Wednesday, February 2, 2011

Negotiation Planning And Preparation

Negotiation planning for a major negotiation consists of a number of steps. In smaller negotiations you would use many of the same things to prepare
1. Identify your assumptions:
  • Their team
    • Who will be on their team,
    • What is their expertise?
    • What are their interests and motivation?
    • What authority do they have?
    • Who will make the final decision?
  • Their response to the Bid or Proposal:
  • What do they want?
  • What do they need?
  • How aggressive are they? Does it show that they need or want this contract? To what extent?
  • The leverage
  • What leverage do we have?
  • What leverage do they think we have?
  • What leverage do they think they have?
  • Is there something we can do to shift the leverage?
  • Their positions
  • Which are the most important for them? Why?
  • Which do we think they would be willing to give up?
  • Are there things that we can offer or change to convince them to change their positions?
  • What are the risks and costs involved?
  • Are these risks or costs they can manage? 
2. Your Knowledge
  • What value do we place on the issues?
  • What value do we think they are placing on the same issues?
  • Is there a significant difference between the two that presents opportunity?
  •  What do we know about the Supplier’s company, product, process, or competition that we can use to sell them?
  • What have we learned about them from their proposal, bid, assumptions, red-line response to the agreement and exceptions?
  • What is the priority and schedule of the purchase?
  • What options are available?
  • What policies, laws, principles can be used?
  • What are the real-life constraints (shortage of time, money, resources)?
  • How can you use any of the Suppliers weaknesses?
  • What are the Supplier’s perceived goals and needs? Can you use those?

3. Strategy and Tactics
  • What strategy and tactics do we think will work?
  • What is going to be the best way to convince them?

4. Plan
  • Frame your negotiation and positions:
  • Summarize your Goals and Minimums for each point.
  • Identify the general negotiation strategy that is appropriate for each point. (Zero-Sum, Win-win, problem solving),
  • Identify specific negotiation strategies for individual issues or sections.
  • How do you want to sell them, what will you use?
  • Select the tactics you want to use for each issue.
  • If you plan to say no, have the reason why identified.
  • If you plan to convince them to agree, have the reasons and examples why.
  • If you wan to convince them that what you are asking for is fair and reasonable, have the benchmarks to prove it.
  • If you want to identify it as a problem they need to overcome, be prepared to describe the problem.
  • If you want to use the impact their position has on the negotiation, make sure that you are prepared to walk away if they won’t agree.
  • Have all information about what they do, said , or represented available to hold them accountable to those.

5. Structure the Negotiation Agenda.
There is no one best way in which arrange all the issues that you must negotiate.  Some people recommend starting with simpler issues to get the other party use to agreeing. That’s fine when you have substantial time to negotiate or to change to an alternative Supplier if you don’t reach agreement. I tend to negotiate the most contenscious issues first for both time management and to quickly force a decision. My rationale is that if the parties aren’t able to come to agreement on those items that may be deal breakers, it makes no sense investing a large amount of time having to simply walk away. If I need to be negotiating with another Supplier, I want to do that as quickly as possible.  When something is critical from a schedule perspective, you may want to have parallel negotiations with multiple suppliers. What works best will depend upon how much time you have available and your circumstances. Here are a few suggestions on structuring the agenda:

  • If their bid or quoted price is close to being acceptable, you should negotiate the final pricing last. If you do it earlier you leave yourself open to the Supplier saying that their price “didn’t include this” so if you want it, they need to adjust their price. If their price is substantially off from where you need it to be you could negotiate that first, with the caveat that you reserve the right to negotiate further based upon what is agreed. With that approach if they are never going to have a price that’s acceptable, you don’t have to waste time negotiating contract  terms with them.

  • If you have significant confidence that you will be able to come to agreement on the major issues and the pricing will be acceptable, then starting with points where there will be less contention and work to more difficult one makes sense.

  • When other terms are dependent upon a different term you should negotiate that term first. For example many times the obligation to make payment and the warranty term are dependent upon the delivery and acceptance terms. For example Supplier’s may want warranties to start upon delivery of the product to the Buyer. If you agree to a delivery term that is ex-works the Suppliers dock in Asia and it takes 30 days for you to receive the material or equipment, you’ve already lost thirty days from the warranty. Similarly if the payment term is thirty days from the date of delivery, if you agreed to ex-works the Supplier’s dock in Asia, you may have to pay for it before you get it, can inspect it, or use it. So if you negotiate the delivery term first and agree upon ex-works, when it comes time to negotiating the warranty period instead of agreeing to 12 Months you could demand 13 months to take into account the period of time it will be in transit, Instead of agreeing to pay 30 days after shipment you could demand sixty days after shipment so that you have ample time to receive and inspect it to make sure it conforms with the specification.

  • There may be other terms that you want to link together and those should be negotiated at the same time.  For example I always like to link things like the Supplier’s requests to have flexibility to manage the activity however they see fit to what liability and costs they are willing to agree upon in the event they cause a problem. If they want flexibility to do whatever they want, they need to accept the potential cost and liability for the problems they cause. If they aren’t willing to be fully responsible, you need more control over what they can or can’t do to help you manage the risk.  Let me give you an example of what I mean.  You could have the supplier change their product. The changed product may still meet their specifications. The changed product may no longer work in your application and could cause major problems and costs. The only way to manage against that potential risk is to have control over changes to the product so you can test proposed changes to make sure they will work before the Supplier starts shipping the changed product to you.

  • It’s probably best to address all “legal” terms separate from business terms. This can allow different parties to attend the different sessions. You don’t waste your lawyer’s time while you discuss business issues and maybe it will keep their lawyer away from the table when you negotiate the business terms. Ask your lawyer which terms they consider to be legal terms that they must participate in the negotiation or must review and approve versus the business terms.  If you do this separation you can come to agreement in concept, and have the lawyers review and finalize the language. Where I have found this to be most useful is when one or both sides of the negotiation are represented by outside counsel who have the tendency to complicate discussions as a way of either showing that they are earning their fee or as a way to increase their fee.  I was once asked to step into a negotiation that had been going on for about six months with no visible end in sight. What I observed was outside counsels for both parties arguing about minutia that wasn’t important and would never occur. At the end of the first session I met with the Supplier’s V.P. and told him that the only ones that were winning in the negotiation were the outside law firms and we needed to take control of the negotiation. He and I would agree upon all the business terms we needed to close the deal and we would have the lawyers simply write it up. We did that in two days and then called in the lawyers to tell them that this was what we had agreed and it was their job to simply write it up and gave them two days to do it after which they would be no further fees paid. They weren’t happy as it ended a fairly lucrative assignment, but when they knew that anything over two days wouldn’t be paid for. They somehow were able to come to agreement within the timeframe. Since then every time I enter into a negotiation where a company is represented by an outside counsel I tell the Supplier that I want to deal with Internal Counsel or I want to be assurred that they will manage them as I don’t want them wasting my time simply to generate more billable hours. 

  • Another recommendation that I would make is if you have multiple documents that will make up your agreement always start with the one that has the highest precedence. That way you are dealing with issues from the highest priority downward and many times that can answer concerns or eliminate issues the Supplier may have in reading the lower priority document on its own.

One of the most important things to do in preparation for negotiations is to set and manage expectations with the Supplier. You want to set expectations in advance of the negotiation on what it’s going to take to win the business. If that hasn’t been done prior to the negotiation, you need to do it as soon as possible in the negotiations. The reason for doing this is so the negotiator on the other side has the ability to set those same expectations with their management and internal stakeholders, whose approval they may need for agreement.  What you don’t want to do is force your counterpart to have to go back to their management at the end of the negotiation having to explain what they needed to give and why. The sooner their management understands and buys into the fact that they may need to make those concessions the easier the negotiation may be.  I’ve seen negotiators on the Supplier’s side hold firm to a position and lose the business simply because they didn’t want to have to go back to their management to explain that they misread what it would take to win the business. Rather than put them in that position set the expectations so they can set expectations with their management. 

No comments:

Post a Comment