OSCM CH13,14
feras81
chapter_13_negotiation_and_conflict_resolution.pptxNegotiation and Conflict Resolution
Chapter 13
OSCM 3660:002 Strategic Sourcing
Spring 2016
Sandeep Jagani
PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Chapter Overview
What is negotiation?
Negotiation framework
Negotiation planning
Power in negotiation
Concessions
Negotiation tactics: trying to reach agreement
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Chapter Overview
Win-win negotiation
International negotiation
Comprehensive global negotiation skills and enhanced cultural understanding
Impact of electronic media on negotiations
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What Is Negotiation?
Process of formal communication, either face-to-face or via electronic means, where two or more people come together to seek mutual agreement about issue or issues
Involves management of time, information, and power between individuals and organizations who are interdependent
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What Is Negotiation?
Relationships between people, not just organizations
Persuasion
Negotiation skills can be honed and practiced
Supports implementation of supply management strategies and plans
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Common Terms Used in Negotiation
BATNA
Best alternative to a negotiated agreement
Positions
Interests
Needs
Wants
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BATNA
Bottom line or reservation point
BATNA should never be revealed to other party
All settlements must be judged in light of all other viable alternatives existing at time of the agreement
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Positions
Negotiator’s opening offers
Represent the optimistic or ideal target value of issues being negotiated
Stated demands at negotiation table
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Interests
Unspoken motivations or reasons that underlies any given position(s)
Unlikely to be explicitly declared or acknowledged during negotiation
May not be directly germane to stated position
Often personal in nature
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Key Points on Interests
Learn to play detective
Try to discern other party’s interests through series of open-ended, probing questions
Then listen carefully
Always focus on other party’s underlying interests, not its stated positions
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Needs vs. Wants
Needs
Negotiated outcomes that negotiator must achieve
Wants
Negotiated outcomes that a negotiator would like to have
May often be exchanged as concessions
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Triangle Talk
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The
Negotiation Process
Step 1:
“Know Exactly What You Want”
Step 2:
“Know Exactly What They Want”
Step 3:
“Propose Action in a Way that They Can Accept”
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Know Exactly What You Want
Determine and write down specific goals and objectives
Helps retain clear focus and minimize distraction
Can be referred to readily during negotiation
The more clearly defined, the more likely that they can be achieved
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Know Exactly What They Want
Attempt to discern other party’s likely needs and wants
Estimate underlying interests to other party’s stated positions
Beware of expecting other party to think in same way
Ask probing, open-ended questions to confirm or counter assumptions
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Propose Action in a Way that They Can Accept
Frame your own needs in terms of other party’s needs
Make it easy for other party to say “Yes”
Remain fair, flexible, and reasonable
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The Negotiation Framework in Supply Management
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Identify or anticipate sourcing requirement
Determine if negotiation or bidding is required
Plan for the negotiation
Execute the agreement
Conduct the negotiation
Identify or Anticipate the Sourcing Requirement
Purchase requisitions
Inventory counts
Reorder point systems
New product development
New facilities
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Determine If Negotiation or Bidding Is Required
Is bid process inadequate?
Are many non-price issues involved?
Is contract large?
Are technical requirements complex?
Does contract involve plant and equipment?
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Determine If Negotiation of Bidding Is Required
Does contract involve a partnership?
Will supplier perform value-adding activities?
Will there be high risk and uncertainty?
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When to Negotiate
Identification of allowable costs
Delivery schedules and lead times
Expected product and service quality levels
Performance metrics and how information is gathered
Technological support and assistance
Contract volumes
Special packaging
Liability for loss and damage
Payment terms and currency issues
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When to Negotiate
Progress payment schedules
Transportation mode selection
Carrier selection
Filing freight claims
Warranties and replacements
Capacity commitments
Material lead times
Penalty clauses
Performance incentives
Contract length
Contract renewal mechanism
Protection of proprietary information
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When to Negotiate
Ownership of intellectual property
Resources related to developing closer relationships
Improvement requirements
Quality, delivery, lead time, cost, responsiveness
Contract dispute resolution mechanisms
Spare parts
After-sale service
Operator or maintenance training
Access to technology
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Reasons for Negotiation
Total contract value or volume is large
Complex technical requirements
Product and process requirements and specifications may still be evolving
Purchase involves utilization of capital-intensive plant and equipment
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Reasons for Negotiation
Agreement involves special or collaborative relationship
Supplier will perform important value-adding activities, requiring …
Appropriate compensation
Performance standards
Performance metrics
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Planning for the Negotiation
Better planning better outcomes
Use of electronic communication tools vs. face-to-face negotiations
Expensive and time consuming travel
Use of online RFPs and RFQs
Quick turnaround on changes
Allows simultaneous negotiations with multiple suppliers
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Points to Focus On
Defining issues
Assembling issues and defining bargaining mix
Defining interests
Defining own objectives and opening bids
Assessing constituents and social context
Analyzing other party
Planning issue presentation and defense
Defining protocols
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Phases of the Negotiation
Phase I
Fact finding and information sharing
Clarify or confirm information
Phase II
Recess to assess new information and findings
Assess relative strengths and weaknesses
Review and revise objectives and positions, if necessary
Organize agenda
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Phases of the Negotiation
Phase III
Meet face-to-face or electronically
Narrow differences on issues
Offer proposals and counterproposals
Exchange concessions
Phase IV
Seek agreement
Conclude negotiation
Agree to follow-on activities
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Being an Effective Negotiator
Willing to compromise or revise goals
When faced with new information
View issues independently
Establish upper and lower ranges for each major issue
Explore more options
Build on common ground between parties
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Being an Effective Negotiator
Avoid making irritating comments
Avoid argumentation
Too many reasons can dilute an argument
Make fewer counterproposals
Too many concessions
Too much compromising
May indicate lack of adequate planning and show invulnerability
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Execute and Follow Up on the Agreement
Actual performance or management of contract
Load into organization’s contract management system
Provide performance feedback
Build on success of negotiation
Monitor contract provisions
Reaffirm commitment of parties
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Negotiation Planning
Develop plan and overall strategy
Specific strategies
Research
Actions
Tactics
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Reasons for Failed Negotiations
Neglect other party’s problems
Focus too much on price
Focus on positions instead of interests
Focus too much on common ground
Neglect BATNAs
Over-adjust perceptions during negotiation
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Develop Specific Objectives
Objective
Aspiration or vision to work toward in future
Typical objectives
Fair and reasonable price
Contract quantities
Required delivery lead times
Improved supplier quality
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Develop Specific Objectives
Not all objectives are equally important
Need to prioritize
Must have
Would like to have
Serves as basis for concession strategy
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Analyze Each Party’s Strengths and Weaknesses
Understand through research and experience
Personality
Negotiation style
Education and experience
History
Assess relative strengths and weaknesses, i.e., your “due diligence”
Each negotiation experience is unique
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Gather Relevant Information
Previous experience with other party
What happened between parties?
Was negotiator satisfied with previous outcome?
Are we negotiating with same people or with new negotiators?
What were important issues to supplier? To buyer?
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Gather Relevant Information
Previous experience with other party
What were areas of disagreement?
Is there anything about previous protocols that should be changed?
What is relative power between parties?
Who has most to lose? To gain?
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Sources of Information
Other buyers or organizations with experience with supplier
Published sources of information
Trade journals, other business publications, and Internet websites
Trade association and government data
Annual reports
Financial evaluations and databases
Direct inquiry with supplier
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Recognize Your Counterpart’s Needs
Must consider long-term success
Issues critical to supplier may not be issues critical to buyer, and vice versa
Give-and-take must be considered
Each party should not expect to prevail in all issues
Setting priorities for concessions and issue tradeoffs
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Identify Facts and Issues
Fact
Reality or truth that parties can state and successfully verify
Issue
Items or topics to be resolved
Triangle Talk is a helpful tool
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Establish a Position on Each Issue
Need for agility and flexibility
Range of positions
Minimum acceptable position (BATNA)
Maximum, or ideal, position
Most likely outcome
Overlapping positions create bargaining or settlement zone
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Bargaining Zone Example
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Buyer
Seller
Aspiration Point
Aspiration Point
BATNA
BATNA
Zone of Likely Agreement
Note:
Example shown is typical buyer-seller price negotiation
$11.45
$11.15
$11.00
$11.50
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Factors in Modifying Positions
Desire for the contract
Revelation of irrefutable information that challenges accuracy and credibility of original position
Major concession that promotes reciprocation
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Develop the Negotiation Strategy and Accompanying Tactics
Strategy
Overall approach used to reach mutually beneficial agreement
Tactic
Art or skill of employing available means to accomplish an end, objective, or strategy
Includes supporting action plan and activities
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Brief Other Stakeholders
Stakeholder
One who has an interest in or is affected by negotiation outcome(s)
Need to be aware of and in agreement with desired objectives
Includes major issues and initial positions for those issues
Prevent unwanted surprises
Develops stakeholder buy-in and support
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Practice the Negotiation
Applies to complex and formal negotiations that are …
Large dollar amount
Long span of time
Crucial to success of organization
Mock or simulated negotiation
Helps raise awareness of unanticipated questions and issues
Role play other party to develop empathy
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Power in Negotiation
Power
Ability to influence another person or organization to do something
Power by itself is neither good nor bad
It is actual application or use of power that makes it good or bad
Sources of negotiating power
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Sources of Negotiating Power
Informational power
Reward power
Coercive power
Legitimate power
Expert power
Referent power
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Informational Power
Ready access to relevant and useful information
Presentation of facts, data, and persuasive arguments
Need for selective disclosure
Can be manipulated by withholding information or by providing false information
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Reward Power
One party is able to offer something of perceived value to other
Direct attempt to exert control
Individuals respond and behave accordingly when valued rewards are available
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Coercive Power
Taking away or withholding something of value to other party
Ability to punish
Financially, physically, or mentally
Can have damaging effects on long-term relationships
Promotes retaliation or getting even
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Legitimate Power
Power based on job position held
The higher the job position or title, the greater the power inferred
May be separate from reward power or coercive power
Buyer has legitimate power due to his/her ability to award contract
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Expert Power
Special form of informational power
Development and retention of body of knowledge
Often represented by verifiable credentials
Reduces likelihood of refuting position
Other party must value expertise in order to be effective
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Referent Power
Comes from attraction based on socially acceptable personal qualities and attributes
Personality or attractiveness characteristics such as …
Physical
Honesty
Charisma
Friendliness
Sensitivity
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Application of Power
Used to support one’s advantage
Need to be careful not to abuse power
Damaged relationships
Invited retaliation
Diminished value of that power
Some types of power interact synergistically with others
Example – expert and referent power
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Concessions
Movement away from position that has perceived value to other party to gain something of value
Give-and-take process is normal in most negotiations
Need to avoid giving away concessions without receiving something of equal or greater value in return
Always keep BATNA in mind
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Concessions
Without effective concessions strategy, negotiation may result in impasse
Concessions should be made in decreasing increments, not increasing ones
Increasing concession values encourage other party to wait you out for even greater concessions
Based on length and cost of negotiation
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Guidelines for Making Concessions
Give yourself enough room to make concessions
Try to get other party to reveal his/her needs and objectives first
Be first to concede on a minor issue but not first on a major one
Make unimportant concessions and portray them as valuable
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Guidelines for Making Concessions
Make other party work hard for every concession made
Use tradeoffs to obtain something for every concession you make
Generally, concede slowly and give little with each concession
Do not reveal your deadline to other party – ever
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Guidelines for Making Concessions
Occasionally, say “No” to other party
Be careful trying to take back concessions, even tentative ones
Keep a record of concessions made and try to identify a patterns
Do not concede too soon, too often, or too much
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Negotiation Tactics: Trying to Reach Agreement
Short-term plans and actions employed to ...
Execute strategy
Cause a conscious change in other party’s position
Influence others to achieve one’s own objectives
Can be either ethical or unethical
Tricks or ploys
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Common Negotiation Tactics
Low ball
Honesty and openness
Questions
Caucus
Trial balloon
Price increase
High ball
Best and final offer
Silence
Planned concessions
Venue
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Cialdini’s Power of Influence
Reciprocation
Consistency
Social proof
Liking
Authority
Scarcity
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Reciprocation
Obligation to give something back of equal or greater value to someone after having received something from them
Creates powerful obligation response
Can be used effectively when giving concessions
Patterns of concession
Quid pro quo
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Consistency
People tend to want to be perceived as being consistent in their beliefs and actions
Otherwise considered to be irrational
It is difficult to back away from something already agreed to
Beware of the consistency trap
Small commitments often lead to much larger ones
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Social Proof
Looking to behavior of others to determine what is desirable, appropriate, and correct
Power of endorsement
Everyone else is doing it
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Liking
People work well and are more agreeable with others that we like or who are like us
Get to know other party better to build on relationship when concessions are being offered
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Authority
People are more likely to accept positions, arguments, and directions from recognized authority figures
Power of titles and perceived importance
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Scarcity
Can also be “perception” of potential scarcity
“Act now!”
“For a limited time only!”
“Offer expires tomorrow!”
Suppliers often use potential price increases as a scarcity technique
“Twenty percent price increase effective at the first of the month!”
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Overcoming Tactics
Modify tactics when they don’t work
Prepare for likely tactics to be used against you
Tactics are more effective on you if you are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or disinterested
Try not to react without thinking
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Win-Win Negotiation
Win-lose
Competitive or distributive bargaining
“Fixed sum game” perception
Win-win
Collaboration or integrative bargaining
Expand the value or resources available to all participants
Requires time, patience, and creativity
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Win-Win Methods
Expand the pie
Logroll
Use nonspecific compensation
Cut costs for compliance
Find bridge solution
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International Negotiation
Added complexity and challenge, with different
Languages
Customs
Laws
Cultures
Extra time and effort required
Culture shock
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International Negotiation
Barriers and obstacles
Miscommunication
Time limitations
Cultural differences
Limited authority of foreign negotiators
Need for knowledgeable translators
Culture and language
Industry and business concepts
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Culture Shock
Negotiator’s pre-existing values, beliefs, rules, and decision-making schema are challenged
Emotions run higher
May encounter substantial
Anxiety
Disorientation
Confusion
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Characteristics to Overcome Barriers
Patience
Knowledge of contract agreement
Honest and polite attitude
Familiarity with foreign cultures and customs
Recognize that common words may have different meanings, even between similar countries or cultures
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Caveats when Negotiating Overseas
Don’t think that everyone else thinks and negotiates like you do
There is danger in stereotyping or oversimplifying the interpersonal characteristics of other cultures
There is always substantial interpersonal variation within any culture
However, there are often common tendencies
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Impact of Electronic Media on Negotiations
Electronically-based negotiations tend to equalize differences between parties
Normal visual and auditory clues are diminished or not readily apparent
Status differences and social differences are less discernible
Problem of being anonymous
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Impact of Electronic Media on Negotiations
E-negotiations take more time than face-to-face negotiations
Outcomes tend to be less satisfying
E-negotiations are more impersonal and do not promote rapport
Interchange is often more aggressive and less diplomatic
Messages are often misconstrued and taken out of context
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Impact of Electronic Media on Negotiations
Negotiators tend take more risks
Real time vs. asynchronous
Loss of information richness
More difficult to provide feedback and conduct active listening
E-negotiators ask fewer questions and tend to make more assumptions
What does “silence” mean?
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Mitigating the Negative Effects of Electronic Negotiation
Conduct an initial face-to-face meeting to build rapport
At a minimum, have an extended telephone conversation
Take extra time to carefully reread and edit e-mails before sending them
They are irretrievable and can be easily forwarded to others
Double-check “to:” and “cc:” addresses
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Mitigating the Negative Effects of Electronic Negotiation
Use generally accepted e-mail protocols
Clear, concise language
No all caps, excessive punctuation symbols, underlining, bolding, italics, or “off-the-cuff” comments
Don’t copy e-mail to recipient’s superiors
Perceived as you not trusting the recipient
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