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Best Practice Preparation: Using Purchasing Training To Find The Key To Ensure A Successful Negotiation
Most negotiators greatly underestimate the 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 analyse the context is a great place to start preparing for negotiations.
Some of the key elements to think about are:
- What is the nature of the sale/purchase in terms of risks involved, the level of expenditure 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 approach a sole supplier in a different way 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 concluded any transactions with the other side 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 present and what are the local customs?
- Who are all the organisations & individuals involved in the negotiation and what is the decision process? A diversified approach is required as final decision makers will very often be interested in Return on Investment and augmented revenues & margins. The final user who looks for better productivity and efficiency regard the financial elements almost completely irrelevant.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
If we fail to plan and rank our deal objectives we put ourselves at risk of being manipulated and/or ending with a sub-optimal agreement. Whether you are engaged in negotiation on the sales or purchasing side, think about the following factors when preparing for negotiation:
- Price and payment, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business transactions require finding methods to create 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 most affordable solution but rather with providing their businesses with the cheapest total cost of ownership, which is composed of things like:
- Purchase price, Maintenance costs, The cost of use, Training costs, Supplier performance criteria, Delivery, Quality and Customer 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 offer value for money, we are in a better position to find common ground.
Key Obligations: Ensure your product and services are defined and reflect 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 ensure that you deliver any promises.
Intellectual property: Carefully negotiate IP ownership rights and consider the following factors:
- 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 factors in a contract. Cultural consideration is critical. 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 crucial in planning Concession Strategies that will assist you to leverage maximum value from trades and in planning meetings optimally.
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