Description
Negotiation can be defined as: "To communicate with the objective of reaching an agreement by means, where appropriate, of compromise."
Negotiation
CIPS is expressing beliefs on negotiation as this is a key skill of the
purchasing and supply management professional.
Introduction
Negotiation can be defined as: "To communicate with the
objective of reaching an agreement by means, where appro-
priate, of compromise."
CIPS believes that negotiation is a key skill of the purchasing
and supply management professional. The ability to negotiate
effectively is so fundamental, that without it, an effective
purchasing and supply management service cannot be pro-
vided. Although some people have a natural flair for negotia-
tion it is a skill which not only needs to be learned through
professional training, coaching and experience but requires
refresher training at, at least, five year intervals.
Purchasing and supply management professionals should
undertake, or lead, any significant negotiation with suppliers
required by their organisation. Where someone else is to
undertake a negotiation, it is the responsibility of the pur-
chasing and supply management professional to ensure that
they are properly trained and prepared for the experience.
CIPS believes there are reputational risks for the organisation
when an untrained individual undertakes a complex commer-
cial negotiation. Negotiation should be part of most procure-
ment exercises especially those which are of high value, high
risk or are complex. In some cases, negotiation with ap-
proved suppliers is preferable to inviting bids such as when
the requirement is difficult to specify.
CIPS Positions on Practice
• CIPS views, opinions and beliefs are stated throughout the
document; however the broad practice statements which
underpin the text are as follows:
• CIPS firmly believes that negotiation is a key skill require-
ment for purchasing and supply management profession-
als and is one moreover which requires refresher training
on at least a five -yearly basis
• CIPS believes that purchasing and supply management
professionals should be involved either by leading, sup-
porting or facilitating, on behalf of their organisation, the
strategy and process for any negotiations with suppliers
• CIPS advocates the use of cross-functional teams when
significant negotiations are involved; these should be led
by purchasing and supply management professionals
• CIPS emphasises the criticality of planning the negotiation
which should include, for instance researching the back-
ground, identifying roles, setting objectives, factors for
trade, potential concessions and a fall back position or
position at which the buying organisation is prepared to
walk away from the negotiation.
• In the negotiation process, CIPS believes that ideally pur-
chasing and supply management professionals should aim
for win-win outcomes (which as explained below - need
not necessarily represent ideal outcomes) for both parties.
Advantages and Disadvantages of
Negotiation
The advantages of negotiation include:
• It is a relatively expedient method of obtaining a value-for-
money solution
• It is a useful method of maintaining value for money in a
single source situation i.e. where there is no real competi-
tion
• It is useful when the requirement is difficult to specify
• It is relatively inexpensive to undertake
• It is flexible and not prescriptive
• It should be confidential
Undertaking Negotiation
Purchasing and supply management professionals often lead
cross-functional teams when undertaking complex procure-
ment negotiations. It is imperative that those parties under-
taking the negotiation are empowered to make decisions so
as to bring discussions to an effective conclusion.
CIPS encourages purchasing and supply management profes-
sionals to understand and appreciate the importance of the
use of emotion and body language in negotiations, in order
that all messages given directly or indirectly by the supplier(s)
can be interpreted appropriately.
To be successful, the purchasing and supply management
professional should ensure that the negotiation is properly
planned. The extent of the planning should be a function of
value and risk. The planning process should include:
• A diagnosis of the situation
• An accurate appraisal of the buying organisation's expecta-
tions
• An assessment of both parties' bargaining power
• The setting of objectives for the negotiation e.g. the ideal,
realistic and fall back positions need to be identified and
agreed
• The development of a strategy for the negotiation i.e. ap-
proach, style, communication, concessions, baseline even
venue e.g. a neutral venue may prove more appropriate
than the offices of one of the parties to the negotiation
• The factors to be traded need to be identified i.e. those
things which the buying organisation can trade for things
they would like to obtain from the supplier and those
things which can be conceded etc. It is advisable to try to
anticipate the suppliers' perception of such factors.
Tel +44(0)1780 756777 • Fax +44(0)1780 751610 • Email [email protected] • Web www.cips.org
During the negotiation, the strategy must be implemented
and in addition:
• The needs of both parties should be explored
• Movement needs to be maintained
• Objectives may need to be reviewed
• Tactical ploys may need to be used
• Concessions may need to be given from both sides
• Settlement needs to be recognised and agreed
• Closure needs to happen
• The agreement needs to be documented
Issues to Consider
CIPS believes that purchasing and supply management pro-
fessionals should aim for a mutually acceptable solution for
both parties where appropriate. There will rarely be occa-
sions when the benefits of the negotiation are equally bal-
anced but if suppliers feel they have "lost", this may ad-
versely affect their attitude to the relationship making any
negotiated gains by the purchasing and supply management
professional short-term triumphs.
In some cases e.g. when negotiating with an ad-hoc supplier,
as opposed to one with whom the buying organisation is to
have a longer term relationship, it is appropriate for the
buyer to drive as hard a bargain as possible.
Negotiation is particularly difficult where there is little com-
petition in the marketplace. This strengthens the supplier
position and correspondingly weakens that of the buyer. The
purchasing and supply management professional must iden-
tify alternatives as part of the negotiation strategy and have a
position with which they are prepared to walk away from the
negotiation (for this position Fisher and Ury coined the term
"Best Alternative to a Negotiated Agreement or BATNA".
Conclusion
Negotiation is a skill which must be learned, and refreshed
periodically. Purchasing and supply management profession-
als should be responsible for determining when negotiations
with suppliers are appropriate and ensuring that these are
undertaken
Negotiation
Tel +44(0)1780 756777 • Fax +44(0)1780 751610 • Email [email protected] • Web www.cips.org
doc_357876093.pdf
Negotiation can be defined as: "To communicate with the objective of reaching an agreement by means, where appropriate, of compromise."
Negotiation
CIPS is expressing beliefs on negotiation as this is a key skill of the
purchasing and supply management professional.
Introduction
Negotiation can be defined as: "To communicate with the
objective of reaching an agreement by means, where appro-
priate, of compromise."
CIPS believes that negotiation is a key skill of the purchasing
and supply management professional. The ability to negotiate
effectively is so fundamental, that without it, an effective
purchasing and supply management service cannot be pro-
vided. Although some people have a natural flair for negotia-
tion it is a skill which not only needs to be learned through
professional training, coaching and experience but requires
refresher training at, at least, five year intervals.
Purchasing and supply management professionals should
undertake, or lead, any significant negotiation with suppliers
required by their organisation. Where someone else is to
undertake a negotiation, it is the responsibility of the pur-
chasing and supply management professional to ensure that
they are properly trained and prepared for the experience.
CIPS believes there are reputational risks for the organisation
when an untrained individual undertakes a complex commer-
cial negotiation. Negotiation should be part of most procure-
ment exercises especially those which are of high value, high
risk or are complex. In some cases, negotiation with ap-
proved suppliers is preferable to inviting bids such as when
the requirement is difficult to specify.
CIPS Positions on Practice
• CIPS views, opinions and beliefs are stated throughout the
document; however the broad practice statements which
underpin the text are as follows:
• CIPS firmly believes that negotiation is a key skill require-
ment for purchasing and supply management profession-
als and is one moreover which requires refresher training
on at least a five -yearly basis
• CIPS believes that purchasing and supply management
professionals should be involved either by leading, sup-
porting or facilitating, on behalf of their organisation, the
strategy and process for any negotiations with suppliers
• CIPS advocates the use of cross-functional teams when
significant negotiations are involved; these should be led
by purchasing and supply management professionals
• CIPS emphasises the criticality of planning the negotiation
which should include, for instance researching the back-
ground, identifying roles, setting objectives, factors for
trade, potential concessions and a fall back position or
position at which the buying organisation is prepared to
walk away from the negotiation.
• In the negotiation process, CIPS believes that ideally pur-
chasing and supply management professionals should aim
for win-win outcomes (which as explained below - need
not necessarily represent ideal outcomes) for both parties.
Advantages and Disadvantages of
Negotiation
The advantages of negotiation include:
• It is a relatively expedient method of obtaining a value-for-
money solution
• It is a useful method of maintaining value for money in a
single source situation i.e. where there is no real competi-
tion
• It is useful when the requirement is difficult to specify
• It is relatively inexpensive to undertake
• It is flexible and not prescriptive
• It should be confidential
Undertaking Negotiation
Purchasing and supply management professionals often lead
cross-functional teams when undertaking complex procure-
ment negotiations. It is imperative that those parties under-
taking the negotiation are empowered to make decisions so
as to bring discussions to an effective conclusion.
CIPS encourages purchasing and supply management profes-
sionals to understand and appreciate the importance of the
use of emotion and body language in negotiations, in order
that all messages given directly or indirectly by the supplier(s)
can be interpreted appropriately.
To be successful, the purchasing and supply management
professional should ensure that the negotiation is properly
planned. The extent of the planning should be a function of
value and risk. The planning process should include:
• A diagnosis of the situation
• An accurate appraisal of the buying organisation's expecta-
tions
• An assessment of both parties' bargaining power
• The setting of objectives for the negotiation e.g. the ideal,
realistic and fall back positions need to be identified and
agreed
• The development of a strategy for the negotiation i.e. ap-
proach, style, communication, concessions, baseline even
venue e.g. a neutral venue may prove more appropriate
than the offices of one of the parties to the negotiation
• The factors to be traded need to be identified i.e. those
things which the buying organisation can trade for things
they would like to obtain from the supplier and those
things which can be conceded etc. It is advisable to try to
anticipate the suppliers' perception of such factors.
Tel +44(0)1780 756777 • Fax +44(0)1780 751610 • Email [email protected] • Web www.cips.org
During the negotiation, the strategy must be implemented
and in addition:
• The needs of both parties should be explored
• Movement needs to be maintained
• Objectives may need to be reviewed
• Tactical ploys may need to be used
• Concessions may need to be given from both sides
• Settlement needs to be recognised and agreed
• Closure needs to happen
• The agreement needs to be documented
Issues to Consider
CIPS believes that purchasing and supply management pro-
fessionals should aim for a mutually acceptable solution for
both parties where appropriate. There will rarely be occa-
sions when the benefits of the negotiation are equally bal-
anced but if suppliers feel they have "lost", this may ad-
versely affect their attitude to the relationship making any
negotiated gains by the purchasing and supply management
professional short-term triumphs.
In some cases e.g. when negotiating with an ad-hoc supplier,
as opposed to one with whom the buying organisation is to
have a longer term relationship, it is appropriate for the
buyer to drive as hard a bargain as possible.
Negotiation is particularly difficult where there is little com-
petition in the marketplace. This strengthens the supplier
position and correspondingly weakens that of the buyer. The
purchasing and supply management professional must iden-
tify alternatives as part of the negotiation strategy and have a
position with which they are prepared to walk away from the
negotiation (for this position Fisher and Ury coined the term
"Best Alternative to a Negotiated Agreement or BATNA".
Conclusion
Negotiation is a skill which must be learned, and refreshed
periodically. Purchasing and supply management profession-
als should be responsible for determining when negotiations
with suppliers are appropriate and ensuring that these are
undertaken
Negotiation
Tel +44(0)1780 756777 • Fax +44(0)1780 751610 • Email [email protected] • Web www.cips.org
doc_357876093.pdf