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Best Practice Planning: How Purchasing Training Helps To Determine Important Factors To Ensure A Profitable Negotiation
Nearly all negotiators completely underestimate the amount of time required to plan for any business negotiation even though this is a key part of business negotiation best practice.
Using your negotiation skills to analyse 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 cost and the complexity of the deal?
- Competitive analysis: What is the nature of the market and what alternatives do our counterparties have available? We will deal with a sole supplier in a different way than those in a competitive market.
- Is it a single transaction or should we consider maintaining a long-term positive association that creates alternatives for future business?
- Have we had any dealings with the other side in the past and what is their most likely style to concluding business?
- How experienced are the negotiators on the other side?
- What cultures will be present and what are the local practices?
- Who are all the groups & individuals concerned in the negotiation and what is the decision process? A diversified method is required as final decision makers will very often be interested in Return on Investment and augmented revenues & margins. The final user who looks for better productivity and efficiency regard the financial elements almost completely immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
Failing to prepare and prioritise our deal objectives we put ourselves at risk of being manipulated and/or ending with a less agreeable conclusion. Whether you are engaged in negotiation on the sales or purchasing side, think about the following elements when planning for a negotiation:
- Price and payment terms, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business transactions require finding methods 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 buying the cheapest solution but rather with securing their organisations with the cheapest total cost of ownership, which is made up of things like:
- Acquisition costs, Service costs, The cost of use, Support costs, Supplier performance criteria, Delivery, Product quality and Customer Support. (These concepts are covered in most purchasing training programmes).
If we are able to lessen our counterpart's costs in the whole life cycle of the product, solution or service and simultaneously offer value for money, we are in a better position to find agreement.
Key Obligations: Make sure your product and services are defined and show your priorities. Include all the important 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 preserve trust and credibility make sure that you can live with any promises.
Intellectual property: Carefully negotiate IP ownership rights and consider the following elements:
- Which party is footing the bill for the Research and Development?
- Could the research and development be used 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 contract. Cultural consideration is very important. 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 crucial in planning Concession Strategies that will help you to leverage maximum value from trades and in planning meetings optimally.
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