Purchasing &

Supply Chain
Management
7th edition

Chapter 13
Negotiation and Conflict Management

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 Learning Objectives (1 of 2)
By the end of this chapter, you should be able to:
• Understand when and why a buyer enters into a supply management
negotiation
• Recognize the importance of effective planning within the negotiation
process
• Appreciate the different sources of power that are present during
negotiations
• Understand the characteristics of effective negotiators

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 Learning Objectives (2 of 2)
By the end of this chapter, you should be able to:
• Comprehend the central role of concession management during
negotiation
• Recognize the subtleties and complexities involved with global
negotiation
• Understand how to effectively negotiate via electronic means

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 Chapter Overview (1 of 2)
• What is negotiation?
• The negotiation framework in supply management
• Negotiation planning
• Power in negotiation
• Concessions
• Negotiation tactics: Trying to reach agreement

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 Chapter Overview (2 of 2)
• Win-win negotiation
• International negotiation
• Selected countries
• The impact of electronic media on negotiations

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 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
• Relationships between people, not just organizations
• The role of persuasion
• Negotiation skills can be learned and enhanced
• Supports implementation of supply management strategies and plans

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 Common Terms Used in Negotiation

• BATNA • Issue
• Position • Strategy
• Interest • Power
• Need • Concession
• Want • Tactic
• Fact

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 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

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 Position
• Negotiator’s opening offer
− Represents the optimistic (or ideal) target value of issues being
negotiated
• Stated demand at negotiation table

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 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 a stated position
− Often personal in nature

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 Needs vs. Wants
• Need
− Negotiated outcome that negotiator must achieve
• Want
− Negotiated outcome that a negotiator would like to have
− May often be exchanged as a concession

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 Triangle Talk

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 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

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 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

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 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

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 The Negotiation Framework

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 When to Negotiate (1 of 3)
• Identification of allowable or • Technological support and
reimbursable costs assistance
• Delivery schedules and lead times • Contract volumes and release
timing
• Expected product and service
quality levels • Special packaging, handling, and
shipping
• Performance metrics and how
information is gathered, shared, • Mode of transportation and
and used responsibility for carrier selection,
filing freight claims, and loss and
damage claims

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 When to Negotiate (2 of 3)
• Liability for loss or damage • Contract length and renewal
mechanism
• Payment terms and currency
exchange • Protection of proprietary
information
• Progress payment schedules
• Ownership and use of intellectual
• Warranties and replacements
property
• Capacity commitments • Resources related to developing
• Penalty clauses closer relationships

• Performance incentives

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 When to Negotiate (3 of 3)
• Improvement requirements • Spare parts
− Quality • After-sales service
− Delivery • Operator or maintenance support
− Lead time,
• Access to technology
− Cost
− Responsiveness
• Contract dispute resolution
mechanisms

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 Phases of the Negotiation (1 of 2)
• 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

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 Phases of the Negotiation (2 of 2)
• 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

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

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 Reasons for Failed Negotiations
• Neglecting the other party’s problems
• Focusing too much on price
• Focusing on positions instead of interests
• Focusing too much on common ground
• Neglecting BATNAs
• Overadjusting perceptions during actual negotiation

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 Develop Specific Objectives (1 of 2)
• Objective
− Aspiration or vision to work toward in future
• Typical objectives
− Acceptable unit price
− Contract quantities
− Required delivery lead time
− Improved supplier quality

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 Develop Specific Objectives (2 of 2)
• Not all objectives are equally important
− Need to prioritize
 Must have (needs)
 Would like to have (wants)
− Serves as basis for concession strategy

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 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

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 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

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 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

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 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

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 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

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 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

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

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 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

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 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

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 Coercive Power
• Taking away or withholding something of value to other party
• Ability to punish
− Financially, physically, or mentally
• Can have damaging effects on long-term relationships
• Promotes retaliation or getting even

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 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

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 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

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 Referent Power
• Comes from attraction based on socially acceptable personal qualities
and attributes
− Personality or attractiveness characteristics such as …
 Honesty
 Charisma
 Friendliness
 Empathy
 Sensitivity

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 Common Negotiation Tactics

• Low ball • High ball

• Honesty and openness • Best and final offer
• Questions • Silence
• Caucus • Planned concessions
• Trial balloon • Venue
• Price increase

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

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 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

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 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

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

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 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

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

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 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!”

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 International Negotiation (1 of 2)
• Added complexity and challenge with different …
− Languages
− Customs
− Laws
− Cultures
• Extra time and effort required
• Culture shock

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 International Negotiation (2 of 2)
• 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

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 Culture Shock
• Negotiator’s preexisting values, beliefs, rules, and decision-making
schema are challenged
• Emotions run higher
• May encounter substantial
− Anxiety
− Disorientation
− Confusion

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 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

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Impact of Electronic Media on Negotiations (1 of 3)
• 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

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Impact of Electronic Media on Negotiations (2 of 3)
• 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

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Impact of Electronic Media on Negotiations (3 of 3)
• 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?

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 Mitigating the Negative Effects
of Electronic Negotiation (1 of 2)
• 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

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 Mitigating the Negative Effects
of Electronic Negotiation (2 of 2)
• 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

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 Effective E-Negotiating Practices (1 of 2)
• Use a blended negotiation
• Share relevant personal information initially
• Establish common ground
• Use emoticons ;<)
• Summarize agreements and concessions frequently

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 Effective E-Negotiating Practices (2 of 2)
• 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

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