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Best Practice Planning: How Purchasing Training Helps To Determine The Key To Ensure A Profitable Negotiation
Nearly all negotiators completely underestimate the amount of time required to prepare for any business negotiation even though this is a critical part of business negotiation best practice.
Using your negotiation skills to understand the negotiation environment is a great place to start preparing for negotiations.
Some of the key elements to think about are:
- What is the nature of the transaction in terms of risks involved, the cost and the complexity of the deal?
- Competitive analysis: What is the current position of the market and what options do the other side have at their disposal? We will approach a sole supplier differently than those in a competitive market.
- Is it a single transaction or should we consider maintaining a long-term positive relationship that develops opportunities for future trade?
- Have we concluded any transactions with our counterparty in the past and what is their most likely method to concluding business?
- How capable are the negotiators on the other side?
- What cultures will be represented and what are the local traditions?
- Who are all the parties & persons involved in the transaction and what is the decision process? A diversified approach is required as final decision makers will most likely be interested in Return on Investment and increased revenues & margins. The end user who looks for improved output and efficiency will find the financial elements almost totally immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
Failing to prepare and prioritise our deal objectives we put ourselves at risk of being taken advantage of and/or ending with a sub-optimal agreement. Whether you are involved in negotiation on the sales or purchasing side, consider the following factors when planning for a negotiation:
- Price and payment terms, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business deals demand finding ways to develop additional value and to move negotiation from haggling to mutually beneficial and creative joint problem solving. Professional buyers are not requested with buying the cheapest solution but rather with providing their businesses with the cheapest total cost of ownership, which is composed of things like:
- Purchase price, Maintenance costs, The cost of use, Training costs, Supplier performance criteria, Delivery, Product quality and Customer Support. (These concepts are covered in most purchasing training programmes).
If we are able to minimize the other side's costs in the entire life cycle of the product, solution or service and at the same time provide value for money, we are in a better position to find common ground.
Key Obligations: Ensure your product and services are defined and show your priorities. Include all the important quantities and specifications.
Delivery: How important are the delivery timelines and what happens if the delivery doesn't take place on time?
Warranties: In order to maintain trust and credibility ensure that you deliver any promises.
Intellectual property: Carefully negotiate IP ownership rights and think about the following factors:
- Who is footing the bill for the Research and Development?
- Could the research and development be used by competitors to your loss if you don' t own the IP? How can you prevent competitors to use the same IP?
Risks: The best way to manage exposure is to include the elements in a written contract. Cultural consideration is critical. In Asian countries the goal of negotiation is not a signed contract. In China, unforeseen events are settled through the relationship.
Analysing the above factors are crucial in planning Concession Strategies that will assist you to leverage maximum value from trades and in planning meetings optimally.
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