Negotiation and Conflict Resolution

PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e

Negotiation and Conflict Resolution Chapter 13

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

SOUTH-WESTERN CENGAGE LEARNING

Chapter Overview  What is negotiation?  The negotiation framework in supply management  Negotiation planning  Power in negotiation  Concessions

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

2

Chapter Overview  Negotiation tactics: trying to reach agreement  Win-win negotiation  International negotiation  Selected countries  Impact of electronic media on negotiations © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

3

What Is Negotiation?  A process of formal communication, either face-to-face or via electronic means, where two or more people, groups, or organizations come together to seek mutual agreement about issue or issues  Involves management of time, information, and power between individuals and organizations who are interdependent © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

4

What Is Negotiation?  Relationships between people, not just organizations  Role of persuasion  Negotiation skills can be learned and enhanced  Supports implementation of supply management strategies and plans © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

5

Common Terms Used in Negotiation  BATNA  Position  Interest  Need  Want  Fact

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

 Issue  Strategy  Power  Concession  Tactic

Purchasing & Supply Chain Management, 6e

6

BATNA  That point where it is advantageous to walk away from the negotiation  Best Alternative to a Negotiated Agreement  Bottom line or reservation point

 Should never be revealed to other party  All settlements must be judged in light of all other viable alternatives existing at the time of the agreement © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

7

Position  Negotiator’s opening offer  Represents the optimistic (or ideal) target value of issues being negotiated

 Stated demand at negotiation table

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

8

Interest  Unspoken motivation or reason that underlies any given position  Unlikely to be expressly stated or acknowledged  If done, usually results in loss of power

 May not be directly germane to stated position  Often personal in nature © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

9

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 the other party’s underlying interests, not its stated positions © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

10

Need vs. Want  Need  Negotiated outcome that negotiator must achieve

 Want  Negotiated outcome that a negotiator would like to have  May often be exchanged as a concession

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

11

Triangle Talk Step 3: “Propose Action in a Way that They Can Accept”

Step 1: “Know Exactly What You Want” © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

The Negotiation Process

Step 2: “Know Exactly What They Want”

Purchasing & Supply Chain Management, 6e

12

Know Exactly What You Want  Determine and formalize specific goals and objectives  Helps retain clear focus and minimize distraction  When written, can be referred to readily during negotiation  The more clearly defined, the more likely that priorities can be achieved © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

13

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 as you do  Ask probing, open-ended questions to confirm or counter assumptions © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

14

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  Address their needs first

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

15

The Negotiation Framework

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

16

Identify or Anticipate the Sourcing Requirement  Purchase requisitions  Inventory counts  Reorder point systems  New product development  New facilities

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

17

Determine If Negotiation or Competitive 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?

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

18

Determine If Negotiation or Competitive Bidding Is Required  Does contract involve a partnership?  Will supplier perform value-added activities?  Will there be high risk and uncertainty?

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

19

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

 Technological support and assistance  Contract volumes and release timing  Special packaging, handling, and shipping  Liability for loss and damage

Purchasing & Supply Chain Management, 6e

20

When to Negotiate  Transportation mode selection  Carrier selection  Filing freight claims  Payment terms and currency exchange  Progress payment schedules  Warranties and replacements © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

 Capacity commitments  Penalty clauses  Performance incentives  Contract length and renewal mechanism  Protection of proprietary information Purchasing & Supply Chain Management, 6e

21

When to Negotiate  Ownership and use of intellectual property  Resources related to developing closer relationships  Improvement requirements  Quality, delivery, lead time, cost, responsiveness © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

 Contract dispute resolution mechanisms  Spare parts  After-sales service  Operator or maintenance training  Access to technology

Purchasing & Supply Chain Management, 6e

22

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 capitalintensive plant and equipment

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

23

Reasons for Negotiation  Agreement involves special or collaborative relationship  Supplier will perform important valueadded activities, requiring …  Appropriate compensation  Performance standards  Performance metrics

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

24

Planning for the Negotiation  Better planning  better outcomes  Electronic communication tools vs. face-to-face negotiations  Reduce expensive and time consuming travel

 Use of online RFP and RFQ templates  Quick turnaround on changes  Simultaneous negotiations with multiple suppliers © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

25

Points to Focus On  Defining issues, needs, and wants  Assembling issues, needs, and wants  Defining bargaining mix  Defining interests  Defining own objectives and opening offers © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

 Assessing role of constituents and social context  Analyzing other party  Planning issue presentations and defenses  Defining process protocols Purchasing & Supply Chain Management, 6e

26

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

27

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

28

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 viable options  Build and focus on common ground rather than differences © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

29

Being an Effective Negotiator  Avoid making irritating comments  Avoid argumentation  Too many reasons can dilute an argument

 Make fewer counterproposals  Too many concessions  Compromising too much  May indicate lack of adequate planning and show invulnerability © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

30

Execute and Follow Up on the Agreement  Actual performance or management of contract  Load into organization’s contract management system for visibility  Provide performance feedback  Build on success of negotiation  Monitor contract provisions  Reaffirm commitment of parties © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

31

Negotiation Planning  Develop plan and overall strategy  Specific strategies  Research  Actions  Tactics

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

32

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  Overadjust perceptions during actual negotiation © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

33

Develop Specific Objectives  Objective  Aspiration or vision to work toward in future

 Typical objectives  Acceptable unit price  Contract quantities  Required delivery lead time  Improved supplier quality © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

34

Develop Specific Objectives  Not all objectives are equally important  Need to prioritize  Must have (needs)  Would like to have (wants)

 Serves as basis for concession strategy

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

35

Analyze Each Party’s Strengths and Weaknesses  Understand through research and experience  Personality  Negotiation style  History of the other party

 Assess relative strengths and weaknesses, i.e., “due diligence”  Each negotiation experience is unique © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

36

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 different negotiators?  What were important issues to supplier?

To buyer? © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

37

Gather Relevant Information  Previous experience with other party  What were areas of disagreement?  Is there anything about previous conduct or protocols that should be changed?  What is relative power between parties?  Who has most to lose? To gain?

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

38

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

39

Recognize Your Counterpart’s Needs  Must consider longer-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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

40

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

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

41

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  “Heart” of the negotiation process © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

42

Bargaining Zone Example Buyer

BATNA

$11.15

Example shown is typical buyerseller negotiation on price © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Zone of Likely Agreement

Aspiration Point

Note:

$11.45

BATNA

Aspiration Point

$11.00

$11.50

Seller Purchasing & Supply Chain Management, 6e

43

Factors in Modifying Positions  Desirability of the contract  Revelation of irrefutable information that challenges accuracy and credibility of original position  Major concession that promotes reciprocation on another issue

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

44

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

45

Brief Other Stakeholders  Stakeholder  One who has an interest in or will be 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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

46

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

47

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

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

48

Sources of Negotiating Power  Informational power  Reward power  Coercive power  Legitimate power  Expert power  Referent power

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

49

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

50

Reward Power  One party is able to offer something of perceived value to other  Direct attempt to exert active control  Individuals respond and behave accordingly when valued rewards are available

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

51

Coercive Power  Taking away or withholding something of value to other party  Ability to punish  Financially, physically, or mentally

 Can have damaging effects on longterm relationships  Promotes retaliation or getting even © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

52

Legitimate Power  Power based on official 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

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

53

Expert Power  Special form of informational power  Development and retention of body of knowledge

 Often represented by verifiable credentials and stature  Reduces likelihood of refuting position  Other party must value expertise in order to be effective © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

54

Referent Power  Comes from attraction based on socially acceptable personal qualities and attributes  Personality or attractiveness characteristics such as …  Honesty  Charisma  Friendliness  Empathy  Sensitivity © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

55

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

56

Concessions  Movement away from position that has perceived value to other party to gain something else 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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

57

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

58

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

59

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 a little with each concession  Do not reveal your deadline to other party – ever © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

60

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 pattern  Do not concede too soon, too often, or too much © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

61

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

62

Common Negotiation Tactics  Low ball  Honesty and openness  Questions  Caucus  Trial balloon  Price increase © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

 High ball  Best and final offer  Silence  Planned concessions  Venue

Purchasing & Supply Chain Management, 6e

63

Cialdini’s Power of Influence  Reciprocation  Consistency  Social proof  Liking  Authority  Scarcity

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

64

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

65

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

66

Social Proof  Looking to behavior of others to determine what is desirable, appropriate, and correct  Power of endorsement  Everyone else is doing it

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

67

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

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

68

Authority  People are more likely to accept positions, arguments, and directions from recognized authority figures  Power of titles and perceived importance

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

69

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!” © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

70

Overcoming Tactics  Modify tactics when they don’t work  Prepare for likely tactics to be used against you  Tactics are more effective if you are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or disinterested  Try not to react without thinking © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

71

Win-Lose vs. Win-Win Negotiation  Win-lose  Competitive or distributive bargaining  “Fixed sum game” perception

 Win-win  Integrative or collaborative bargaining  Expand the value or resources available to all participants  Requires time, patience, and creativity © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

72

Win-Lose Negotiation  Assume rigid negotiating positions  Compete over a fixed amount of value  Practice strict use of power by one party over another  Pursue adversarial relationships

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

73

Win-Win Negotiation  Understand each other’s needs and wants  Focus on common ground rather than personal interests  Conduct joint efforts to solve problems  Develop creative solutions that provide additional value  Engage in open information sharing © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

74

Win-Win Methods  Expand the pie  Logroll  Use nonspecific compensation  Cut costs for compliance  Find bridge solution

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

75

International Negotiation  Added complexity and challenge with different …  Languages  Customs  Laws  Cultures

 Extra time and effort required  Culture shock © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

76

International Negotiation  Barriers and obstacles  Miscommunication because of language  Time orientation  Cultural differences  Limited authority of foreign negotiators

 Need for knowledgeable translators  Culture and language  Industry and business concepts © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

77

Culture Shock  Negotiator’s preexisting values, beliefs, rules, and decision-making schema are challenged  Emotions run higher  May encounter substantial  Anxiety  Disorientation  Confusion © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

78

Characteristics to Overcome Barriers  Extreme patience  Thorough knowledge of 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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

79

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 general tendencies © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

80

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

© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

81

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

82

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? © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

83

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

84

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 © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

85

Effective E-Negotiating Practices  Use a blended negotiation  Share relevant personal information initially  Establish common ground  Use emoticons ;<)  Summarize agreements and concessions frequently © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

86

Effective E-Negotiating Practices  Include positive language addressing the importance of the relationship  Maintain a folder of the correspondence  Know when and how to reply to or forward electronic correspondence  Proofread the entire message before sending  It will always take longer © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Purchasing & Supply Chain Management, 6e

87