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Best Practice Preparation: How Purchasing Training Helps To Determine Important Factors To Unlock A Profitable Negotiation
Most negotiators completely underestimate the time required to plan for any business negotiation even though this is a critical part of business negotiation best practice.
Using your negotiation skills to analyse the context is a great place to start preparing for negotiations.
Some of the key elements to think about are:
- What is the nature of the sale/purchase in terms of risks involved, the cost and the complexity of the transaction?
- Competitive analysis: What is the nature of the market and what options do our counterparties have available? We will approach a sole supplier differently than those in a competitive market.
- Is it a one-off transaction or should we consider securing a long-term positive association that develops alternatives for future business?
- Have we concluded any transactions with our counterparty in the past and what is their most likely approach to concluding business?
- How capable are the negotiators on the other side of the table?
- What cultures will be present and what are the local traditions?
- Who are all the groups & individuals involved in the transaction and what is the decision making process? A diversified method is required as final decision makers will most likely be interested in Return on Investment and augmented revenues & margins. The end user who looks for better productivity and efficiency will find the financial elements almost totally irrelevant.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
Failing to prepare and rank our deal objectives we put ourselves at risk of being manipulated and/or ending with a sub-optimal conclusion. Whether you are engaged in negotiation on the sales or purchasing side, consider the following factors when preparing for negotiation:
- Price and payment terms, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the difficulty of most business transactions demand finding methods to create additional value and to move negotiation from haggling to synergistic and creative joint problem solving. Professional buyers are not requested with buying the most affordable solution but rather with securing their businesses with the cheapest total cost of ownership, which is made up of things like:
- Acquisition costs, Maintenance costs, The cost of use, Training costs, Supplier performance metrics, Delivery, Product quality and Customer Support. (These concepts are covered in most purchasing training programmes).
If we are able to minimize our counterpart's costs in the entire life cycle of the product, solution or service and simultaneously offer value for money, we are in a better position to find common ground.
Key Obligations: Ensure your product and services are defined and reflect 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 as agreed?
Warranties: In order to preserve trust and credibility ensure that you can live with any promises.
Intellectual property: Carefully negotiate IP ownership rights and consider the following factors:
- Who is paying for the Research and Development?
- Could the research and development be used by competitors to your disadvantage if you don' t own the IP? How can you stop competitors to use the same IP?
Risks: The best way to manage exposure is to include the factors in a contract. Cultural consideration is critical. In Asian countries the goal of negotiation is not a signed contract. In China, unforeseen events are resolved through the relationship.
Analysing the above factors are crucial in preparing Concession Strategies that will help you to leverage maximum value from trades and in planning meetings optimally.
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