mim 524 global sourcing class seven. agenda -commodity studies are due -negotiation strategies from...
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MIM 524Global Sourcing
Class Seven
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Agenda
- Commodity Studies are Due- Negotiation Strategies from a Sourcing
Perspective- Sustainability- Starbucks Discussion- Current Events- Review of Final Presentation
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Negotiation Strategies
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The “Art” of Negotiations
You get what you negotiate!You negotiate for everything
CostCapacityTerms & Conditions/ContractEven Mind share…..
Data Verses StylePreparation is Key!
Understand the Competitive LandscapeBuyer’s Verses Seller’s Markets
Listening can be more important than talkingEthics is Critical
“Fine Print”Misleading intent of termsHighlighting errors or omissionsNon disclosure (Ex: Language skills)
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Changing Dynamics of NegotiationsTeam negotiations are more common Margin Pressures leave little wiggle roomFrequency is increasingGlobal Impact – Language, Culture, etc. (See next
slide)Technology Impact IE: Reverse AuctionCompetitive Landscape may be restricted
Fewer SuppliersSole Sourcing
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Cultural Variables in Negotiations
Communication – the way in which information is transmitted• Direct or Indirect• Verbal or Non Verbal• Tolerance for Silence
Power – The extent to which power is distributed• Egalitarian or Hierarchical
Time – the view of and way in which time is utilized• Patience or Impatience• Relationship focus or Results focus
Collectivity – The extent to which the role of the individual or group takes precedence• Group or Individual
Structure – The extent to which uncertainty or unknown situations create discomfort• Predictability or Uncertainty
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Typical Flow of a NegotiationDefine what is required/objectives of the negotiation
Pricing, Capacity, Delivery, IP, etc? Engage with appropriate customers and key stakeholders to ensure
alignment and prioritiesInternal and External Assessment
Understand the competitive Landscape and possible challenges/Barriers to achieving your objectives
This should include the Supplier’s “Known” position.Use above to develop your strategy
Priorities, walk away positions, methods of negotiating, “gives and takes” as well as timeline and possible points of escalations
Ensure you have appropriate ratification of strategy Use a “negotiation Plan” as the method to receive approval for
strategies Who participates in the negotiation, what are their roles? Who is the
lead?Conduct Negotiations & Document the Final agreementClose with Key stakeholders on the final results
Gain re-approval if unable to close on all items or hit appropriate targets
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Data Collection and Environmental LandscapeWhat is needed?
Scope of Work Specifications Pricing Targets Timelines
What does the supply base look like? How many viable suppliers are there? What is the competitive landscape? What do they want out of this deal?
Who should be involved in this negotiation? Active/Direct Involvement Consultative/Indirect Advised - FYI Ratification – Pre and Post Neg
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Elements of Strategy
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Negotiations from a Strong Position
Suppliers “hungry” for the businessStrong data to back up your positionsTechnical and Industry knowledge is highAbility to award or remove opportunitiesNo time pressures exist for BuyerOther incremental opportunities might exist• Additional business• Increased SOW or value add
opportunities
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Negotiations from a Weak Position Simulate competition – real or perceived? Develop a BATNA (Best Alternative to a negotiated
Agreement ie: back-up strategy) Determine if escalations are required
• Use these as your “silver bullets” – too frequent they become ineffective
Bank on changing competitive landscape over time• Shift from Seller to Buyer Market
Potential Future incremental opportunities
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Understanding the SupplierEnsure you understand their positions
What has been verified, stated and assumedEnsure they understand your positions and requirements
Don’t under estimate the “confusion” factorSet VERY clear expectations at the beginning
Are there any specific needs or restrictionsAsk a lot of questions….. Open ended is best.
What? – UnderstandWhy? - Confront
Restate to ensure understandingAvoid assumptions
Who are the decision makers?
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A Negotiation Plan Example
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Sections in a Neg Plan
Title, Owner, Suppliers, Contract #Total Contract Value, Length of Contract, Projected
SavingsCurrent Situational AnalysisAreas to be AddressedNegotiation StrategyNames of Approvers/ReviewersGather Information
Negotiation ParticipantsFacts you Know/Facts you need to knowBuyer and Suppliers Needs and RestrictionAreas of Common Ground/Areas of Potential
ConflictBATNA (Best Alternative To Negotiated Agreement) –
Both Buyers and SuppliersNegotiation Completion SchedulePlan Strategy and Tactics
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Current Situational AnalysisExplains the current situationWhat history do we have with the
supplier?Background on what is required, from
who and when it will be neededWhat is the competitive landscape and
what potential opportunities or challenges does that represent
This “sets the stage”
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Typical Areas to be Addressed in NegotiationsPricing (Present & Future)Effectively DatesCurrencyPayment TermsSpares Availability/DiscountQuality of Product/ServicePre-Ship InspectionInventory ArrangementsRelease and SchedulingCustoms/LicensingTrainingTax ImplicationsIP Ownership & IndemnificationSpecifications
Freight Terms (INCO)3rd party Warehouse Programs/supply ChainSpecific PerformanceEscrow for Custom softwareMfg. Rights/2nd SourceTerms of AgreementTermination & CancellationRetention & AuditsRight of First RefusalField SupportToolingMaintenanceChange Control/Lot TrackingSecurity
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Negotiation Strategy
This will explain how they position to meet the end goals
What data will they useWhat logic and positioning will take placeWhat is the primary strategy as well as the
secondary strategySteps that will be taken in case roadblocks are
presentedThis is the “game plan”
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Research
This section highlights the “known” facts and positions for both the buyer and seller
It also highlights the areas were additional information is needed.
Outlines the “must have” items for the buyer and the anticipated ones for the supplier
Also works to see were there is clear common ground and tries to anticipate the areas of conflict.
BATNA for both sides is to understand the possible fall back positions for both partiesIf they are weak, then the pressure to close the deal will be
higher with either party
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Key Milestones in Neg ScheduleDate the neg plan is reviewed and approvedDate negotiations will start and completePossible “check point” with management on highly
complex neg plansMay include a milestone to trigger escalation if
negotiations are stalled or not going wellContract Signed
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Strategy and Tactics (Example)
•Area to Address
•Supplier's Known
Position
•Opening Position
•Exceeds Position
•Accepts Position1
•* Achieved
•Pricing per Unit •$7000/Unit •$4000/Unit •$5000/Unit •$5700/Unit•BM:$5500/Unit•BM Type: Should Cost Model
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Negotiation Session(s)
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The session (s)Where do you sit?
Leads should sit directly across from each otherTeam size comparison
You have a big team, they have a small teamVisa Versa
Initial DiscussionsFormally share positions, needs and outline gaps to be closed via the
neg. processUtilize negotiation strategies per the plan
Clarification, re-enforce need for items – what are the must havesGives and takes
Use facts, data and logic to support your positionsDon’t make the first compromiseBe ready to respond to surprises and regroupWhen do you walk away?
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Tactics and Counter TacticsSituational AmbiguityAnswering Questions with QuestionsFlinchingNo Reaction/SilenceGood Cop/Bad CopCalling the negotiations offTrying to get more after the agreement is reachedCreating Time PressuresTime Outs from a negotiationUnexpected Surprises
Asking for the worldAccepting the first offerManagement is making meLet’s wait on the hard stuffRaising the priceSplit it down the middleHigher AuthorityWant everything and you will give nothingOffer in Writing “perceived CredibilityExhaustion
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Tips and Style
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Tips for Effective Negotiations – Occam’s RazorMake sure you are dealing with someone of authority who can make the final decisions
Avoid the “I have to get my managers approval”Give on the “little stuff” earlier
Usually the big concessions occur near the end of the negotiationsIt all boils down to “total cost”
Competition is the key driver on costDon’t under estimate the cost of transferred Risk
Keep emotions out of negotiationsDon’t take things personallyAvoid looking anxious to close the dealConfidence is Key – Be prepared
Team Negotiation DynamicsRegroup when positions changeUnderstand the roles of the team (Good cop/Bad Cop, Data Analyst, etc.)
Don’t be afraid to ask for things that sound unreasonableNever know what they may or may not valueCould be a “fake give”
Time – Your friend or your enemy?The group with the most time has the advantage
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Tips for Effective NegotiationsSilence is “golden”
Can indicate disagreement – especially with non verbal (facial expressions or actions)
Thought processing – thinking it through…Document key points
Clear note taking is keyShare with other party at end of session
Avoid distractions or interruptionAsk open ended questions and listen for meaning of the
response rather than the wordsCultural Differences in response time, empowerment and direct
communications are always factorsTranslators add a different dimension
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Negotiation StrategiesCost Rabbit Strategy Already Vested – Stay with what you knowDelay Strategy – wait it out to see if
competitive landscape changes to your favor
Deferred Risk – Go further upstream to remove cost and risk with sub-tiers
Crystal Ball Strategy – what do you see in the future?
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Negotiation StrategiesKeep your Option Open
Second Source or “Stick” StrategyKeep them warm or “Carrot” Strategy
Loyalty Strategy – Are you the customer of choice?
Big Picture Strategy – it is about more than this one deal….
We are in it together – collaborate and share risk/reward
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Negotiation StrategiesLock it In Strategy – Make long term
commitment on the current favorable position for long term benefit
Bartering Strategy – exchange for something of value
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Unilateral Negotiation Exercise Instructions (Time: 30 Min)
Get together in Groups of 2-3 folksDetermine who will report out for the team
Read the case hand outDetermine the existing situationDetermine which strategies you might use to close
this deal? As well as the pro’s and con’sRefer to Neg strategies – Hand out
See questions at end of case.Document your proposed strategy and your
rational Be ready to discuss with the class
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Two Way Negotiation Exercise
Negotiation Teams are your established groups Three Teams will be Buyers Three Teams will be Sellers
After receiving your hand out, each team will break away and strategize on approach (15 Min)
Return to class room to be matched up with opposing team
Break away to conduct your negotiations (15 Min) Return to classroom for Debrief/Report Out (10 Min)
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Final ThoughtsBe prepared – plan aheadDon’t be afraid to walk away from a
negotiationYou can negotiate anything…Don’t get in a time pressure situationALWAYS maintain integrity and ethics It is never over….
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Starbucks Corporation
Building a Sustainable Supply Chain
Class Discussion
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Sustainability Current Events
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Final Exam – Hand Out
Q & A
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Next Class
Final Presentations & Peer ReviewsNo Current Events
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Questions?