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Okay, this is the final course in the global procurement and sourcing specialization. It's going to be on
negotiation. I always tell people this is a skill set that you'll definitely need if you're going to be working
in or around procurement. But quite frankly, if not, this is a great skill to have, and if you're working in
other business areas. And of course personally, you can use negotiation in buying a house or a car, or
whatever other things you want to do. So it's a very, it's a good skill to have. I always tell people that it's
a learned skill, and what I mean by that is that two things. One, you can be trained in negotiation. I'm
going to go through it briefly here in the next few weeks. But more importantly you can get all sorts of
information on the outside, just to name a few.

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Harvard Business School is published through numerous professors and books, things on win-win
negotiations as that's a very popular thing about negotiations. You can end up either flying on an
airplane and you'll see a flyer inside the airplane magazine where there's usually a gentleman called
Karrass Negotiations. Just to date myself, I took it from Chester Cares many years ago, and that's
franchised now, but you can learn negotiation there. There are plenty of tapes and things in the
Internet, you can learn a lot about negotiation. So hopefully we will give you the basics here in this
particular course that will help you in procurement. One thing I'd say is that what's really critical about
negotiation is practice. And so more practice that you can get a negotiation, the better off you'll be. So
when you hear somebody say, Mary or Frank, or whatever, the best negotiation, they must have been
born like that. I always say no, it's probably because it's a learned skill and they practice it a lot. So in my
personal career, I was an engineer working for Rick and Coleman. That's now Rick and Ben Kaiser, I was
working in engineering. They needed somebody to come in to buy capital equipment and they thought
because I was working engineering I could do that, and I bought capital equipment. And the good thing
about things like capital equipment, you're buying stuff and you buy it fairly and frequently just for that
plant, maybe not have another plant for five years. And you're doing multiple negotiations on
equipment, and conveyors, and cookers, and all that type of stuff. So it gives you an opportunity to use
your negotiation skills, and more importantly if you make a mistake, it's not a big deal. It's not like it's
the most critical scarce commodity in the world that you're trying to get a good deal on. So I would
encourage you that if you do, try to get some practice in some relatively low risk area, and get as much
practice in learning your negotiation skills.

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So that, we're going to go ahead and get started.

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And this is my expectation for you. I always put these on in the beginning of each course, it's going to be
over four-week period. We're going to tell you when negotiation and when you don't, and it's not
always. And the reason is, is as you're going to see to go through this is negotiation is very, very time
consuming. You just don't have enough time to negotiate everything, you want it for the critical items in
your business. We want to learn about planning, the importance of planning. I'll talk about how
important that is. We're going to give you some tools to work on, things like setting good objectives,
working on MDOs, most desirable option. And LLAs, least acceptable alternatives. And BANTAs, which is
critical. Most people don't have BANTAs, we'll learn what it is. Best alternative to a negotiated
agreement. In process, we're going to let you, you can learn the difference between positions and
interest, wants and needs. I'm going to give you some tactics to work on, as well as how to give
concessions. And then lastly, most important one in week four, we're going to talk about what do you
do when a negotiation is complete? Quite frankly in my experience, many people rush onto the next
priority and they don't take time to finalize what actually happened in the negotiation. We'll tell you
how to do that.

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So here are the four weeks, go through each one negotiation process. This week, next week, developing
a plan, in the negotiation, and post negotiation. So let's go ahead and get started.

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So as usual, I always put up a question.

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What is a negotiation?

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So let's take about 30 seconds, jotted down people, paper like I asked you to do, be back in 30.

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Okay. So it's really a formal process of communication between usually face-to-face. More and more
people today quite frankly are using conference rooms and other things. It's not my preferred method
but because of tight travel budgets and time, everything else, a lot of people are using conference
rooms and negotiating electronically.

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It's a relationship with people, these people do work for organizations. But generally, the people are
doing the negotiation and they're trying, we're trying to persuade them of something, and they're trying
to persuade us of things. So I mentioned earlier that these are skills that can be honed in practiced, and
most importantly as we've seen in other courses. This is an integral part of procurement management.
Two places we looked at it, strategic sourcing, about the importance of negotiation and also in supplier
management, and supplier selection, and evaluations. So, this skill set is going to be used throughout
procurement. So when to negotiate and when you don't? And I know you hate to hear this from me, but
it depends, right? You gotta ask yourself a couple questions, right? You could get an RFQ, you get the
price, you got all the terms on it. You could just issue a purchase order, you don't you negotiate that,
particularly if it's a relatively small item. And non-recurring type item, that's how you do it, right? And
then you ask yourself, are there other non-price issues that we didn't get at in the RFQ, possibly. If it's a
large contract, it may be worth your while to negotiate even better terms and conditions, so to speak.

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So when to do negotiation? So as usual, I'm not going to read these slides. Just going to pick off a couple
of things, you can look over these or come back and look over them later. But next three slides are all
the times when you do negotiate.

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Things such as let's say performance metrics, you buy a piece of equipment or something and you have
certain performance. For example, 300 Snicker bars per hour on this rapper type of machine. You want
to make sure that's built into the agreement such that if it doesn't meet that requirement, you're going
to have to come in and either figure out how to fix it or give you some sort of remuneration potentially.
Things such as payment terms and currency issues. Particularly if you're buying foreign equipment. You
might have a simple thing that says net 30, that means you pay the invoice net 30, 30 days after the
invoice is received. You can negotiate payment terms to say 1% ten net 30. That means you get a 1%
discount if you pay it in ten days, otherwise you pay it in 30. And currencies, what currency you're going
to pay it? So these are all things that are generally not in the RFQ. You might not even know about it
until you get the RFQ back. So there's things that you want to be able to negotiate face-to-face.

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Progress payments, many times your building plant equipment, hate to wear the example out but it's a
good one. Where you say, I'm going to have 20% down and then three months from now I give another
40, and then I give 40 at the end. Well, you may say I only want to put 10% down because you haven't
proven that you can make this. And it can make a big difference in cash flow to your organization.
Warranties and replacements, if you have a warranty that's saying that this stuff is going to work for a
year and no problems, and what happens if it breaks down. Are they going to come in and replace it at
no charge? We're going to talk about proprietary information on the next slide. We're going to talk
about intellectual property. These are very difficult complex issues to negotiate. So if you have
proprietary information, you don't want them to do what you want to be able to make sure you build in
some sort of confidentiality agreement. And you want to make sure that they agree to that.

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Intellectual property, who owns the intellectual property, is it you, is it the supplier? Is it owned jointly?
Do you want to have rights to that intellectual property used somewhere else? So these things have to
be negotiated.

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Improvements, quality, so if you have ten parts per million of quality coming in and you need one part
per million to meet your customers needs. That's a type of thing that you would want to negotiate and
get a better quality coming into your plant. Things such as after-sales service. So if they're selling
something, like a computer or something like that, and you want to know that if something does break
down in the future, where do you send it? And what is the cost to have it serviced? Lastly, access to
technology. We talked about this in previous courses.

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As an example would be, you decided you want this technology that's going to bring innovation into
your business, which is going to help increase your top line. So how do you get access to that technology
and is there a time period on it? So these are all things, and there are plenty of things others. But there's
a lot of things you do want to negotiate but not all things as I said earlier have to be negotiated. So
we're going to start to touch on planning, which is one of the most important things in negotiation. And
we'll talk about strategies, and research, and actions, and tactics, we'll go through that. The main thing
here that's important is this first bullet point, better planning equals better outcomes. Let me say that
again, better planning equals better outcomes. 70% of your time should be spent in planning and 30%,
negotiation, if not less.

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So the days of you running into a conference room and you got a supplier sitting there, and you think
that in five minutes, you're going to negotiate a good deal, probably over. Doesn't mean it can't happen
but generally are, and more importantly as I said earlier, many salespeople are now trained in
negotiation, so they know how to negotiate too. So you have to have these skills to negotiate properly.
You have to use electronic tools to help you in the face-to-face negotiation. What do I mean by that?
Well, when you send off an RFQ and you get all this information on price and quality levels, and who
pays the freight, and all that type of thing. You want to be able to get as much information as you can
such that you

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can leverage that in the negotiation or agree to it, or try to improve upon it. And if you think about it,
you might be negotiating concurrently with multiple suppliers. So the better you have information
coming in with the request for quotations or request for proposals before the negotiation, the better off
you're going to be. And this is all before you walk in the room.

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So let me just highlight a couple things here. The first one is that you need to decide when and what to
negotiate, and as I said earlier, negotiation and you'll see this through the next weeks, can be a very,
very time-consuming process. So you got to pick your battles so to speak.

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And then lastly, and we'll come back to this point over and over again throughout the next couple
weeks. Negotiation planning is the most important part of the process, 70% of your time should be
spent here. So we'll be seeing you in week two.