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represent a limited range of products and are adequately trained in conducting sales talks. Special negotiating trainings for purchasers are relatively rare even today, so the available negotiating know-how will often be confined to personal experience.
For that reason, mistakes in the conduct of negotiations that have not been per-ceived and analysed may be repeated in other situations. The situation can be compared to exercising a type of sport without the instruction of a coach. While progress may be registered as success on a personal basis, there will be no objective judgement regarding the question whether techniques and motion sequences have been applied correctly and efficiently.
For that reason, abstract basic knowledge should be available that has to be supplemented by practical experience afterwards. In the following section, some approaches are introduced by which purchasers will be enabled to reflect on and optimise their conduct in negotiations in order to enforce realistic demands within the scope of a purchasing negotiation.
8.1.1 Motives for Purchasing Negotiations
Negotiating is day-to-day business of strategic purchasers; myriads of situations arise in which negotiating becomes necessary. Negotiations are already necessary in in-house conflicts concerning e.g. the right way to handle questions that have a bearing on purchasing in the context of projects or the cross-departmental imple-mentation of strategies.
But negotiating with external suppliers and service providers is the crucial task.
The most important element in this area is negotiating prices—whatever topic has been scheduled for a negotiation, at some point in the course of the talks costs will have to be discussed.
Price negotiations may be conducted for the following reasons, amongst others:
• Negotiations concerning the acceptance of a bid
• Prevention of price increases
• Realisation of price reductions
• Volume bundling
• Reallocation of expiring framework agreements
• Negotiations concerning one’s own salary
Practical Tip: What to Do in Suddenly Arising Negotiation Situations How can one react in situations such as an unexpected telephone call in which the caller (who will, by the way, in most cases have an advantage over the person called) demands an unpostponable negotiation and an immediate decision? Or—a case I experienced many years ago—if a member of the executive board without any advance warning suddenly presents a former schoolmate as his preferred supplier with whom a “quick” negotiation should be conducted on the spot?
As an aid for such awkward situations, the “supplier negotiating chart” has been developed. This chart, which will be detailed below, provides at a glance all key
information on a supplier including its quality and supply reliability, the current risk score, its trading volume, its A-parts and their respective price development, all business conditions, etc. Additionally, general argumentation aids and a field dedicated to the previously defined targets are also given.
I never leave my ring binder at home although some people may think this habit to be old-fashioned (of course, a tablet computer will also do). Thus, equipped with many empirically established figures, checklists, and current market and procure-ment data, I am always and wherever I may actually be ready for impromptu negotiations without the need for special preparation. In many cases, I could make my presence felt in quite diverse meetings and enhance efficiency thanks to these up-to-date data. By way of example, two of these checklists are given now.
Checklist Concerning Work Contracts and Work and Delivery Contracts 1. Subject of the order
• Has the subject of the order been defined?
2. Scope of supply and scope of work
• Has the scope of supply, work, and services been described completely and precisely?
• Have the warranted qualities been adequately described?
• Have packaging and shipment been specified?
• Has the scope of test and approval procedures been defined exactly?
3. Bought-in or spare parts
• Does the producer also supply bought-in or spare parts, if necessary?
4. Quality requirements on the producer
• How and by whom will the acceptance processes be performed?
5. Deadlines
• Have all single steps and milestones important to the purchaser been defined?
6. Prices
• Is the producer obliged to provide evidence of the marketability with regard to additional or reduced costs (by disclosing the calculation, if necessary)?
• How are travel costs in the context of the project accounted for?
7. Payment conditions
• Have events been fixed that will prompt payments, e.g. demands?
• Acceptance of order
• Acceptance protocol
• Are advance payments or warranty bonds required?
8. Contractual penalties
• Have contractual penalties been agreed (in % of the contract value, in concrete sums, in material supplies, or other services) with fixed maximum prices?
• Has the time of tolerable delay been defined?
• Can additional compensation for damages caused by delays be claimed?
9. Warranty
• Has the scope of warranties been precisely defined?
• Which qualities are warranted?
10. Liability and other claims
11. Secrecy, property rights, documents
12. Termination, suspension, avoidance, publication of contract 13. Cession, pledge, rights of third parties
14. General order processing
15. Place of performance, place of jurisdiction, applicable law 16. Options
• Is there the option of possible future orders that could be negotiated at the same time?
17. Machinery guidelines
18. General terms and conditions of purchase
• Have the General Terms and Conditions of Purchase been accepted?
• If not, have at least the conditions according to the applicable law (in Germany, HGB/BGB) been agreed?
Checklist: Framework Conditions Concerning Direct Materials or Production Materials
1. Prices and price components:
• Long-term agreements (falling prices)
• Quantity scale discount
• Special offer discount
• Special offer prices
• Bonuses
– Volume increase – Diversification – Reliability – Special deals – Marriage bonus
• Discount for increased productivity (learning curve)
• Discount for long-term contracts
• Has the price been broken down into its components?
• Bull-and-bear clause for cost drivers 2. Payment conditions:
• Discount
– Longer time for payment – Compensation
– Bill/cheque—bill/prolongation 3. Incoterms:
• Ex works
• Free buyer’s store
• Free buyer
4. Stock:
• Delivery times
• Stockpiling at the supplier
• Preferably consignment stock at buyer’s domicile
• Kanban/just in time
• C parts management
• Direct delivery to purchaser 5. Follow-up costs:
• PPM rate or 100% good parts
• Procedure in cases of default (return/rejection/replacement)
• Hourly rates, carrying costs, handling, loss of sales and profits 6. Terms and conditions of purchase:
• Have the terms and conditions of purchase been accepted?
• If no other agreement has been met, HGB and BGB have always to be applied amongst German business parties
7. Warranty:
• Has the scope of warranties been defined precisely?
• Which qualities have been warranted?
8. Quality assurance agreement:
• Can a quality assurance agreement be reached?
8.1.2 Negotiating Strategies
Basically, three types of negotiating strategies may be chosen: the cooperative, the fair compromise, and the competitive negotiating strategy.
The cooperative negotiating strategy aims at close cooperation with the negotiating partner in order to jointly achieve solutions. In these cases, the establish-ment of long-term partnerships will often be the ultimate target of the negotiation.
The fair compromise strategy is based on rational aspects. Both sides make mutual concessions in order to reach a just and fair deal.
The competitive negotiating strategy shares the same basic structure with the fair compromise; however, the aim is to achieve as much for one’s own and as less for the other party’s position as possible by a one-sided exchange of concessions. This negotiating strategy (which will often be accompanied by negotiation wiles) is often applied in the case of one-time deals as one of the parties is bound to be the loser of such negotiations.
A good negotiator must have all three negotiating strategies at his or her command in order to be able to use, but also to fend them off in different situations.