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Best Practice Planning: Using Purchasing Training To Uncover The Key Factor To Unlock A Profitable Negotiation
Nearly all negotiators completely underrate the 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 understand the negotiation environment 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 transaction?
- Competitive analysis: What is the current position of the market and what alternatives do the other side have at their disposal? We will deal with a sole supplier differently than those in a competitive market.
- Is it a single transaction or should we think about securing a long-term positive relationship that creates opportunities for future trade?
- Have we had any dealings with our counterparty in the past and what is their most likely method to concluding business?
- How skilled are the negotiators on the other side of the table?
- What cultures will be represented and what are the local practices?
- Who are all the organisations & persons concerned in the transaction and what is the decision process? A diversified approach is needed as final decision makers will certainly be interested in Return on Investment and increased revenues & margins. The final user who looks for enhanced output 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 rank our deal objectives we put ourselves at risk of being taken advantage of and/or ending with a less agreeable agreement. Whether you are involved 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 difficulty of most business deals require finding ways to develop extra value and to move negotiation from haggling to mutually beneficial and creative joint problem solving. Professional buyers are not requested with getting the most affordable solution but rather with providing their organisations with the cheapest total cost of ownership, which is composed of things like:
- Purchase price, 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 reduce the other side's costs in the whole 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: 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 as agreed?
Warranties: In order to maintain trust and credibility make sure that you deliver any promises.
Intellectual property: Carefully negotiate IP ownership rights and think about the following elements:
- Who is footing the bill for the Research and Development?
- Could the research and development be utilised by competitors to your disadvantage 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 elements in a written 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 preparing Concession Strategies that will assist you to leverage maximum value from trades and in planning meetings optimally.
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