Best Practice Planning: Using Purchasing Training To Uncover Important Factors To Ensure A Profitable Negotiation
Most negotiators completely underestimate 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 understand the context 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 complexity of the deal?
- Competitive analysis: What is the current position of the market and what options do the other side have available? We will deal with a sole supplier in a different way than those in a competitive market.
- Is it a one-off deal or should we consider maintaining a long-term positive association 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 experienced are the negotiators on the other side?
- What cultures will be represented and what are the local traditions?
- Who are all the groups & persons involved in the negotiation and what is the decision making process? A diversified approach is required 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 will find the financial elements almost totally immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
If we fail to prepare and rank our deal objectives we put ourselves at risk of being manipulated and/or ending with a sub-optimal conclusion. Whether you are involved in negotiation on the sales or purchasing side, think about the following elements when preparing for negotiation:
- Price and payment terms, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business deals require finding ways to create extra value and to move negotiation from positional bargaining to mutually beneficial and creative joint problem solving. Professional buyers are not requested with getting the most affordable solution but rather with securing their organisations with the cheapest total cost of ownership, which is composed of things like:
- Purchase price, Maintenance costs, The cost of use, Support costs, Supplier performance criteria, Delivery, Product quality and Client Support. (These concepts are covered in most purchasing training programmes).
If we are able to minimize our counterpart'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 common ground.
Key Obligations: Make sure your product and services are defined and reflect your priorities. Include all the relevant quantities and specifications.
Delivery: How important 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 consider the following elements:
- Which party is paying 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 stop competitors to use the same IP?
Risks: The best way to manage risks is to include the factors in a written contract. Cultural consideration is critical. 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 crucial in planning Concession Strategies that will help you to leverage maximum value from trades and in planning meetings optimally.