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Essential Strategies for a Successful Procurement Negotiation

The importance of negotiation in business deals cannot be understated. Successful negotiation involves good interpersonal and communication skills and used together to bring the desired result. In fact, negotiation is one of the main qualities employers look for when recruiting staff nowadays. This is because a good negotiator can close the best deals, leading to the advancement of an organization. Improved supplier relationships, sustainable competitive advantage and managing conflicts effectively are all advantages of successful negotiations.

Distributive Negotiation

The term distributive means giving out or the scattering of things. By its mere nature, there is a limit or finite amount in the things being distributed or divided amongst the people involved. Hence, this type of negotiation is often referred to as “The Fixed Pie”.

There is only so much to go around, but the proportion to be distributed is limited but also variable. In the real world of negotiations, two parties face off with the goal of getting as much as possible.

The seller wants to go after the best price they can obtain, whilst the buyer wants to pay the lowest price to achieve the best bargain. This is really just good old plain haggling, which is just like from playing a tug of war.

Distributive Negotiation
The diagram above shows the effect of an integrative and distributive negotiation

Integrative Negotiation

Integrative or Interest-based bargaining is a negotiation strategy in which all parties collaborate to find beneficial outcomes for each. The strategy focuses on finding a ‘win-win’ solution by developing mutually beneficial agreements. Interests, needs, and concerns of each party are taken into consideration to ensure that there is mutual agreement instead of a conflict.

Integrative bargaining helps the parties to combine their interests to create additional value and enlarge the pie. The ‘pie’ refers to the share of benefits. However, there can only be a discussion where negotiation is possible. Also, the parties should recognize the possibility of a mutually beneficial solution. The diagram below shows an enlarged pie which is the resultant effect of an integrative negotiation.

Integrative Negotiation

The diagram below shows the stages in developing between the integrative and non-integrative thinkers, and procurement professionals should adopt the practices of integrative thinkers.

non-integrative thinkers

Preparation

There is no good shortcut to Preparation. The more prepared you are, the more likely it is that the result of the negotiation will be acceptable for all parties involved. The two most important things to do during preparation are: (1) make sure to have all the information that you can about the forthcoming negotiation, and (2) think about the negotiation process from the beginning to the end and be fully prepared for any eventuality.You need to know about the product or service, and the person with whom you will be negotiating. You obtain this information by choosing good questions to ask that are well thought out. Remember that the power is always on the side of the person with the best information.

The diagram below shows the 3 consideration that should adopt for procurement professionals in the negotiation preparation.

Preparation

The BATNA Technique

“BATNA” is an acronym which stands for ‘Best Alternative to a Negotiated Agreement’. It is also crucial to assess the BATNA of the other side. The weakness of your own BATNA might not matter that much if the other side has no good alternative to doing business with you.

As with all good negotiation preparation, BATNAs should always be worked up in advance and you need to ensure that you have developed them for as many parts of the negotiation as possible.

The diagram below shows the visual metaphor that outlines procedural knowledge on negotiation by using the BATNA.


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References

Alex, D. and Rebecca, M. (2017). “Applying Negotiation Skills to Everyday Events”. Retrieved from https://www.payette.com/news/applying-negotiation-skills-to-everyday-events/, accessed 09/09/2018

Jonathan, O. (2016). “The power of alternatives: Why you should never leave the office without a BATNA!”. Retrieved from https://www.koganpage.com/article/the-power-of-alternatives-why-you-should-never-leave-the-office-without-a-batna, accessed 03/09/2018

Kaya. (2017). “5 Golden Rules to Govern Your Supplier Negotiations”. Retrieved from http://www.subbly.co/blog/supplier-negotiations/, accessed 02/09/2018

Marc, W. (2017). “7 Key skills for successful negotiation”. Retrieve from http://www.procurement-academy.com/7-key-skills-successful-negotiation/, accessed 09/09/2018

Martina Marof. (2017). “5 Critical Strategies for a Successful Procurement or Purchasing Negotiation”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/5-critical-strategies-successful-procurement-purchasing-negotiation, accessed 03/09/2018

Prashant, D. (2018). “Negotiation Preparation, Strategy and Tactics”. Retrieved from https://www.linkedin.com/pulse/negotiation-preparation-strategy-tactics-dedhia-negotiation-ninja-, accessed 09/09/2018

Tang Wei Wen. (2018). “Key Challenges for Effective Procurement Negotiation”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/key-challenges-effective-procurement-negotiation/, accessed 03/09/2018

Chew Jin Swee, DPSM
Chew Jin Swee, DPSM
Chew Jin Swee has substantive years of experience in the professional field of procurement management, and specifically in the Sheet Metal Industry. He is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Jin Swee completed the Diploma in Procurement and Supply Management (DPSM) course on September 2018 at SIPMM Institute.
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