NEGOTIATION IN PURCHASING
In purchasing, it's often becomes
necessary to negotiate with the vendors before a contract is finalized. It can be
of different types like settling the price of materials, finalized in various terms
and conditions delivery terms, packaging, insurance and so on. It is the
meeting of minds and as usual, the man gifted with greater vision & plan
& skills, has an edge over the other.
The dictionary defines "negotiation" as "mutual discussion and agreement of the terms of a transaction or agreement". In other words, procurement by negotiation is an art of arriving at a common understanding through bargaining on the essentials of a contract such as delivery, specifications price and other terms. Supplier Evaluation criteria
It is a difficult art and requires the exercise of judgment, tact and common sense. Depending on the size of the purchasing department or the volume of purchase, the negotiation types a different whether it is of services or of materials. Therefore it is necessary for the purchasing executive to get familiar with the techniques of negotiation in order to become a successful negotiator.
The most important ingredient in this art of negotiation is communication. As negotiation involves convincing the other party of your point of view & reaching to an agreement, communication skills prove useful. It’s not a science or any mathematical formula, it's an art. However the techniques may vary with each case and depend on the circumstances. Generally, negotiations take place between two individuals or two set of parties. Let’s get into the points of negotiation in purchasing.
Negotiation in purchasing:
In most of the cases purchase orders are
concluded on the basis of quotation received. Negotiation is required when
changes in the scope of a contract, call for a change in initial pricing and
terms and condition. Below is the respective list of instances when the buyer
and the seller may consider negotiating:
1. Price or other terms and conditions of the
contract, large volumes of a large value.
2. Value, especially for scarce commodities were
the contract related to a long time period.
3. variations in the quantity being purchased
4. changes in drawings and specifications
5. changes in transportation packaging or
delivery points
6. price escalation clause
7. when supplies or services can be obtained from
only one source
8. when no acceptable quotations are received
from the responding vendor
9. Overhead rates for a cost-plus contracts
The first thing to remember during a
negotiation is that a certain conflict has to be resolved. There are
differences in the viewpoint between two parties and intention is that
differences should be narrowed down derive There are two costs which we must
think of:
Cost of agreement and cost of this agreement.
In negotiation, objective is to minimize the
cost of agreement, consistent with the general the company or the interest of
the parties. One must realize before going to a negotiation table that arriving
at a compromise agreement is more advantageous than the alternatives. Both
parties must be willing to move from the rigid position.
Results of Negotiation:
In negotiation there are three possible results:
a.
WIN-WIN (Both WIN, Conflict resolved):
The Win-Win result is the one to be aimed at. In this kind of
result, both the parties are happy with the outcome and it will lead to a
long-term agreement. In this negotiation, nobody is squeezing or killing the
other party for its own benefit. This is the open minded negotiation and both
the parties are ready understood stretch their limit. Here both the parties are
focused on the interest not on the position. Below presentation will help you
more to understand more.WIN-WIN
b.
WIN-LOOSE (One party wins, the other loses):
Much time negotiation is considered as war need to win, or you
want to defeat the other party. In this case the negotiation result will be WIN-LOSE.
People want to have a hard negotiation or bargain to defeat opposite party. This
means that, in spite of an agreement, one will win and the other party will
lose and this will affect the future relationship of both the parties. Here are
the winning party does not think about the future business the other one and
this is not a good strategy. Here is the graphical representation.WIN-LOSE
c.
LOSE-LOSE (Both party lose, there is no agreement):
In this type of negotiation, there is actually no agreement
between both the parties. Practically in many situation where we end up in such
a result. This situation arises when interest of both the parties does not
match with actual outcome of the negotiation. Either the parties are very much
rigid or situation arises which are beyond control of both the negotiators. But
this is a waste of time and energy. This situation can be explained in below
graphical representation.
Conclusion:
I hope this article will be useful I want to
get the idea about the negotiation tips and the possible this will help you to
get prepared before any negotiation.
NEGOTIATION IN PURCHASING
In purchasing, it's often becomes
necessary to negotiate with the vendors before a contract is finalized. It can be
of different types like settling the price of materials, finalized in various terms
and conditions delivery terms, packaging, insurance and so on. It is the
meeting of minds and as usual, the man gifted with greater vision & plan
& skills, has an edge over the other.
The dictionary defines "negotiation" as "mutual discussion and agreement of the terms of a transaction or agreement". In other words, procurement by negotiation is an art of arriving at a common understanding through bargaining on the essentials of a contract such as delivery, specifications price and other terms. Supplier Evaluation criteria
It is a difficult art and requires the exercise of judgment, tact and common sense. Depending on the size of the purchasing department or the volume of purchase, the negotiation types a different whether it is of services or of materials. Therefore it is necessary for the purchasing executive to get familiar with the techniques of negotiation in order to become a successful negotiator.
The most important ingredient in this art of negotiation is communication. As negotiation involves convincing the other party of your point of view & reaching to an agreement, communication skills prove useful. It’s not a science or any mathematical formula, it's an art. However the techniques may vary with each case and depend on the circumstances. Generally, negotiations take place between two individuals or two set of parties. Let’s get into the points of negotiation in purchasing.
Negotiation in purchasing:
In most of the cases purchase orders are
concluded on the basis of quotation received. Negotiation is required when
changes in the scope of a contract, call for a change in initial pricing and
terms and condition. Below is the respective list of instances when the buyer
and the seller may consider negotiating:
1. Price or other terms and conditions of the
contract, large volumes of a large value.
2. Value, especially for scarce commodities were
the contract related to a long time period.
3. variations in the quantity being purchased
4. changes in drawings and specifications
5. changes in transportation packaging or
delivery points
6. price escalation clause
7. when supplies or services can be obtained from
only one source
8. when no acceptable quotations are received
from the responding vendor
9. Overhead rates for a cost-plus contracts
The first thing to remember during a negotiation is that a certain conflict has to be resolved. There are differences in the viewpoint between two parties and intention is that differences should be narrowed down derive There are two costs which we must think of:
Cost of agreement and cost of this agreement.
In negotiation, objective is to minimize the cost of agreement, consistent with the general the company or the interest of the parties. One must realize before going to a negotiation table that arriving at a compromise agreement is more advantageous than the alternatives. Both parties must be willing to move from the rigid position.
Results of Negotiation:
In negotiation there are three possible results:
a.
WIN-WIN (Both WIN, Conflict resolved):
The Win-Win result is the one to be aimed at. In this kind of result, both the parties are happy with the outcome and it will lead to a long-term agreement. In this negotiation, nobody is squeezing or killing the other party for its own benefit. This is the open minded negotiation and both the parties are ready understood stretch their limit. Here both the parties are focused on the interest not on the position. Below presentation will help you more to understand more.WIN-WIN
b. WIN-LOOSE (One party wins, the other loses):
Much time negotiation is considered as war need to win, or you want to defeat the other party. In this case the negotiation result will be WIN-LOSE. People want to have a hard negotiation or bargain to defeat opposite party. This means that, in spite of an agreement, one will win and the other party will lose and this will affect the future relationship of both the parties. Here are the winning party does not think about the future business the other one and this is not a good strategy. Here is the graphical representation.WIN-LOSE
c. LOSE-LOSE (Both party lose, there is no agreement):
In this type of negotiation, there is actually no agreement between both the parties. Practically in many situation where we end up in such a result. This situation arises when interest of both the parties does not match with actual outcome of the negotiation. Either the parties are very much rigid or situation arises which are beyond control of both the negotiators. But this is a waste of time and energy. This situation can be explained in below graphical representation.
Conclusion:
I hope this article will be useful I want to get the idea about the negotiation tips and the possible this will help you to get prepared before any negotiation.
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