Key Techniques for Successful Procurement Negotiation

Written by By Joanne Chia Jia Rong, DPSM

Negotiation takes place almost every day in our daily life whether is it negotiating for a higher salary or for a better deal when shopping. These negotiations do not play a significant impact even if they are unsuccessful. However, it is not the same in the business context. A good negotiation is absolutely vital to the success of a business especially in the increasingly competitive market. Whereas, a poor negotiation can potentially cause harm to the company as quickly as losing key customers or suppliers. Therefore, it is said that effective business negotiation is a core leadership and management skills.

Procurement or Purchasing Negotiation

Procurement and purchasing are often used interchangeably but they do have different meanings. This terminology can be explained using the PP Organogram in the diagram below for a better understanding. Although both purchasing and procurement focuses on systems and processes, but procurement also concentrates on the interaction with both external suppliers and internal customers. Thus, this article will mainly be concentrating on procurement negotiation.

Create Win-Win Situations

Negotiating is not about defeating the other party but instead it is the ability to create a win-win situation whereby everyone leaves the negotiation feeling happy, thinking that they have achieve a good deal. The conflict table below demonstrates several possible negotiation outcomes. However, to have a successful negotiation it is always highly encouraging to achieve a win-win strategy. While, it is often difficult to satisfy everyone in a negotiation situation, and thus this is exactly why it is so highly valued. Therefore, the following sections will be covering in depth on what can be done so to achieve a win-win situation.

Preparation for Negotiation

It is often said that half the battle is already lost whenever a party enters a negotiation without proper preparation. Preparation is responsible for 90% of negotiating success thus there is no good shortcut although it is usually a very time-consuming process.

During preparation, always start with yourself first by recognizing what you want as well as the kind of outcome you want to achieve at the end of the negotiation. Of course, it is not enough to only identify your own interest or wants but it is also equally important to gather information and understand the other party’s needs, strengths and weaknesses. By doing so, chances of attaining success when negotiating will be raised as assessing the negotiation context will be easier, thus resulting in the development of an effective negotiation strategy. Certainly, when more preparation is done prior negotiation, the more likely it is that the result of the negotiation will be acceptable for all parties involved. Hence, it is necessary to constantly keep in mind that power is always on the side of the person with the best information.

The diagram below shows the negotiating envelope that should be develop before the start of any negotiation. However, as negotiation is a fluid process, it is required for individual to continuously refine the negotiating envelope throughout the whole negotiation process.

Diagram created by Joanne Chia JiaRong (2019)

The BATNA Technique

“BATNA” is an acronym which stands for Best Alternative to a Negotiated Agreement. It is defined as the most advantageous alternative that an individual can take if an agreement cannot be made or when a negotiation fail.
Identifying and preparing your BATNA before entering a negotiation is always crucial. With a proper BATNA, it not only helps in providing an alternative if negotiation falls through, but also determines the reservation point (the worst you are willing to accept). Moreover, with a well thought BATNA it gives you a great amount of power during negotiation. However, it is not limited to only having one BATNA. The more BATNAs you have and the more willing and ready you are to execute one, the less likely you will need a BATNA.

The diagram below illustrates each party’s best alternative to a negotiated agreement in the seller and buyer perspective. The buyer’s settlement range is a biddable range acceptable to the buyer. If buyer offer price is lower than seller’s worst case, seller will use its BATNA. Whereas, seller’s settlement range is a biddable range acceptable to the buyer. If seller’s offer price is higher than buyer’s worst case, buyer will use its BATNA.

Seller least acceptable

Diagram created by Joanne Chia JiaRong (2019)

Active Listening

Active listening does not mean sitting down patiently to listen to the other party talk. Neither is it simply responding by saying “I understand” or keeping good eye contact. Instead, active listening is a process that requires undivided attention and concentration on the other party with the intention of understanding.

Always listen for dynamic information as it helps to understand the other party’s perspective. Certainly, it will be good to try and identify the pictures in the other party’s head, emotions driving their decision and fears that are influencing their perceptions. Likewise, it is also important to pay attention to nonverbal cues such as body language, tone, syntax, energy, context and environment as it helps in discovering what the other party is really “telling” you might which might differ from what they said with their words. Thus, when active listening is practice during negotiation, it will be beneficial as it diminishes the other party’s negativity and in return gaining trust.

Managing Emotions

Although negotiation requires thoroughly preparation, however it is not enough to only manage information and processes. This is because negotiation is an interpersonal process and there will always be at least one party involved. Therefore, undeniably in a negotiation not only will the individual have to manage their own emotions, but it is also essential to manage the other party emotions as well.

To manage your own emotions in a negotiation situation, there are some measures that can be practice.

• Breathing deeply helps to change muscles memory enabling neo-cortex of the brain to take over thus allowing positive thinking and creativity.
• Positive self-talk by telling yourself that everything will work out. Example, “I have been in an even worse situation before but still turned things around.” With this optimistic voice in your head, it allows you to look at the brighter side and have a bigger influence
• Waking around might not be feasible when in a heated negotiation, but you can take the chance to visit the restroom although it might seem unnatural, but it helps since it can direct your thoughts in a new direction
On the other hand, although it is difficult to manage the emotions of other party because it is often their thoughts that got them angry and only their thoughts can clam them down. Hence, it is to try to influence their thoughts and below are some measures that can be practice.
• Recognizing the signs which means looking out for a flight/fight syndrome or other verbal or non-verbal body languages so to be able to manage the situation immediately before discussion goes awry.
• Listen and ask allows the search for deeper meanings. Try not to suggest solution when they are very emotional but instead ask them questions so as to let them vent.
• Taking a break is dependent on how far the situation have deteriorated and it can be as short as a few minutes or even as long as weeks. However, it is advisable for everyone involved to take a break after an emotional situation has mellow down as it can be exhausting.

Conclusion

A successful negotiation is no magic or luck but instead it takes an iron gut, homework, street smarts and unblinking discipline. In a business setting of any negotiations, it is always critical to be creative, breaking down problems into smaller parts, considering unusual deal terms and brainstorming on new ideas. Although having taken into consideration the above, the key success in a negotiation is still to practice fairness, achieving mutual benefits and maintaining a good relationship.


References

Chew JinSwee, DPSM. (2018). “Essential Strategies for a Successful Procurement Negotiation”. Retrieved from SIPMM: https://sipmm.edu.sg/essential-strategies-successful-procurement-negotiation, accessed 18/12/2019.

Corporate Finance Institute. (2019). “BATNA”. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/deals/what-is-batna/,accessed 19/12/2019.

Geoffrey Michael. (2019). “The Art of Negotiating”. Retrieved from https://www.entrepreneur.com/article/203168, accessed 28/11/2019.

MartinaMarof, DPMM (2018). “5 Critical Strategies for a Successful Procurement or Purchasing Negotiation”. Retrieved from https://sipmm.edu.sg/5-critical-strategies-successful-procurement-purchasing-negotiation, accessed 28/11/2019.

Program on Negotiation. (2019). “Business Negotiations”. Retrieved from https://www.pon.harvard.edu/category/daily/business-negotiations/, accessed 28/11/2019.

Skillsyouneed (2019). “What is Negotiation?”. Retrieved from https://www.skillsyouneed.com/ips/negotiation.html, accessed 28/11/2019.

Watershed Associates. (2019). “The Negotiating Envelope” Retrieved from https://www.watershedassociates.com/learning-center-item/negotiating-envelope.html, accessed 19/12/ 2019.

About the Author: Joanne Chia has substantive years of experience in the professional field of procurement. The nature of her work requires her to be involved in procurement negotiations. Joanne is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Procurement and Supply Management (DPSM) on December 2019 at SIPMM Institute.

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