Negotiation for Procurement and Supply Chain Professionals

A Proven Approach for Negotiations with Suppliers

Jonathan O'Brien

• Publisher: Kogan Page
• Year: 2020
• ISBN:
  9781789662597
• Edition: 3
• Topic: Business
• Subtopic: Operations
• Index: Business

Highly effective negotiation skills are an essential element of a purchasing and supply chain professional's toolkit. Negotiation for Procurement and Supply Chain Professionals provides a step-by-step approach to delivering winning negotiations and getting game-changing results. It provides purchasers and supply chain managers with the necessary tools and tactics for a detailed, planned approach to negotiation. Negotiation for Procurement and Supply Chain Professionals allows the purchasing professional or the buying team to evaluate the supplier in advance, assess the sales team, and tailor their negotiation strategy depending on concession strategies, cultural influences and game theory. Negotiation for Procurement and Supply Chain Professionals provides a strong framework for discussion in advance of the meeting, allowing the negotiator to plan their agenda, objectives and tactics. Based upon the Red Sheet® Methodology, this book is a proven and collaborative technique used by many companies globally. The new edition includes supply chain planning, updates on multi-party negotiation for supply chain negotiations, Brexit as a retrospective example of negotiation and how the negotiation capability will need to change in the future.

09

Building the concession strategy

This chapter defines how requirements for a negotiation are developed and how these then determine both the most and least desirable outcomes. Concession strategy is explored and the chapter provides a range of tactics and techniques to help improve this strategy. Finally the chapter outlines the role and application of BATNAs in a negotiation.

Pathway questions addressed in this chapter

16. How do I determine the specific points or requirements to negotiate?
17. How can I manage and stay in control of trades and concessions?

19. What tactics and techniques will help me be successful?

Red Sheet steps covered in this chapter

9 and 10.

Creating and deploying a winning concession strategy

The concession strategy lies at the heart of a negotiation and it is the thing that determines how we should manage the way the negotiation plays out. Yet the concept of a concession strategy and actually using it to drive how we negotiate seems to be something that is difficult to grasp. Few texts and training providers in this area get to the heart of this concept – how one can actually develop and deploy a winning strategy – electing instead to provide the theory and leave the individual to figure out how to bring it to life. This possibly accounts for why, based upon my experience, the concession strategy is the least planned-for and most avoided component of negotiation preparation.

The concession strategy is a difficult concept because it is not one single thing. It is not a process, not a tactic nor a set of rules we can apply. It is an amorphous melange of how we define everything we need and want from a negotiation, what we can and cannot accept, how we manage all the different things we need to negotiate and a planned means to move towards a goal in a way that maximizes our success. An effective concession strategy is one that equips us to visualize all the moving parts of a negotiation in our mind and then enables us to manage our actions and interventions in a planned and considered way to achieve our goal. This chapter will attempt to provide an approach to help do this, and so we will explore the six components that collectively make up a good concession strategy. These are:

1. Defining our requirements
2. Determining our MDO, LDO, BATNA and ensuring the ZoMA
3. The four phases of negotiation and how we will navigate through them
4. The process of trading concessions
5. Winning techniques for concession trading
6. Attempting to guess what they want and what their BATNAs might be

I will explore each in turn.

1 Defining our requirements

Negotiation is about reaching agreement between parties by conferring. If you go out to buy a new TV and you know precisely the make and model you want because you’ve seen it at a friend’s house, then it is likely there is just one point that needs to be agreed and that is the price. If you don’t get what you want you can go somewhere else. However, in business negotiations there might be a series of separate agreements that, when combined, represent the overall negotiated agreement.

To plan a negotiation, all of the individual points where we want to reach some sort of agreement need to be identified and planned. These are our ‘negotiation requirements’ or ‘negotiables’ and form our shopping list of the essential and desirable outcomes we need and want respectively and therefore the individual topics for discussion. Negotiations with suppliers might cover a range of different topics and could include:

• price;
• payment terms;
• agreed volumes/size or duration of contract;
• specification, features, benefits, levels of quality, service levels;
• timing;
• how the relationship will work.

Start with the business requirements

Our starting point for defining our negotiation requirements is therefore ‘if we can have everything we want from this negotiation, what would we ask for?’ To answer this question we need to first understand all the many and different requirements that define and shape what we are buying and might already have been used to communicate our need to the supplier or supply base as part of effective tendering, supplier selection, contracting and performance measurement. The problem, however, is that these are usually way too extensive to be useful but they do provide a good starting point. Typically these wider requirements might include:

• the requirements for the goods or service we are buying (specification, quality required, service levels that must be achieved, timing etc);
• any requirements the supplier must meet (accreditations, compliance with legislation, proven track record etc);
• the requirements for how the business might want to implement any long-term sourcing arrangement for the area of spend (sufficient supplier capacity, support for implementation etc);
• any requirements pertaining to the relationship we want with the supplier (alignment of future plans, willingness to collaborate etc).

We need a consolidated definition of all of these and here we turn to one of the most important tools used in strategic sourcing: the RAQSCI (Regulatory, Assurance of supply, Quality, Service, Cost/Commercial and Innovation) business requirements model. In its simplest form business requirements is about having a predetermined definition of what we are trying to buy as opposed to simply letting the supplier propose what they can sell, and being clear how the arrangement must work. Business requirements are not something that can be developed by a procurement or supply chain function alone; instead they must be a consolidated and aligned definition of what the entire business needs and wants and should be developed following business-wide consultation. If the business has adopted a strategic sourcing approach such as category management then it is most likely such requirements might have already been developed at a category of spend level. The RAQSCI model is illustrated in Figure 9.1, with each element representing the individual themes or headings under which all the requirements are developed.

There is a sequence or hierarchy to these business requirements, and for this reason the model is shown as a staircase. With a staircase, you have to step on the first step, then the second and the third before you can get to the fourth. In the same way with business requirements; it is pointless considering commercial requirements such as payment terms or having designated points of contact if assurance of supply cannot be met and the goods may not turn up. This hierarchy is crucial as it refocuses attention in a prioritized order on what is important. In practice a full list of business requirements might look something like that in Figure 9.2.

Figure 9.1 Business requirements: the RAQSCI model

Figure 9.1 details

RAQSCI is defined as R- regulatory requirements; A – assurance of supply requirements; Q – quality requirements; S – service requirements; C – cost/commercial requirements; and I – innovation requirements.

Figure 9.2 Example set of business requirements

Figure 9.2 details

The example is a checklist of business requirements for Electronic PCB Assembly. The checklist is specific requirements according to RAQSCI in terms of Need, Want, Now and Future.

Defining the negotiables

Once the full business requirements are understood we can begin to extract the specific requirements for the negotiation or ‘our negotiables’ (Figure 9.3). Starting with our full business requirements we begin by discounting any non-negotiable elements. These are the things that must be satisfied in any case and so don’t need to form part of the negotiation. For example, a food producer might have a clear set of business requirements supporting the sourcing of a particular food ingredient. These might require any supplier to comply with relevant food safety and hygiene regulations and demonstrate suitable accreditations. This is a prerequisite need and there is no point engaging with any supplier unless we are certain they can meet this basic requirement. These non-negotiable elements are typically the basic needs and in our business requirements hierarchy would be those on the first few stairs (Figure 9.4). They should be satisfied as part of a pre-qualification activity, perhaps through a tendering process, so we are only negotiating with those who can meet our needs. In our TV example above, there would be little point in walking into a bakery and asking what deal they could do on a new TV.

Figure 9.3 Defining the negotiables

Figure 9.3 details

Inputs in defining negotiables include: pre-existing requirements, stakeholder consultation, needs for the relationship, corporate aims and responsibilities, and end customer needs and desires. The next step is extract the requirements that need to be negotiation. The third step is identify implementation factors or the negotiables.

Figure 9.4 Extracting the negotiables from our business requirements

Figure 9.4 details

It shows the RAQSCI model wherein the first few components e.g. Regulatory and Assurance of Supply requirements, apply to the “needs” that are non-negotiables. These requirements should drive the pre-qualification activity and typically sit outside of the negotiation. The rest of the RAQSCI apply to Wants and Some Needs: negotiables. Some of these requirements can be extracted to form the negotiation requirements.

The aim in developing the negotiables is to identify only the points that need agreement and can reali...