term cooperative buyer-supplier relationship,

which implies an ongoing process of future connections, collaboration and negotiations. Coercive

power relations and purely distributive negotiation strategies are not inline with this perspective.

2. Focus on problem solving: Problem-solving negotiation takes the focus away from positions andpersonalities, limiting the influence of legitimate or positional power, to arrive at a win-win situation

that mutually benefits both parties.

1. What is the

situation?

2. Why

negotiate?

3. What are

the priorities?

4. Are there

alternatives?5. Power.

Long-termrelationshipperspective

Limitednumber of

issues

Focus onproblemsolving

Powerdistribution

less important


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3. Limit the number of issues on the table: In a long-term single sourcing relationship, a good number ofissues can be resolved without negotiation. Parties meet frequently, taking away the need to put

multiple issues on the table in one negotiation. Limiting the number of issues gives room to focus on

problem solving and developing solutions that create mutual gain. The preferred method to solve a

number of issues in one negotiation is to address them in succession opposed to dealing with all issues

simultaneously. It is preferred to start with less important issues and move to the most important.

4. Power distribution is of lesser importance: Power distribution is most important in distributivenegotiations. The focus should be on the long-term relationship, problem-solving, win-win solutions

and the advantages of buyer and supplier loyalty.

(French and Raven 1959; Lewicki and Littler 1985; Fells 1996; Campbell 1997; Lewicki, Saunders and

Minton 1999; Fisher, Ury and Patton 2003; Kannan and Tan 2006; Bacharach 2010a and 2010b; Patton and

Balakrishnan 2011)

2. Why negotiate?

To negotiate, a clear view regarding the issues at hand is required.

Figure 3: Step 2 - Why negotiate?

1. Identify key negotiate issue and differentiation between broad and specific issues: Broad issues areoften about principles, while specific issues are about the nuts, bolts and technicalities. Broad issues

can develop into longer negotiations about differing principles and ideology. Both the buyers and

suppliers should first identify the level at which they want to start the negotiation, anticipate the

starting point of the other party and know how broad and specific issues inter-relate.

2. Recognize buyer-supplier disconnect: Both parties should be talking on the same level (broad vs.specific) for a successful negotiation. Both parties should also come from an integrative negotiation

perspective focusing on a long-term cooperative relationship.

It is important that both the buyers and suppliers know how levels inter-relate, for example how broad

issues like innovation and performance link to concrete actions, like time to market and anticipated

Key negotiateissues, broadand specific

What drivesparties tonegotiate?

Recognizebuyer-supplier

disconnect

Set

outcomesantici ated


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levels of customer satisfaction. They must also anticipate a distributive negotiation approach and focus

on how to change it into an integrative approach; focus on the advantages of a long-term single

sourcing relationship and the disadvantages of the alternative, focus on problem solving and solutions

for mutual gain.

If this would not refocus the negotiation and relationship, the parties must wonder if they are

negotiating with the right person, ie. the other party needs to be aware of the long-term perspective

of the single sourcing relationship and a mutual purpose, and work in support of it.

3. What factors drive buyers and suppliers to negotiate? Differing buyer-supplier interests on its owndoes not rationalize negotiation. Also, there might be agreement on a particular issue, but the issue in

itself is not clear thus inhibiting an agreement. Both parties should agree on the issues being talked

about, creating mutual purpose in the negotiation, and agree that these issues cannot be resolvedwithout negotiation, resulting in a need for negotiation.

4. Set outcomes anticipated: What is the end result? What do the parties want to walk away with at theend of the day? Objectively set anticipated outcomes by means of Specific, Measurable, Achievable,

Relevant and Time-phased (SMART) indicators.

(Doran 1981; Pruitt and Carnevale 1993; Wilson 1995; Lewicki, Saunders and Minton 1999; Thompson

2001; Watkins and Rosegrant; Fisher, Ury and Patton 2003; Bacharach 2010a and 2010b; Rich 2011)

3. What are the priorities?

After analyzing the issues and recognizing the possible buyer-supplier disconnect, the next step taken is to

distinguish between needs and wants, prioritize the most important issues and determine what can be

used as coinage.

Figure 4: Step 3 - What are the priorities?

1. Prioritization of issues: The easiest start utilized is prioritizing is to start with distinguishing betweenneeds (or must-haves) and wants (or desirables). The needs are real deal-breakers and have the

highest priority. Wants are also goals to negotiate, but with a lower priority and a higher degree of

Prioritizationof issues

Identifycoinage

Distinguishingbetween needs

and wants


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flexibility acceptable towards the outcome. Everything may be viewed as important, but when

entering a negotiation with only high priority issues it is questionable whether a supplier can actually

deliver on the expectations. Also, negotiation space is limited if all issues are high priority.

2. Distinguishing between needs and wants: Distinguishing between needs and wants is a highlysubjective exercise, but it is utilized to prioritize and frame a negotiation around the importance of

issues. Needs can also be needs on an emotional level, ie. one of the parties might for example need to

feel secure about the deal being achievable.

The difference between needs and wants of both parties determines the negotiation zone, being the

parameters in which - and the topics on which - negotiation is possible. If everything is high priority

and there are no issues the party or parties are willing to give up, then there is no negotiation zone.

3. Coinage:Some wants are often used as coinage to meet actual needs. Wants may be prioritizedinto strong and weak desirables, with the weak desirables being the ones to give up first.Coinage is a

concession that has a low value to the giver, but a high value to the receiver.(Rich 2011, p. 4) It is

sometimes described as the peace offer to close a final gap. Weakest desirables may be used as

coinage, if these are seen as valuable by the receiver.

(Daniels 1998; Lewicki, Saunders and Minton 1999; Fisher, Ury and Patton 2003; Bacharach 2010b; Rich

2011)

4. Are there alternatives?

How dependent is the buyer on the supplier? How dependent is the supplier on the buyer? There often is

an over- or under-estimation of inter-dependency and a miscalculation in the ease of accessing

alternatives.

Figure 5: Step 4 - Are there alternatives?

Buyers and

suppliers

alternatives

Suppliers view

of buyers

alternatives

Ease of accessof alternatives

BATNAEATNA


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1. Buyers and suppliers alternatives: Bargaining power does not only come from the buyersalternatives, but also from the suppliers alternatives, or the lack thereof. The level of dependency

upon one another influences bargaining power and perception of power. A single sourcing relationship

is marked by a high inter-dependency and thus a low level of bargaining power.

2. Ease of access to alternatives: There is a difference between possible and actual alternatives, ie.developing alternatives costs time, money, reduction of scale benefits, creates instability in the

existing relationship and a loss of loyalty.

3. The suppliers view of the buyers alternatives: The number of alternatives is not as important as howthe level of buyer alternatives is seen by the supplier. The buyer may have several alternatives

available, which might offer potential bargaining power. But, if the supplier is not convinced of these

alternatives, then there will be little actual power. The suppliers perception may either be due toinformation the supplier has about the buyers alternatives they might not be feasible alternatives

or a lack of information from the suppliers side.

(Fisher, Ury and Patton 2003; Smeltzer, Manship and Rossetti 2003; Busch 2008; Zachariassen 2008;

Bacharach 2010b)

BATNA and EATNA are two concepts that need explanation in the scope of alternatives. BATNA was first

used by Fisher, Ury and Patton (2003) in the 1987 version of their book, standing for the best alternative

to a negotiated agreement, which translates to the best a buyer can do without the supplier. In theory the

BATNA is the baseline for negotiations, but in cooperative single sourcing relationships giving up on a

negotiation might very well be the start of the end of the single sourcing relationship.

Guy Burgess and Heidi Burgess, co-directors of the Conflict Information Consortium at the University of

Colorado, talk about EATNAs - estimated alternatives to a negotiated agreement instead of best

alternatives.

The perception of alternatives might be as powerful to the buyer and supplier as having actual alternatives.

The buyer must consider what the supplier might perceive as being alternatives, and consider what options

the supplier should see as buyer alternatives irrespective of these being feasible or not from a buyers

perspective. In the end both buyer and supplier want to get to a negotiated final result in a cooperative

single sourcing relationship, given that delving into BATNA and EATNA will possibly be the end of a lengthy

investment in the relationship.


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5. Power

It was already indicated that power distribution is of less importance, but some basic tips on power apply. I t

is important that parties move away from legitimate or positional power not to make a negotiation

personal. It is vital that both parties negotiating have the legitimate power to make decisions during the

negotiation, and the capacity to deliver on an agreement. Coercive powers are not in support of a

sustainable cooperative long-term single sourcing relationship.

Focusing on problem solving results in a stronger role for expert and informational power, factual data and

objective, rational reasoning. Coinage can be used in such problem solving discussions as reward power,

positively enforcing mutually beneficial solutions (French and Raven 1959; Raven 1965; Fisher, Ury and

Patton 2003; Bacharach 2010b and 2010c).


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Importance of the study

Despite a good amount of research on buyer-supplier relations and the role of power, limited research

focuses on how power influences buyer-supplier negotiation preparation, strategies and outcomes. There is

even less research on the role of power in single sourcing relationships and related negotiation preparation,

strategies and outcomes.

This report envisages adding to the body of work on negotiation preparation and strategies in cooperative

single sourcing relationships, by providing some level of guidance on elements to take into account.

The discipline of negotiation and strategy development in buyer-supplier relationships is predominated by

functionalistic thinking from a marketing management perspective, impacting the statistical validity of

research findings. This report generates new linkages between concepts and aims to generalise on the

meaningful notion of theoretical representativeness (Halldorsson and Aastrup, 2003).


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References

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Further reading

ADAIR, W.L. and BRETT, J.M., 2004. The handbook of negotiation and culture. (Ed. by M.J. Gelfand & J.M.

Brett) Stanford: Stanford University Press.

ANDERSSON, S. and SERVAIS, P., 2010. Combining industrial buyer and seller strategies for internationalsupply and marketing management. European Business Review, 22(1), pp. 64-81.

BANKS-PIDDUCK, A., 2006. Issues in supplier partner selection.Journal of Enterprise InformationManagement, 19(3), pp. 262-276.

BAZERMAN, M.H. and NEALE, M.A., 1992. Negotiating Rationally. New York: The Free Press.

BENOLIEL, M., 2005. Done deal: Insights from interviews with the world's best negotiators. Avon: AdamsMedia.

BRETT, J.M., 2001. Negotiating globally: How to negotiate deals, resolve disputes, and make decisionsacross cultural boundaries. San Francisco: Jossey-Bass.

CALVO, E. and MARTNEZ-DE-ALBNIZ, V., 2012. Sourcing strategies and supplier incentives for short life-cycle goods. Barcelona: University of Navarra; IESE Business School.

DANIELS, S., 1998. Closing the deal. Work Study, 47(2), pp. 56-58.

DOUGLAS-PINNINGTON, B. and SCANLON, T.J., 2009. Antecedents of collective-value within business-to-business relationships. European Journal of Marketing, 43(1), pp. 31-45.

FELLS, R., 1996. Preparation for negotiation: Issue and process.Personnel Review, 25(2), pp. 50-60.

FORD, C., MAUGHAN, A. and STEVENSON, S., 2011. Single and multi-sourcing models.www.practicallaw.com/5-505-0544 : Practical Law Company.

GADDE, L.E. and MATTSSON, L.G., 1987. Stability and change in network relationships. International Journalof Research in Marketing, 4, pp. 29-41.

GLOCK, C.H., 2012. Single sourcing versus dual sourcing under conditions of learning.Computers &Industrial Engineering, 62, pp. 318-328.

GULLIVER, P.H., 1979. Disputes and negotiations: A cross-cultural perspective. New York: Academic Press.

GURNANI, H. et al., 2012. Optimal procurement strategy under supply risk.Asia-Pacific Journal ofOperational Research, 29(1), pp. 1240006-1-1240006-31.

HARWOOD, T., 2002. Business negotiations in the context of strategic relationship development.MarketingIntelligence and Planning, 20(6), pp. 336-348.

HOLMEN, E., PEDERSEN, A.C. and JANSEN, N., 2007. Supply network initiatives - a means to reorganise thesupply base?Journal of Business & Industrial Marketing, 22(3), pp. 178-186.

HUBER, B., 2008.Agile multi-sourcing: A critical business trend - concepts and background.http://www.tpi.net/pdf/papers/AgileMulti-Sourcing.pdf: Technology Partners International, Inc.
http://www.practicallaw.com/5-505-0544http://www.practicallaw.com/5-505-0544http://www.tpi.net/pdf/papers/AgileMulti-Sourcing.pdfhttp://www.tpi.net/pdf/papers/AgileMulti-Sourcing.pdfhttp://www.tpi.net/pdf/papers/AgileMulti-Sourcing.pdfhttp://www.practicallaw.com/5-505-0544


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INDERST, R. and SHAFFER, G., 2004. Retail Mergers, buyer power and product variety. London: LondonSchool of Economics.

IVORY, D., 2011. Breaking the grip of sole suppliers. Bloomberg Businessweek, (4244), pp. B1-B18.

JANDA, S. and SESHADRI, S., 2001. The influence of purchasing strategies on performance.Journal ofBusiness & Industrial Marketing, 16(4), pp. 294-308.

KULKARNI, S., 1996. Purchasing: A Supply-side Strategy.Journal of Business Strategy, 17(5), pp. 17-20

LAX, D.A. and SEBENIUS, J.K., 2006. 3D Negotiation: Powerful tools to change the game in your mostimportant deals. Boston: Harvard Business School Press.

LYSONS, K. and FARRINGTON, B., 2006. Purchasing and supply chain management. 7th ed. London: FinancalTimes Management.

MALHOTRA, D. and BAZERMAN, M.H., 2007. Negotiation genius: How to overcome obstacles and achievebrilliant results at the bargaining table and beyond. New York: Bantam Books.

MARTIN, D., 1997. Contractual aspects of cross-cultural negotiations.Marketing Intelligence & Planning,15(1), pp. 19-27.

MIKKOLA, M., 2008. Coordinative structures and development of food supply chains.British Food Journal,110(2), pp. 189-205.

PUTTHIWANIT, C. and HO, S.S., 2011. Buyer success and failure in bargaining and its consequences.Australian Journal of Business and Management Research, 1(5), pp. 83-92.

RAMSAY, J., 2008. Purchasing theory and practice: an agenda for change. European Business Review, 20(6),pp. 567-567.

RINEHART, L.M., LEE, T.R. and PAGE, T.J.,JR., 2008. A comparative assessment of domestic and internationalsupplier-customer relationship perceptions. International Journal of Physical Distribution & LogisticsManagement, 38(8), pp. 616-636.

SEREL, D.A., DADA, M. and MOSKOWITZ, H., 2001. Sourcing decisions with capacity reservation contracts.European Journal of Operational Research, 131, pp. 635-648.

STRAUSS, A., 1978. Negotiations: Varieties, contexts, processes, and social order. San Francisco: Jossey-

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TALLURI, S., VICKERY, S.K. and NARAYANAN, S., 2008. Optimization models for buyer-supplier negotiations.International Journal of Physical Distribution & Logistics Management, 38(7), pp. 551-561.

THOMPSON, M., 1996. Effective purchasing strategy: the untapped source of competitiveness.Supply ChainManagement: An International Journal, 1(3), pp. 6-8.

TROWBRIDGE, M. and DUNN, R., 2007. Negotiations: advanced techniques for sole and single sourcesituations. ISM International Conference 2007. May 8 2007. Las Vegas: Institute for Supply ChainManagement. pp. 1-33.


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WILSON, D.T., 1995.An integrated model of buyer-seller relationships. (ISBM Report lo-1995). UniversityPark: Pennsylvania State University; Institute for the Study of Business Markets.

WU, L.C., 2009. Supplier selection under uncertainty: a switching options perspective.IndustrialManagement & Data Systems, 109(2), pp. 191-205.

WU, M.Y., WENG, Y.C. and HUANG, I.C., 2012. A study of supply chain partnerships based on thecommitment-trust theory.Asia Pacific Journal of Marketing and Logistics, 24(4), pp. 690-707.

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from eight case studies.Journal of Operations Management, 24, pp. 27-52.

ZACHARIASSEN, F. and LIEMPD, D.V., 2010. Implementation of SCM in inter-organizational relationships: asymbolic perspective. International Journal of Physical Distribution & Logistics Management, 40(4), pp. 315-331.

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