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Best Practice Preparation: Using Purchasing Training To Uncover Important Factors To Unlock A Profitable Negotiation
Nearly all negotiators completely underrate the amount of 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 understand the context is a great place to start preparing for negotiations.
Some of the key elements to consider are:
- What is the nature of the transaction in terms of risks involved, the cost and the difficulty of the deal?
- Competitive analysis: What is the current position of the market and what options do the other side have available? 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 maintaining a long-term positive relationship that develops opportunities for future business?
- 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 represented and what are the local traditions?
- Who are all the organisations & individuals involved in the negotiation and what is the decision process? A diversified method is needed as final decision makers will most likely 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 completely immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
Failing to plan and prioritise our deal objectives we put ourselves at risk of being taken advantage of and/or ending with a sub-optimal agreement. Whether you are engaged in negotiation on the sales or purchasing side, consider the following elements when planning for a negotiation:
- Price and payment terms, Key responsibilities, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business deals demand finding ways to create additional value and to move negotiation from positional bargaining to mutually beneficial and creative joint problem solving. Professional buyers are not requested with getting the cheapest solution but rather with providing their businesses with the cheapest total cost of ownership, which is composed of things like:
- Acquisition costs, 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 the other side's costs in the entire 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: Make sure 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 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 factors:
- Which party is footing the bill 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 prevent competitors to use the same IP?
Risks: The best way to manage exposure is to include the elements 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 factors are important in planning Concession Strategies that will assist you to leverage maximum value from trades and in planning meetings optimally.
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