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Best Practice Planning: Using Purchasing Training To Determine The Key Factor To Unlock A Profitable Negotiation
Nearly all negotiators completely underrate the amount of time required to prepare for any business negotiation even though this is a key part of business negotiation best practice.
Using your negotiation skills to analyse the context is a great place to start preparing for negotiations.
The key elements to think about are:
- What is the nature of the transaction in terms of risks involved, the cost and the difficulty of the deal?
- Competitive analysis: What is the current position of the market and what alternatives do our counterparties have available? We will deal with a sole supplier differently than those in a competitive market.
- Is it a single transaction or should we think about maintaining a long-term positive relationship that creates alternatives for future business?
- Have we had any dealings with our counterparty in the past and what is their most likely method to concluding business?
- How accomplished are the negotiators on the other side?
- What cultures will be represented and what are the local practices?
- Who are all the groups & individuals concerned in the transaction and what is the decision process? A diversified approach is needed as final decision makers will very often be interested in Return on Investment and increased revenues & margins. The final user who looks for better productivity and efficiency regard the financial elements almost totally immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
Failing to plan and prioritise our deal objectives we put ourselves at risk of being taken advantage of and/or ending with a less agreeable conclusion. Whether you are engaged in negotiation on the sales or purchasing side, think about the following factors when planning for a negotiation:
- Price and payment terms, Key responsibilities, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business deals require finding methods to create extra value and to move negotiation from haggling to mutually beneficial and creative joint problem solving. Professional buyers are not requested with getting the cheapest solution but rather with providing their organisations with the cheapest total cost of ownership, which is made up of things like:
- Acquisition costs, Service costs, The cost of use, Training costs, Supplier performance criteria, Delivery, Product quality and Client Support. (These concepts are covered in most purchasing training programmes).
If we are able to lessen the other side's costs in the whole life cycle of the product, solution or service and simultaneously offer value for money, we are in a better position to find agreement.
Key Obligations: Ensure your product and services are defined and show your priorities. Include all the important quantities and specifications.
Delivery: How key are the delivery timelines and what happens if the delivery doesn't take place on time?
Warranties: In order to maintain trust and credibility make sure that you can live with any promises.
Intellectual property: Carefully negotiate IP ownership rights and consider the following elements:
- Who is footing the bill for the Research and Development?
- Could the research and development be utilised by competitors to your loss if you don' t own the IP? How can you prevent competitors to use the same IP?
Risks: The best way to manage risks is to include the factors in a contract. Cultural consideration is very important. In Asian countries the goal of negotiation is not a signed contract. In China, unforeseen events are settled through the relationship.
Analysing the above factors are important in planning Concession Strategies that will assist you to leverage maximum value from trades and in planning meetings optimally.
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