1. MIM 524
Global Sourcing
Class Seven

2. Agenda Commodity Studies are Due
Negotiation Strategies from a Sourcing Perspective
Sustainability
Starbucks Discussion
Current Events
Review of Final Presentation

3. Negotiation Strategies

4. The “Art” of Negotiations
You get what you negotiate!
You negotiate for everything
Cost
Capacity
Terms & Conditions/Contract
Even Mind share…..
Data Verses Style
Preparation is Key!
Understand the Competitive Landscape
Buyer’s Verses Seller’s Markets
Listening can be more important than talking
Ethics is Critical
“Fine Print”
Misleading intent of terms
Highlighting errors or omissions
Non disclosure (Ex: Language skills)

5. Changing Dynamics of Negotiations
Team negotiations are more common
Margin Pressures leave little wiggle room
Frequency is increasing
Global Impact – Language, Culture, etc. (See next slide)
Technology Impact IE: Reverse Auction
Competitive Landscape may be restricted
Fewer Suppliers
Sole Sourcing

6. Cultural Variables in Negotiations
Communication – the way in which information is transmitted
Direct or Indirect
Verbal or Non Verbal
Tolerance for Silence
Power – The extent to which power is distributed
Egalitarian or Hierarchical
Time – the view of and way in which time is utilized
Patience or Impatience
Relationship focus or Results focus
Collectivity – The extent to which the role of the individual or group takes precedence
Group or Individual
Structure – The extent to which uncertainty or unknown situations create discomfort
Predictability or Uncertainty

7. Typical Flow of a Negotiation
Define what is required/objectives of the negotiation
Pricing, Capacity, Delivery, IP, etc?
Engage with appropriate customers and key stakeholders to ensure alignment and priorities
Internal and External Assessment
Understand the competitive Landscape and possible challenges/Barriers to achieving your objectives
This should include the Supplier’s “Known” position.
Use above to develop your strategy
Priorities, walk away positions, methods of negotiating, “gives and takes” as well as timeline and possible points of escalations
Ensure you have appropriate ratification of strategy
Use a “negotiation Plan” as the method to receive approval for strategies
Who participates in the negotiation, what are their roles? Who is the lead?
Conduct Negotiations & Document the Final agreement
Close with Key stakeholders on the final results
Gain re-approval if unable to close on all items or hit appropriate targets

8. Data Collection and Environmental Landscape
What is needed?
Scope of Work
Specifications
Pricing Targets
Timelines
What does the supply base look like?
How many viable suppliers are there?
What is the competitive landscape?
What do they want out of this deal?
Who should be involved in this negotiation?
Active/Direct Involvement
Consultative/Indirect
Advised - FYI
Ratification – Pre and Post Neg

9. Elements of Strategy

10. Negotiations from a Strong Position
Suppliers “hungry” for the business
Strong data to back up your positions
Technical and Industry knowledge is high
Ability to award or remove opportunities
No time pressures exist for Buyer
Other incremental opportunities might exist
Additional business
Increased SOW or value add opportunities

11. Negotiations from a Weak Position
Simulate competition – real or perceived?
Develop a BATNA (Best Alternative to a negotiated Agreement ie: back-up strategy)
Determine if escalations are required
Use these as your “silver bullets” – too frequent they become ineffective
Bank on changing competitive landscape over time
Shift from Seller to Buyer Market
Potential Future incremental opportunities

12. Understanding the Supplier
Ensure you understand their positions
What has been verified, stated and assumed
Ensure they understand your positions and requirements
Don’t under estimate the “confusion” factor
Set VERY clear expectations at the beginning
Are there any specific needs or restrictions
Ask a lot of questions….. Open ended is best.
What? – Understand
Why? - Confront
Restate to ensure understanding
Avoid assumptions
Who are the decision makers?

13. A Negotiation Plan Example

14. Sections in a Neg Plan Title, Owner, Suppliers, Contract #
Total Contract Value, Length of Contract, Projected Savings
Current Situational Analysis
Areas to be Addressed
Negotiation Strategy
Names of Approvers/Reviewers
Gather Information
Negotiation Participants
Facts you Know/Facts you need to know
Buyer and Suppliers Needs and Restriction
Areas of Common Ground/Areas of Potential Conflict
BATNA (Best Alternative To Negotiated Agreement) – Both Buyers and Suppliers
Negotiation Completion Schedule
Plan Strategy and Tactics

15. Current Situational Analysis
Explains the current situation
What history do we have with the supplier?
Background on what is required, from who and when it will be needed
What is the competitive landscape and what potential opportunities or challenges does that represent
This “sets the stage”

16. Typical Areas to be Addressed in Negotiations
Pricing (Present & Future)
Effectively Dates
Currency
Payment Terms
Spares Availability/Discount
Quality of Product/Service
Pre-Ship Inspection
Inventory Arrangements
Release and Scheduling
Customs/Licensing
Training
Tax Implications
IP Ownership & Indemnification
Specifications
Freight Terms (INCO)
3rd party Warehouse Programs/supply Chain
Specific Performance
Escrow for Custom software
Mfg. Rights/2nd Source
Terms of Agreement
Termination & Cancellation
Retention & Audits
Right of First Refusal
Field Support
Tooling
Maintenance
Change Control/Lot Tracking
Security

17. Negotiation Strategy
This will explain how they position to meet the end goals
What data will they use
What logic and positioning will take place
What is the primary strategy as well as the secondary strategy
Steps that will be taken in case roadblocks are presented
This is the “game plan”

18. Research
This section highlights the “known” facts and positions for both the buyer and seller
It also highlights the areas were additional information is needed.
Outlines the “must have” items for the buyer and the anticipated ones for the supplier
Also works to see were there is clear common ground and tries to anticipate the areas of conflict.
BATNA for both sides is to understand the possible fall back positions for both parties
If they are weak, then the pressure to close the deal will be higher with either party

19. Key Milestones in Neg Schedule
Date the neg plan is reviewed and approved
Date negotiations will start and complete
Possible “check point” with management on highly complex neg plans
May include a milestone to trigger escalation if negotiations are stalled or not going well
Contract Signed

20. Strategy and Tactics (Example)
Area to Address
Supplier's Known Position
Opening Position
Exceeds Position
Accepts Position1
* Achieved
Pricing per Unit
$7000/Unit
$4000/Unit
$5000/Unit
$5700/Unit
BM:$5500/Unit
BM Type: Should Cost Model

21. Negotiation Session(s)

22. The session (s) Where do you sit?
Leads should sit directly across from each other
Team size comparison
You have a big team, they have a small team
Visa Versa
Initial Discussions
Formally share positions, needs and outline gaps to be closed via the neg. process
Utilize negotiation strategies per the plan
Clarification, re-enforce need for items – what are the must haves
Gives and takes
Use facts, data and logic to support your positions
Don’t make the first compromise
Be ready to respond to surprises and regroup
When do you walk away?

23. Tactics and Counter Tactics
Situational Ambiguity
Answering Questions with Questions
Flinching
No Reaction/Silence
Good Cop/Bad Cop
Calling the negotiations off
Trying to get more after the agreement is reached
Creating Time Pressures
Time Outs from a negotiation
Unexpected Surprises
Asking for the world
Accepting the first offer
Management is making me
Let’s wait on the hard stuff
Raising the price
Split it down the middle
Higher Authority
Want everything and you will give nothing
Offer in Writing “perceived Credibility
Exhaustion

24. Tips and Style

25. Tips for Effective Negotiations – Occam’s Razor
Make sure you are dealing with someone of authority who can make the final decisions
Avoid the “I have to get my managers approval”
Give on the “little stuff” earlier
Usually the big concessions occur near the end of the negotiations
It all boils down to “total cost”
Competition is the key driver on cost
Don’t under estimate the cost of transferred Risk
Keep emotions out of negotiations
Don’t take things personally
Avoid looking anxious to close the deal
Confidence is Key – Be prepared
Team Negotiation Dynamics
Regroup when positions change
Understand the roles of the team (Good cop/Bad Cop, Data Analyst, etc.)
Don’t be afraid to ask for things that sound unreasonable
Never know what they may or may not value
Could be a “fake give”
Time – Your friend or your enemy?
The group with the most time has the advantage

26. Tips for Effective Negotiations
Silence is “golden”
Can indicate disagreement – especially with non verbal (facial expressions or actions)
Thought processing – thinking it through…
Document key points
Clear note taking is key
Share with other party at end of session
Avoid distractions or interruption
Ask open ended questions and listen for meaning of the response rather than the words
Cultural Differences in response time, empowerment and direct communications are always factors
Translators add a different dimension

27. Negotiation Strategies
Cost Rabbit Strategy
Already Vested – Stay with what you know
Delay Strategy – wait it out to see if competitive landscape changes to your favor
Deferred Risk – Go further upstream to remove cost and risk with sub-tiers
Crystal Ball Strategy – what do you see in the future?

28. Negotiation Strategies
Keep your Option Open
Second Source or “Stick” Strategy
Keep them warm or “Carrot” Strategy
Loyalty Strategy – Are you the customer of choice?
Big Picture Strategy – it is about more than this one deal….
We are in it together – collaborate and share risk/reward

29. Negotiation Strategies
Lock it In Strategy – Make long term commitment on the current favorable position for long term benefit
Bartering Strategy – exchange for something of value

30. Unilateral Negotiation Exercise Instructions (Time: 30 Min)
Get together in Groups of 2-3 folks
Determine who will report out for the team
Read the case hand out
Determine the existing situation
Determine which strategies you might use to close this deal? As well as the pro’s and con’s
Refer to Neg strategies – Hand out
See questions at end of case.
Document your proposed strategy and your rational
Be ready to discuss with the class

31. Two Way Negotiation Exercise
Negotiation Teams are your established groups
Three Teams will be Buyers
Three Teams will be Sellers
After receiving your hand out, each team will break away and strategize on approach (15 Min)
Return to class room to be matched up with opposing team
Break away to conduct your negotiations (15 Min)
Return to classroom for Debrief/Report Out (10 Min)

32. Final Thoughts Be prepared – plan ahead
Don’t be afraid to walk away from a negotiation
You can negotiate anything…
Don’t get in a time pressure situation
ALWAYS maintain integrity and ethics
It is never over….

33. Starbucks Corporation
Building a Sustainable Supply Chain
Class Discussion

34. Sustainability Current Events

35. Final Exam – Hand Out
Q & A

36. Next Class
Final Presentations & Peer Reviews
No Current Events

37. Questions?