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Best Practice Planning: How Purchasing Training Helps To Determine Important Factors To Ensure A Profitable Negotiation
Most negotiators completely underrate 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 cost and the difficulty of the transaction?
- Competitive analysis: What is the current position of the market and what options do our counterparties have available? We will approach a sole supplier differently than those in a competitive market.
- Is it a one-off transaction or should we think about securing a long-term positive relationship that develops alternatives for future business?
- Have we concluded any transactions with our counterparty in the past and what is their most likely approach to concluding business?
- How accomplished are the negotiators on the other side of the table?
- What cultures will be represented and what are the local traditions?
- Who are all the organisations & individuals involved in the transaction and what is the decision making process? A diversified method is needed as final decision makers will certainly be interested in Return on Investment and increased revenues & margins. The end user who looks for enhanced productivity and efficiency will find the financial elements almost totally irrelevant.
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 sub-optimal conclusion. Whether you are engaged in negotiation on the sales or purchasing side, consider the following factors when preparing for 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 demand finding methods to create additional value and to move negotiation from haggling to synergistic and creative joint problem solving. Professional buyers are not requested with getting the most affordable solution but rather with providing their businesses with the cheapest total cost of ownership, which is made up of things like:
- Acquisition costs, Maintenance costs, The cost of use, Training costs, Supplier performance metrics, 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 entire life cycle of the product, solution or service and simultaneously 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 can live with any promises.
Intellectual property: Carefully negotiate IP ownership rights and consider the following factors:
- Who is paying 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 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, unforeseen events are resolved 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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