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Best Practice Planning: How Purchasing Training Helps To Uncover The Key To Ensure A Profitable Negotiation
Nearly all negotiators greatly underrate the amount of time required to prepare for any business negotiation even though this is a critical part of business negotiation best practice.
Using your negotiation skills to understand the negotiation environment is a great place to start preparing for negotiations.
The key elements to consider are:
- What is the nature of the transaction in terms of risks involved, the level of expenditure and the difficulty of the deal?
- Competitive analysis: What is the current position of the market and what options do the other side have at their disposal? We will deal with a sole supplier in a different way than those in a competitive market.
- Is it a single deal or should we think about maintaining a long-term positive relationship that develops opportunities for future trade?
- Have we had any dealings with the other side in the past and what is their most likely method to doing business?
- How skilled are the negotiators on the other side?
- What cultures will be represented and what are the local traditions?
- Who are all the parties & persons concerned in the negotiation and what is the decision process? A diversified tactic is needed as final decision makers will most likely be interested in Return on Investment and increased revenues & margins. The end user who looks for improved output and efficiency regard the financial elements almost completely immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
If we fail to plan and prioritise our deal objectives we put ourselves at risk of being exploited and/or ending with a sub-optimal agreement. Whether you are involved in negotiation on the sales or purchasing side, think about the following elements when planning for a negotiation:
- Price and payment, Key responsibilities, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business deals demand finding ways to develop extra value and to move negotiation from positional bargaining to mutually beneficial and creative joint problem solving. Professional buyers are not charged with getting the cheapest solution but rather with providing their businesses with the cheapest total cost of ownership, which is composed of things like:
- Purchase price, Service costs, The cost of use, Support costs, Supplier performance criteria, Delivery, Quality and Client Support. (These concepts are covered in most purchasing training programmes).
If we are able to minimize the other side's costs in the entire life cycle of the product, solution or service and at the same time provide value for money, we are in a better position to find agreement.
Key Obligations: Make sure your product and services are defined and show your priorities. Include all the relevant 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 ensure that you deliver any promises.
Intellectual property: Carefully negotiate IP ownership rights and think about the following elements:
- Which party is footing the bill for the Research and Development?
- Could the product development be utilised by competitors to your loss if you don' t own the IP? How can you avoid competitors to use the same IP?
Risks: The best way to manage exposure is to include the elements in a written contract. Cultural consideration is very important. In Asian countries the goal of negotiation is not a signed contract. In China, unexpected circumstances are settled through the relationship.
Analysing the above elements 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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