Negotiation Techniques in procurement

Written by: Eman Abouzeid, Global Procurement and Supply Chain Professional Negotiation is a two-way communication skill. One person has one price or idea in mind, while the other...

Written by: Eman Abouzeid, Global Procurement and Supply Chain Professional

Negotiation is a two-way communication skill. One person has one price or idea in mind, while the other person has a different price or idea. Therefore, negotiation is defined as a discussion with the aim of ultimately agreeing on a price or outcome that is acceptable to both parties.

It may be that both parties get 100% of what they set out to achieve, or that one person gets exactly what they want and the other person does not, or that a third outcome is agreed that goes some way to meeting the requirements or expectations of both parties. Of course, there will also be situations where the parties cannot agree and the deal is not done.

As a procurement professional, you would probably associate negotiation with commercial negotiations of price and other contract terms (payment, delivery, quality, and so on). However, negotiation is a fact of life, everyone negotiates something every day. Negotiation is 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 party has some interests that are shared and others that are opposed.  

Negotiation is partly an internal process (e.g. when buyers negotiate with user departments over the details of a requisition), and is partly external process (e.g. negotiations between buyers and external suppliers).

In this article, we will explore the process of negotiation and some of the techniques that can be implemented, in order to ensure having an effective and successful negotiation process with different parties.

Negotiation typically follows a set process with the following five key steps:

1. Preparation and planning

Both parties will prepare and research the information needed to confirm their position. They also need to consider the history of the negotiation – how they got to where they are today. It is important to consider what the desired outcome will be but also to consider the starting position for the negotiations – price, terms, etc.

2. Defining ground rules

Each party needs to know what is expected of them, for example, by deciding:

  • Where the negotiations will take place.
  • If there are any time constraints.
  • If there are any issues not for considerations or off limits.
  • What will happen if an agreement is not reached.

3. Exchange information: clarification and justification

Each party explains their position. In the case of a supply contract negotiation, the buyer will describe what they want to purchase, and the seller will describe what they offer and what the benefits will be for the buyer. Having prepared thoroughly for the negotiations each party should have all the information required to educate the other party.

4. Bargaining and problem solving

This is where the ‘give-and-take’ of negotiation happens. It needs to be an open exchange with both parties seeking a solution that will be worthwhile for each other.

Eventually, they should agree on an outcome.

The ideal solution should be a ‘win-win’ situation where each side feels they have achieved something that satisfies both parties’ interests; in this case, they may build a lasting and productive relationship.

However, where the buyer has the power and there is an alternative supplier that will fully meets the buyer’s needs then there is nothing wrong with a win-lose for the buyer. Not all transactions require collaborative and long-lasting relationships.

5. Close: commitment and implementation

This step is about clarifying the agreement and starting to put in place what has been agreed by recording the details, including the timescale, and how it will be implemented.

In a business environment there is likely to be a contract which each party will need to sign. There may be some further negotiations over detailed terms of the contract that may not have been covered in the main negotiation process.

Negotiation personalities:

In your negotiations with others you will encounter several different approaches, which may be related to the negotiator’s personality, or related to the context and circumstances of the negotiation. You can consider these as being on a scale of hard and soft, and open and closed as demonstrated below:

  • Hard: tough and challenging negotiator.
  • Soft: easy to get along with but may say ‘yes’ just to avoid conflict.
  • Open: very trusting and open – and assumes others to be the same.
  • Closed: may be cautiousandapprehensive about sharing any information.
  • Open, hard: will listen to the other party, but may still stick to their position.
  • Open, soft: will trust and follow the other party.
  • Closed, hard: may stick to a rigid stance.
  • Closed, soft: cautious but willing to listen.

It is important to be aware of your own style as well as that of the person you are negotiating with, when you are willing to adapt, you will achieve the best rapport.

How to handle negotiations successfully:

When negotiating, keep in mind the following advice and tips on how to deal with the negotiation process.

Listen:

  • Listen carefully and observe the other side’s point of view.
  • If you do not listen carefully, you could miss opportunities.

Analyse:

  • Analytical skills are helpful for assessing the situation as negotiation progress.
  • They are also useful when problem solving if negotiations reach a blockage.

Be professional:

  • Keep careful control of your emotions even if other negotiating parties become upset or annoyed.
  • Never promise something that cannot be achieved.

Communication:

  • To succeed you must be able to clearly and effectively put across your position to the other party.

Patience:

  • Always respect the other party and be patient with them, even if they are not patient with you.
  • The other party may need to take more time than you would like to consider your proposal.
  • Remain calm and in control of the situation to maintain a good business relationship.

Problem solving:

  • Identify problems, issues, risks and challenges when they arise.
  • Do not try to evade them – work out a solution.

Persuasion:

  • Getting someone (or a group) to do something that you want them to do.

The main criteria of effective negotiations:

Negotiation is considered as an “effective negotiation” if it has the following four criteria:

1. The negotiation has produced “a wise agreement” – one that is satisfactory for both sides, and divisive issues are satisfactorily resolved.

2. The negotiation is “efficient” – no more time-consuming or costly than necessary.

3. The negotiation is “harmonious” – fosters rather than inhibits good interpersonal relationships.

4. “Working relationships or business partnerships” are preserved or even enhanced.

In conclusion:

Negotiation is “the art of letting the other person have it your way!” you should get the deal you want whilst making your opponent feel the same.

Short-term victories will not create long-lasting business relationships. Both sides must leave the negotiation table believing that they have gained. Therefore, no skill is more central to your professional career than the skill of negotiation, and as negotiations expert Chester L. Karrass famously put it, “In business, as in life, you do not get what you deserve, you get what you negotiate”.

I hope this has been of interest to you and furnished you with some knowledge to consider.

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