Negotiation is an integral part of life, occurring anytime and anywhere, particularly within procurement functions. Negotiation skills are essential for professional purchasers to position themselves in a favourable situation. One crucial prerequisite for negotiation preparation is the relationship with suppliers. The ultimate objective of negotiation is to achieve mutual gain for both parties based on the common ground agreed, upon while managing differences in interests. Effective negotiation also requires proper research with technological tools. Digital technology helps speed up the process to have a better view while negotiating. Useful techniques will bring each other closer, build trust, and achieve cost savings. This article discusses six techniques for overcoming obstacles for successful procurement negation.
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Table of Contents
Preparing for Successful Negotiations
Negotiation may not start well without prior preparation. Preparation is an important factor in achieving a desirable negotiation outcome. Adequate time and resources are required for a proper preparation process. The preparation stage typically involves three steps. Firstly, objectives and priorities need to be defined. It can be achieved by identifying the primary and secondary goals of the negotiation and prioritizing them accordingly. It can be cost savings, schedule adjustments or contractual terms that protect the interests. Secondly, proper market research is to be carried out to understand project requirements, specifications, constraints, project history, market trends, material costs and labour rates. It is important to make comparisons and identify the key differences during research. Collection of background information on the other party and understanding of their negotiation style will also help in effective negotiation. Lastly, it is important to determine BATNA, which stands for “Best Alternative To a Negotiated Agreement”. A strong BATNA provides leverage and enables informed decision making during the negotiation process, especially when the initial negotiation fails to achieve the desired outcome.
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Fostering Trust in Supplier Relationship
The vital criterion for fosterage of trust is to build a long-term collaborative relationship with the supplier, so as to achieve goals of both parties and grow together. Supplier Relationship Management (SRM) is an important strategy to manage key supplier partnership, identify opportunities for cost reduction, improve service quality and innovate. Effective SRM will also lead to improvement in supplier performance. Development of trust is necessary for building long-term partnerships. Trust can be fostered through the following ways. Firstly, maintaining an open and transparent communication channel helps trust building among the business partners. Secondly, establishing a common understanding through a crafted contract with terms and responsibilities spelled out clearly. This will eliminate potential misunderstandings or disagreements in the event of disputes. It is also important to monitor supplier performance through a supplier score chart. Lastly, suppliers should be treated fairly and not subject to the abuse of power by the buyers. Supply chains will achieve greater efficiency while also elevating the quality of products and services, when relationship is fostered.
Developing a Win-Win Strategy
It is widely recognised that effective negotiation is achieved when both parties walk away from the table as winners. A buyer has to understand the strengths and weaknesses of all parties, to enhance the likelihood of success, as the adage goes, “Know the opponent”. A buyer must consider the perspectives of both the suppliers and themselves when implementing a Win-Win strategy. There are some important considerations from the supplier’s perspective. Firstly, the reason why they are chosen, and how their products or services align with, and influence buyers’ business strategies. Moreover, identifying conditions the buyer might view as unfavourable. Last but not least, exploring ways they can compromise and improve further. The primary focus of the buyer lies in the total value rather than solely the price. Key factors such as price, quality, performance, and who the supplier is, hold equal significance in the overall picture. Furthermore, it’s important to introduce new market opportunities into the negotiations, so that buyers can request for price reductions. Finally, suppliers may be more likely to accept negotiation through demonstrating the risk of losing the opportunities from the buyer’s organisation.
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Applying Non-Verbal Communication
Non-verbal cues, such as body language and tone of voice, often convey more personal feelings than words in a critical negotiation. The 7-38-55 rule was developed in 1971 by Albert Mehrabian, a psychology professor from the University of California (Los Angeles). He pointed out that nonverbal communication entwines feelings and emotions. Humans unintentionally reveal this through facial expression, eye contact, and vocal tone. The Rule states that 7% is through words, 38% through tone of voice, and 55% through body language. Application of correct techniques can get the message across more effectively. Usage of positive reinforcement, such as smiles and eye contact, leads to better engagement in conversation. Hidden information may reveal when focusing on opponents’ body language, especially when words and nonverbal cues do not match. Voice tone and pace of the speech needs to be maintained to ensure better understanding from the audients throughout the presentation. Moreover, selecting the appropriate environment and avoiding crowded or bustling public spaces allow better concentration during negotiations. The most effective way is to use an accommodating voice to promote collaboration. This approach will help in the effective delivery of arguments.
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