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Free Excerpt

INTRODUCTION

Negotiations – Prepare to Win – an Analytical Approach, picks-up where Good for You Great for Me written by Lawrence Susskind ends. Mr. Susskind’s very successful book on negotiations introduces the useful concept of the “trading zone”. He defines the trading zone as a point in the negotiation when both parties have reason to be optimistic there is a potential deal to be made. Susskind stresses to get into the trading zone as quickly as possible when negotiating with suppliers. But, Good for You Great for Me does not show the reader how to calculate what the trading zone values should be. Given different business climates, business volumes, cost of materials, exchange rates, etc., what is a reasonable negotiation result expectation? I show the reader how to take multiple variables, how to use analysis to determine what the trading zone values should be, and then how to incorporate the findings into a proven negotiations process. Good for You Great for Me also discusses the need of getting well prepared for a negotiation, but commits only a few pages on the subject matter. In contrast, the primary focus of this book is to provide the reader a process and analytical techniques on how to get prepared for a negotiation. Because, in my opinion preparation is the key to achieving negotiations success.

Every negotiation cannot have a win-win outcome for both participating parties. Sometimes you must come out on top and the other party will have to lose.  Sometimes the cards will be stacked against you and you must figure out a way to minimize your damages. I provide a framework that when followed will assist you in producing outstanding negotiation results for you and your organization. The contents of Negotiations - Prepare to Win - an Analytical Approach are an accumulation of knowledge, techniques, strategy, and experiences gained over my 20-year career of conducting negotiations from the purchasing perspective. This whole book was written in a frame of mind to provide assistance to the purchasing function of an organization. The salesperson who studies the book and turns the information 180 degrees to serve their purpose will find the book a great tool also.

In the first three chapters I outline the macro principles of needing a culture of good business ethics, getting input from the legal department, and reading and using body language that apply to all types of negotiations. For each Macro Principle, I provide examples and details on how to implement, use, and/or leverage the subject matter for your benefit.

In chapter four I examine twenty-five different types of leverage points to be used during negotiations. For each leverage point I provide techniques, strategies, and real world examples that I acquired during my career. From the use of these tools I helped my company produce yearly standard cost reductions on purchased components from 2006 to the writing of this book in 2016, and during my last year of work we achieved our greatest cost reductions in the history of the company.

In the last three chapters I discuss the additional macro subjects of getting organized and creating the Negotiations Workup Report, holding a pre-negotiation meeting, conducting the negotiation, and creating a process for sustaining a long-term cost reduction effort.

Additional Business Caused by Vendor Consolidation
Leverage Point

The most effective strategy you want to employ in this situation is to create a strong competition between the vendors bidding for the additional business. Try to maximize the opportunity a vendor can gain with a favorable bid and maximize the pain a vendor will suffer with a poor bid. I have broken this section into two parts. The first is called the “Auction Scenario” and the second is called the “Bid Scenario”.

Vendor Consolidation Auction Scenario

If it does not matter to your company which vendor(s) are eliminated or retained in a vendor consolidation project, and if your costs of qualifying components from a new vendor are reasonable and you have the resources to perform the qualification work, you can maximize the competition between vendors by using an auction set-up. For example, if you are reducing the number of vendors from four to two in a commodity group, put the total amount of business of all four vendors up for bid.

In this type of a highly competitive environment the rules for how each variable will be measured and how the whole bid will be evaluated and the contract awarded must be perfectly clear and understood by all participants. Besides price as a determining factor of the auction, the other factors and rules you need to consider are:

-        How past delivery performance will be taken into account.

-        How past quality performance will be taken into account.

-        Outline how the value of consignment inventory will be calculated and taken into account.

-        Outline how the value of payment terms will be calculated and taken into account.

-        Will there be a pre-viewing of the auction contents prior to the opening?

-        Will an overtime period be allowed in the process?

-        If overtime is allowed how will that be granted and length determined?

-        Have a timeline published for the whole process including a date when the business will be awarded.

 

In summary, you want to have all of the variables clearly defined that you will use in the auction to determine who will be awarded the business and how you will determine in what ratios the business will be split up between the winning vendors if that number is greater than one. The reason I stress the need for clarity is that you want all participants to feel they had a fair shot in this process. That is necessary in case you need to return to one of those losing vendors to keep your line going as a result of poor delivery or poor quality issues from the winning vendor. You may also want to invite one or more of the losing vendors to participate again in this type of process, and you will have a greater likelihood of their participation if they feel the process was conducted with integrity. If your own company does not have the I.T. infrastructure setup to run an auction, I would look into internet sites that provide this service.

 

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Table of Contents

Introduction 

Chapter One – Macro Principles

Reputation Beyond Reproach

Honesty/Accuracy

Reputation and Honesty Summary

Chapter Two – More Macro Principles

Get Legal Involved for Umbrella Purchasing Agreements

Quality Related Clauses

Reliance on Vendor’s Core Competencies

Vendor’s Supplier Chain Management

Reimbursement for Rejects

Business Related Clauses

Extra Fees/Charges Not Related To Component Unit Cost

Pricing on Components Not Included in Agreement

Planning/Forecasting

Expedited Freight

Exit and Termination

Legal Disclaimer And Legal Clauses Summary

Chapter Three – Still More Macro Principles

Body Language

Negative Evaluation

Positive Evaluation

Dominance

Low Social Involvement

High Social Involvement

Deception and Exaggeration

Indecision

Honesty/Truthfulness

Body Language Summary

Chapter Four – Specific Types Of Leverage Points                                                                                  

Lower Unit Standard Cost Driven by Your Increased Volume Leverage Point

Additional Business Caused by Vendor Consolidation Leverage Point

Vendor Consolidation Auction Scenario

Vendor Consolidation Bid Scenario

Component Quality Issue Resulting in Significant Cost Leverage Point

Raw Materials Cost Adjustment Leverage Point

Cost of Raw Materials Decrease Leverage Point

Competitive Bid Results Leverage Point

Foreign Exchange Rates Leverage Point

Vendor Moves Operations To Low Cost Country Location Leverage Point

Vendor Installs More Efficient Equipment/Machinery Leverage Point

Blank Sheet Approach Leverage Point

Long-Term Deal – Guarantee To Quote Leverage Point

Change in Vendor Management/Salesperson Leverage Point

Corporate/Company Cost Reduction Initiative Leverage Point

Lack Of Need Leverage Point

Leverage Points Summary

Chapter Five – Macro Principle - Getting Organized and Pre-Meeting                                              

Negotiations Workup Report

Conducting The Pre-meeting

Getting Organized And Pre-Meeting Summary

Chapter Six – Macro Principle - Conducting the Negotiation                                                         

Opening Phase

Back and Forth Phase

Making the Deal

Combating Escalation

Documentation – Lessons Learned

Chapter Seven – Macro Principle - Sustaining a Cost Reduction Effort                                              

Conclusion                                                          

 

 

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