A guide for how to prepare and conduct and negotiations when in a buyer situation. How to handle climate management and other practical tools such as BATNA etc.

1. Introduction to negotiation
tools, methodology and tactics
Stockholm
2011-04-05

2. Negotiation Introduction
The negotiation is a dialogue with the intention to come to a
mutually agreed solution
 A dialogue between two or more parties,
with the intent of coming to a mutually
agreed solution, because each party has
something the other wants
 A communication process between two or
more people in which they consider
alternatives to arrive at mutually
agreeable solutions or mutually
satisfactory objectives
© 2011 Gravity Sourcing AB 2

3. Negotiation Introduction
Do not confuse Negotiation with Bargaining
 Do not confuse Negotiation (focused on VALUE) with Bargaining (focused on PRICE)
 The success of the negotiation depends on its preparation
 A golden rule: play the winner/winner game
BARGAINING NEGOTIATING
 Focus on PRICE  Consider the total of all CLAUSES
 Act with FORCE  Act as a PARTNER
 CONVINCE through strengths of personality  Base arguments on FACTS
 Not having PREPARED your documents  Base arguments on prepared ANALYSIS
 Think SHORT TERM  Think MID OR LONG TERM
© 2011 Gravity Sourcing AB 3

4. Negotiation Introduction
Depending on the scale of the deal, some preparation may be
appropriate for conducting a successful negotiation
1. Collect information; the more information you have, the better you will be
able to negotiate
(information to generate alternatives, strategies and ”convince” the other party. Information about the
other party, market information, trends, technologies, published standards, guidelines, etc.)
2. Define your own LAA (Least Acceptable Agreement), MDO (Most Desired
Outcome) and BATNA (Best Alternative To Negotiated Agreement) and do
the same for the other side
Your own and your suppliers’ negotiation clauses, objectives, least acceptable, arguments, tradeoffs,
alternatives, consequences etc.
3. Handle the climate in the negotiation (Climate Management)
4. Prepare your team and individual roles
5. Understand the different styles to be used in relationship- and substance
based negotiations
6. Be aware of how to behave, how the other part behave and what tricks
you may be faced by from the other party during the negotiation
© 2011 Gravity Sourcing AB 4

5. Collect Information
Our own process collects key information, step- by step
throughout the strategic sourcing project
Key information at the fingertips of the negotiation team
Total Cost & Supplier
Purchasing Suppliers
Needs Market Bids Analysis
Strategy suggestions
Analysis Analysis
Buyer Objectives
 ...
…
…
 Definition of negotiation clauses
Knowledge  ...
 Work out the negotiation session
Acquired - define the roles
Supplier Objectives - drive of the forecasted profile of
 ... the discussion
…
…
 ...
© 2011 Gravity Sourcing AB 5

6. BATNA
MDO and LAA determine our boundaries of the negotiation
Our needs
Our wants
Most Desired Outcome (MDO) Least Acceptable Agreement (LAA)
 Minimum price in the market  Maximum accetable price that meet profit goals
 Shortes delivery time possible  Market advantage delivery time
 Performance exceeding specifications  Product performance to meet specifications
 Longer term price guarantee  Price firm for one year
© 2011 Gravity Sourcing AB 6

7. BATNA
The Best Alternative To a Negotiated Agreement (BATNA) is our
contingency plan if we cannot come to an agreement
 BATNA is what we will carry out if the other part is not willing to accept our
needs (LAA), i.e BATNA is not the same as our (LAA)
 The more attractive your BATNA is compared with the proposals you receive,
the more Power you have
 BATNA should take all considerations into account, such as relationship value,
time, value of money and the likelihood that the supplier will live up to their
side of the agreement. These other considerations are often difficult to value,
since they are frequently based on uncertain or qualitative considerations,
rather than easily measurable and quantifiable factors
 BATNA help us to
– Value more realistically our power of negotiation
– Assure that we do not achieve prices at any cost
– Evaluate the different perspectives of any of the considered
© 2011 Gravity Sourcing AB 7

8. BATNA
Analyzing your own and your suppliers MDO, LAA and BATNA will
hopefully identify a “Zone Of Possible Agreement”
Overlap between our LAA and supplier LAA enables a deal
our MDO our LAA
“ZOPA”
supplier LAA supplier MDO
Deal possible within “ZOPA”
Zone Of Possible Agreement
Our Supplier
Without overlap the deal will break and the contingency plan (BATNA) will be realized
our MDO our LAA
supplier LAA supplier MDO
BATNA
Our Supplier
© 2011 Gravity Sourcing AB 8

9. BATNA
The communications with a specific supplier should be prepared
exploiting our levers and their needs
Our Supplier
AREA MESSAGES MDO LAA MDO LAA BATEF
X X X X X X X
X X X X X X X
© 2011 Gravity Sourcing AB 9

10. Climate Management
The key factors to consider in Climate Management during the
negotiation are Time and emotional Tension
20-25 subjects/clauses to be negotiated
Breaking point
(I can’t!) Important clauses
X
Agreement
TENSION LEVEL
(“I want it at
this price”)
Climate
Management
TIME
© 2011 Gravity Sourcing AB 10

11. Climate Management
The negotiation clauses could be listed and evaluated taking your
LAA, MDO and BATNA into account
WEIGHTING
Number CLAUSE
BUYER SUPPLIER
1.  Reduction of administrative charges for order processing 3 3
2.  Indexing of the prices based on Raw Materials 2 2
3.  Elimination of the quality control costs at receipt 1 2
4.  Guarantee on the delivery time (penalties on delays) 1 2
5.  Awareness of the forecasted volumes 3 1
6.  Transportation costs to be charged to the customer 3 2
7.  Weekly deliveries, stocks at the supplier’s warehouse 1 1
8.  Partnership with the customer for the development of new 2 3
9. products (building customer’s loyalty)
10.  Long term contracts 2 3
11.  ...
12.  ...
1 = clause on which it is almost impossible to give up
2 = exploratory clause
3 = very negotiable clause
© 2011 Gravity Sourcing AB 11

12. Climate Management
Know the conflict areas and the “give-aways”
3 Gift Area Trade Area
Buyer 2 Exploration Area
1 Break Area Gift Area
1 2 3
Supplier
1 = clause on which it is almost impossible to give up
2 = exploratory clause
3 = very negotiable clause © 2011 Gravity Sourcing AB 12

13. Climate Management
Foresee and drive the profile of the discussion
The sequence of the clauses: The climate during the negotiation
 begin with clauses 3 -3 to “break the ice" 1-3
1
 progressively increase the break risk, 1-1
leaving the break high risk clauses (1-1) for
the final phase
 the trend can fluctuate (see dashed line)
Buyer
2-1 2-2
2
3-3 1-2 3-1
3
3 2 1
Supplier
1 = clause on which it is almost impossible to give up
2 = exploratory clause
3 = very negotiable clause © 2011 Gravity Sourcing AB 13

14. Roles & Responsibilities
A successful negotiation requires a preliminary agreement on the
roles of the players of the Buyer side
 The professionalism is mainly measured in the first meeting
“There is never a second chance to make a good impression
 Nothing is more “appreciated” by a supplier than two colleagues who
– do not speak the same language
– do not share the same objectives
– are both “good” or “bad”
© 2011 Gravity Sourcing AB 14

15. Roles & Responsibilities
Spend some time to define Roles and Responsibilities of the
Negotiation Team and make sure to unify all members
 Unity within the team is the most important attribute
Prior to entering into a negotiation, all members of the team should
understand the subject (agree on BATNA etc.)
 Decide which information you are going to reveal during the negotiation, and
which information should never be revealed
 The chief negotiator has to be articulate, a good team player and posses good
presence of mind
 Preferably the entire team has some past experience in negotiation
 All the members in the team should posses at least one of the following
qualities:
– Technical Knowledge
– Relationship Skills
– Patience
– Observational Skills
– Behavior Analyzing Skills
© 2011 Gravity Sourcing AB 15

16. Style and behavior during the negotiation
It’s important to understand the difference between relationship-
and substance based negotiations
HIGH ACCOMODATE COLLABORATE
”Build friendly relationship” “Problem solving aiming for win-win”
 Promote harmony  Search for common interests
 Avoide substansive differences  Problem solving behaviors
 Give into pressure to save relationship  Recognizing both parties’ needs
 Place relationship above fairness of the  Synergistic solutions
CONCERN FOR RELATION
outcome  Win-win becomes the main purpose
COMPROMISE
”Split the difference”
 Meeting half way
 Look for trade offs
 Reduce conflict rather than problem
AVOID DEFEAT
”Take whatever you can get” ”Be a winner at any cost”
 Feeling of powerlessness  Win- lose competition
 Indifference to the result  Pressure/intimidation
 Resignation, surrender  Adversarial relationships
 Take what the other party is willing to Defeating the other becomes a goal for the
concede negotiator
LOW CONCERN FOR SUBSTANCE HIGH
© 2011 Gravity Sourcing AB 16

17. Style and behavior during the negotiation
Body language may make a difference
Confidence, cooperation
Evaluation Suspicion / Dishonesty Uncertainty / Indecision
and honesty
 Leaning forward  Nodding  Touching nose while  Cleaning glasses
 Keeping arms and palms  Maintaining good eye speaking  Looking puzzled
open contact  Covering mouth  Putting fingers to mouth
 Maintaining great eye  Tilting head slightly  Avoiding eye contact  Biting lip
contact  Stroking chin  Crossing arms/legs  Tilting head
 Placing feet flat on floor  Touching index finger to  Moving body away
 Sitting with legs uncrossed lips
 Smiling
Boredom / lack of Submission /
Disagreement / Anger Dominance / Power
interest Nervousness
 Failing to make eye  Getting red  Move restlessly  Making piercing eye
contact  Pointing a finger  Making minimum eye contact
 Playing with objects  Squinting contact  Putting hands behind head
 Staring blankly  Turning body away  Touching hands to face, or neck
 Picking at clothes  Crossing arms or legs hair etc.  Placing hands on hips
 Looking at watch/door  Using briefcase to “guard”  Standing while
body counterpart is seated
 Clearing throat
© 2011 Gravity Sourcing AB 17

18. Style and behavior during the negotiation
Some general guidelines in how to behave during a negotiation…
 Be willing to negotiate in the first place
– Some people may be too shy to talk about money
 Don't get emotionally involved
– Keep calm, patient and friendly, even if the other person starts losing their cool
– Make sure you leave any pride or ego at the door
 Never be the first person to name a figure
– You may be surprised to discover they're offering a better deal than you thought
were possible
 Ask for more than you expect to get
 Never set an absolute fixed deadline for when to finish the negotiation
 Let their impatience beat them
 Use the low key approach, i.e. don't act too interested
 Don't leave the other person feeling as if they've been cheated.
© 2011 Gravity Sourcing AB 18

19. Style and behavior during the negotiation
Tricks commonly used in negotiations
Always behave in a professional and ethical manner
 The Monkey On The Back
– "I have only got €10,000 in my budget"
 The Use Of Higher Authority
– "I need to have this agreed by my Board of Directors"
 Nibbling
– You are very vulnerable as the other side reaches for their pen to sign the order form, "Oh, by the way, this does
include free delivery, doesn't it?”
 The Good Guy And The Bad Guy
– This is a tactic designed to soften you up in the negotiation
 The Use Of Silence
– During the negotiation, you may make a proposal and find the other party remains silent
 The Vice
– "You'll have to do better than that"
 The Power Of Legitimacy
– People believe what they see in writing.
 Take it or leave it
– This is the salary we are offering for the position. If it is unacceptable, then we will have to select someone else
for the position.“
 High Ball / Low Ball
– "We will offer you $100,000 for the house (when it is worth $250,000).“
 Pre-Conditioning
– "Don't bother coming if you are going to tell me about price increases
– Waiting in reception, leafing through competitor's brochure, uncomfortable low chairs
© 2011 Gravity Sourcing AB 19

20. SUMMARY
Summary
Questions or further info?
www.gravitysourcing.se
fredrik.franzon@gravitysourcing.se
+46 (0) 73 - 515 77 01
© 2011 Gravity Sourcing AB 20