Negotiator's choice of Title Company

Lesson 8

Chapter 1, the Nature of Negotiations and

Chapter 2, Negotiation:  Strategizing, Framing, and Planning

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Introduction

The second half of the course will focus on the negotiation process which we all do, consciously or unconsciously, with bosses, co-workers, family and friends, or as part of our  job.  Lesson 8 will focus on a general overview of negotiation and strategizing, framing and planning negotiations. The book will provide the background for much of what I will cover in this and following lessons.  One aspect of this text is the use of real examples to build on the concepts covered in the text.  As in the previous part of the course, I will not reiterate all the material from the text but will point out various concepts that I think are worth repeating.

Negotiations

Sometimes, our negotiations can be simple; done with a flip of a coin or through compromise, each side giving something up they want in return for something else; the method dictated by how important the decision is to the parties.  Unfortunately, negotiations fail for a variety of reasons such as the person involved did not know they could negotiate, no negotiated settlement is acceptable to both parties, and sometimes the negotiations should not even be undertaken (see page 5).  Power imbalances will frequently lead to distributive negotiations.  As in all aspects of life, it is always best to know yourself; what you need, want, and aspire to.  In negotiations, it is also helpful to know what will happen if no deal is struck and this requires that you identify any competing or substitute alternatives.  The best solution for the negotiator in this position is to develop their BATNA (the best alternative to a negotiated agreement) which is the threshold value where accepting the alternative is better than accepting the results of the negotiation.  Negotiation is free enterprise at its very best where each party is trying to find a mutually acceptable solution to a problem.  When traditional (distributive) negotiations (win-lose) are appropriate, negotiation matches the skills of determined buyers against those of equally determined sellers.  Both explore ways to achieve objectives that tend to optimize the self-interest of their organizations.  In short, in such circumstances, negotiation is a powerful purchasing tool which competent buyers use to achieve maximum value at minimum cost.  By rewarding efficiency and penalizing inefficiency, the negotiation process only benefits the one negotiating firm.
At the same time, in different circumstances, the increasingly common collaborative (integrative) approach to negotiations that is required with "preferred suppliers" and "strategic alliance partners" substitutes with a win-win approach.  With this approach, both parties are better off entering into the negotiated deal than not reaching agreement.  This approach substitutes for the forces of marketplace competition, with the expertise of the buying and selling firms' representatives (and, subsequently, their firms) identifying and squeezing unessential costs out of the coupling of the two operations.  Thus, costs must be driven to their lowest possible levels without adversely affecting the quality in order to ensure the survival and success of the buyer and seller's value chain in the marketplace.

Negotiation - General Overview

Negotiation is one of the most important as well as one of the most interesting parts of professional purchasing and is part skill and part art.  This part of the course will provide much of the knowledge, but it is up to your interpersonal skills, ability to convince and be convinced, employ bargaining ploys and the wisdom to know when and how to use them that will make you a successful negotiator.In industry, and at most levels of government, the term "negotiation" frequently causes misunderstandings.  In industry, negotiation is sometimes confused with "hassling" and "price chiseling."  In government, negotiation is frequently visualized as a nefarious means of avoiding sealed bidding and awarding large contracts surreptitiously to favored suppliers.

Knowing When to Negotiate

Negotiation is the appropriate method of purchasing when sealed bidding is impractical.  Some of the most common circumstances dictating the use of negotiation are noted below:1.   When any of the prerequisite criteria for competitive sealed bidding are missing such as high dollar value, clear specifications, adequate number of interested and capable sellers, and available time are necessary.
2.   When many variable factors bear not only on price but also on quality and service.  Many high-dollar-value industrial and governmental contracts fall into this category.
3.   When early supplier involvement is employed.
4.   When the business risks and costs involved cannot be accurately predetermined.  When buyers seek competitive bids under these circumstances, excessively high prices inevitably result.  For self-protection, suppliers factor every conceivable contingency into their bids.  In practice, not all of these contingencies occur.  Hence, the buyer unnecessarily pays for something not received.
5.   When a buyer is contracting for a substantial portion of the seller's production capacity, rather than for a product the seller has designed and manufactured.  In such cases, the buyer has designed the product to be manufactured and, as an entrepreneur, assumes all risks concerning the product's specifications and salability.  In buying production capacity, the buyer's objective is not only to attain production capability but also to acquire such control over it as may be needed to improve the product and the production process.  This type of control can be achieved only by negotiation and the voluntary cooperation of suppliers.
6.   When tooling and setup costs represent a large percentage of the supplier's total costs.  For many contracts, the supplier must either make or buy many costly jigs, dies, fixtures, molds, special test equipment, gauges, and so on.  The buyer wants to make sure the title for such tooling becomes the property of his/her company.
7.   When a long period of time is required to produce the items purchased.  Under these circumstances, suitable economic price adjustment clauses, or progress or advance payments must be negotiated.  Also, opportunities for various improvements may develop; for example, new manufacturing methods, new packaging possibilities, substitute materials, new plant layouts, new tools, etc.  Negotiation permits an examination and evaluation of all these potential improvements.
8.   When production is interrupted frequently because of numerous change orders are contemplated.  This is a common situation in the field of fast changing technology.  Contracts in these fields must provide for frequent change orders; otherwise the product being purchased could become obsolete before completion of production.  The ways in which expensive changes in drawings, designs, and specifications are to be handled and paid for are subjects for mutual agreement arrived at through negotiation.
9.   When a thorough analysis is required to solve difficult make-or-buy decisions.  Precisely what a seller is going to make and what it is going to subcontract should be decided by negotiation.  When free to make its own decision, the seller often makes the easiest decision in terms of production scheduling.  This may well be the most costly decision for the buyer in terms of price.
10.   When the products of a specific supplier are desired to the exclusion of others.  This can be either a single or a sole sourcing situation.  In this case, competition is minimal or totally lacking.  Terms and prices, therefore, must be negotiated to prevent unreasonable dictation by the seller.
In all ten of these cases, negotiation is essential; and, in each case, quality and service are as important as price.

Price Analysis Negotiation

Price analysis negotiation (often referred to simply as "price negotiation") is the most commonly used approach when negotiating for price.  Some proponents of cost negotiation disparage price negotiation, referring to it as "unsophisticated" and "emotional."  In the many cases where price negotiations are undertaken in an unprofessional manner, such criticism is fully justified.  Banging on the table and shouting "I want lower prices" or "I can get it cheaper from B" is certainly not professional price negotiation.On the other hand, in many specific cases where pricing data are developed and utilized with professional skill, price negotiation can be just as advantageous as cost negotiation, or more so.  Compared with cost negotiation, price negotiation has three distinct advantages:  (1) negotiation time is shorter, (2) support of technical specialists is seldom needed, and (3) pricing data are relatively easy to acquire.  The traditional sources from which buyers get pricing data are federal government publications, purchasing trade publications, newspapers, and business journals and other sources we have discussed.  Competing suppliers are excellent sources of pricing data.  They can provide the buyer with price lists, catalogs, numerous special pricing data, and formal price quotations.  From these competing supplier data, the buyer can readily determine two very important facts:  the nature of the market (competitive or noncompetitive), and the extent of supplier interest in this particular purchase.
Price Comparison:  The negotiator's first step in price analysis is to determine the extent of market competitiveness and supplier interest.  The second step is to examine in detail the absolute and relative differences existing among the various prices quoted by the competing suppliers.  From this examination, a buyer detects that differences in prices among suppliers exist but does not learn the causes of these differences.  The search for causes begins in the purchasing department's supplier information file.
The bid prices of the competing suppliers are compared with past prices of similar purchases from the supplier information file.  The causes of all significant variations are pinpointed and analyzed.  Adjustments are made for changes in factors such as specifications, quantities ordered, times of deliveries, variations which have taken place in the general levels of business activity and prices, and differences which may have resulted from learning experience.  After these adjustments are made, the negotiator (sometimes with the help of an engineering estimator or a price analyst), determines whether or not the prices offered are reasonable.  From this determination, the negotiator decides on the target price to use for his or her negotiating position when negotiations are undertaken.
Trend Comparisons:  Historical prices paid for purchases of similar quantities can be analyzed to disclose helpful price trend information, taking into account any adjustments that may need to be taken for any differences.  For example, if prices have been increasing, it is reasonable to expect that the seller will attempt to maintain a similar pattern of increase.  Hence, by carefully analyzing the reasons for all price increases, the negotiator can structure a bargaining position on the basis of any information uncovered.
Similarly, the negotiator can analyze decreasing prices to determine whether the price decrease is too little or too much.  If the buyer determines that the decrease is too large, he or she must determine whether the trend is creating, or is likely to create, quality or service problems in contract performance.  If the decrease is too little, then the buyer must determine whether the benefits of improved production processes are being proportionally reflected in lower prices.  Even a level price trend offers opportunities for price analysis.  For example, the negotiator may ask whether level prices are justified, considering the many manufacturing improvements which have been made.  Did the supplier charge too much initially?  Has the supplier's competitive position in the industry changed?  If the negotiator's analysis indicates that costs have fallen because of reductions in the supplier's cost for materials or because of improvements in the production processes, his or her negotiating position is clear.

Cost Analysis Negotiation

As previously stated, price analysis negotiation is more commonly used than cost analysis negotiation.  In cost negotiations, each applicable cost element is negotiated individually, i.e., design engineering cost; tooling cost; direct materials quantities, types and cost; labor hours, rates and categories; subcontracting; indirect cost allocation; other direct costs; profit; and so on.  It has been used successfully for decades by many large firms such as General Electric and Ford, and in recent years it has been employed increasingly by small and medium-size firms.  When preferred supplier or strategic supply relationships are utilized by a firm, careful detailed analysis of the supplier's costs (both present and projected) replaces the role of competition in the marketplace.  Both buyer and seller must see themselves as members of a value chain competing with other value chains for the customer's purchasing dollar.  Thus, discussions about costs, cost allocations, cost drivers, cost reductions, possible cost avoidance, and profits must be seen in context.  If their portion of the value chain becomes noncompetitive, then they will fail to attract the customer's purchase dollars and they both lose!  Discussions can and often do get heated; conflict can be healthy but the discussions should be conducted in the context of what is in the best interests of both parties.  In reality, they should see themselves as members of the same team.

Webster's dictionary defines negotiation broadly as "conferring, discussing, or bargaining to reach agreement in business transactions."  To be fully effective in purchasing, negotiation must be utilized in its broadest context as a decision making process.  In this context, negotiation is a process of planning, reviewing, and analyzing data used by a buyer and a seller to reach acceptable agreements or compromises.  These agreements and compromises include all aspects of the business transaction, not just price.
In successful negotiations, both sides should win something.  Popular usage calls this approach "win-win negotiating."  The "winnings," however, are seldom equally divided; invariably, one side wins more than the other.  This is as it should be in business--superior business skills merit superior rewards.

Characteristics of a Negotiation Situation

Your text identifies on page 4 several characteristics common to all negotiation situations:

• Takes two or more parties engaged in a conflict who try to search for a solution agreeable to both.
• Both parties believe they can achieve a better solution than taking what the other side offers versus openly fighting, capitulating to the other side, or taking other alternatives.
• Negotiations involve give and take or what we refer to as concessions which is essential to joint problem solving in most relationships.
• It is made up of both tangible and intangibles.  Sometimes, it isn't always the tangible (price, etc.) that is important but intangible items such as trust, cooperativeness, and honesty.

Interdependence

We talked earlier about negotiations needing two or more parties but there must exist some kind of mutual dependency where each party has interlocking goals whereby each party needs the other to create opportunities and options to meet their goals.  This interdependency is what makes negotiations complex and challenging.   Neither side will have the same goals since they will want different things (high selling price versus low selling price).  But this mix of "convergent and conflicting goals characterizes many interdependent relationships."

What these goals are and how far apart they are determines your strategy and tactics.  You can consider the problem as a fixed pie where how big my piece is means that your piece is smaller or whether the pie can be enlarged to accommodate both our needs.  This difference in viewpoint determines your strategy and tactics.  The two most common definition of styles is where one side believes in enlarging the pie (win/win or integrative) before cutting it into shares, versus cutting the existing pie with one party's wins resulting in the other party's loss (distributive).  Negotiations involving one issue (also know as zero-sum) such as money are almost always distributive in that the parties have almost strictly opposing interests; the more you get, the less the other party gets.  One-time negotiations with no anticipated repetition are frequently distributive in that neither party has a vested interest in building the relationship nor setting precedents, cashing credits for past favors or log-rolling between problems (combination of buyers/sellers getting together for mutual assistance of their separate projects).There is a really good article written by E. Werthein entitled "Negotiations and Resolving Conflicts."  This information is summed below but the article has so much more information.
How can I change what seems like a "win-lose" situation to a "win-win" (or what if the other person doesn't play by these rules)?
It happens when the other person either doesn't wish to reach a "win-win" or doesn't realize it is in his or her best interest to achieve a collaborative solution.
 The solution is to open lines of communication, increasing trust and cooperativeness.

• Reduce tension:  through humor; let the other "vent;" acknowledge the other's views; listen actively; or make a small concession as a signal of good faith.

• Increase the accuracy of communication:  listen hard in the middle of conflict; rephrase the other's comments to make sure you hear them; or mirror the other's views.

• Control issues:  search for ways to break the large issue into smaller pieces; depersonalize the conflict--separate the issues from the people.

• Establish commonalties:  since conflict tends to magnify perceived differences and minimize similarities, look for greater common goals (we are in this together); find a common enemy; or focus on what you have in common.

• Focus less on your position and more on a clear understanding of the other's needs and figure out ways to move toward them.

• Make a " yesable" proposal:  refine their demand; reformulate; repackage; sweeten the offer; or emphasize the positives.

• Find a legitimate or objective criteria to evaluate the solution (e.g.. the blue book value of a car).

Is it ethical to "lie or bluff' in negotiations?

The answer, of course, is that it depends on one's values, one's culture, and the situation.  The issue is not to confuse bluffing with misrepresentation.

In our culture, our "rules" forbid and should penalize outright lying, false claims, bribing an opponent, stealing secrets, or threatening an opponent.  While there may be a fine line between legitimate and illegitimate withholding of facts, there is a line and again we are distinguishing between the careful planning of when and how to reveal facts vs. outright lying.Bluffing, while it may be employed, does entail risk.  You may lose credibility or it could get out of hand.  It is also dangerous ground to tread if you carry it out with people with whom you will have a continual relationship.  While bluffing may be expected, our culture does not condone outright lying.

Mutual Adjustment

Negotiations are two-way communication; what each person says influence's how each behaves toward the other in the future.  Thus, you not only have the immediate impact from negotiations, but also potential long-range negotiations.  Long-term negotiations should build momentum with each negotiation session influencing future sessions with each side working to build on the relationship.  Because of the relationship building aspect of these negotiations, repetitive bargaining is often done more cooperatively (and honestly) than single, short-term bargaining provided some inadvertent, careless friction does not fester and spoil the atmosphere for future negotiations.  You must remember that what you say and do may have long-range effects on what the other party does and is expected to do.

Consequently, the best way to determine the negotiation style regarding other parties is to gain as much information as you can from previous negotiations held by other individuals, "the reputation of the other party, how he or she treated you in the past, and the present circumstances" or possibly other companies.  The goal in knowing more about the other party's situation is to clarify and share information about what each party needs and exchange information thus increasing the possibility of a successful problem solvent event because negotiations is really about problem solving, "taking into account each person's requirements and, hopefully, optimizing the outcomes of both."
Your textbook brings up an interesting topic concerning dilemmas:  one of honesty (how much do you tell the other party which can allow the other party to take advantage of you) and the second of trust (leaving you in a position of being taken advantage of).  Not being honest can lead to a less than optimal solution or a stalemate while trusting when you should not can lead you to suboptimal solutions.  What your goals are is "equity, fairness, and reciprocity in proposals and concessions" as well as confidence that the process was fair and equitable.

Interdependent and Perceptions

Each person sitting at that table is a result of their upbringing, culture, personality, beliefs, and all their experiences.  These perceptions and judgments that make up that person are at the table as well.  Your text states that Leigh Thompson and Reid Hastie believe that negotiator's perceptions and judgments can have importance influences on judgments about (a) the other party, (b) themselves, (c) the utilities of both parties, (d) offers and counteroffers, (e) negotiation outcomes, and (f) the negotiation process as a whole.  You can refer to the above as their perceptual biases and we all bring them to the table with us which can lead to unsatisfactory negotiations.  The trick is to recognize them and deal with them before and during the negotiation itself through what your authors call "unfreezing-change-refreezing model."
All conversations occur on two levels:  what people say (verbal content) and the way they say it (non-verbal messages).  The old adage that "actions speak louder than words" is still true today.  Consequently, your negotiation contains both elements.
Natural decision and negotiation processes may contain biases that prevent us from acting rationally and getting as much as we can out of the negotiations.  The way in which the problem is framed, or presented, can dramatically alter the perceived value or acceptability of alternative courses of action.  These are called cognitive mistakes and are listed below:

1.   Negotiators tend to be overly affected by the frame, or form of presentation, of information in a negotiation.2.   Negotiators tend to non-rationally escalate commitment to a previously selected course of action when it is no longer the most reasonable alternative.
3.   Negotiators tend to assume that their gain must come at the expense of the other party and thereby miss opportunities for mutually beneficial trade-offs between the parties.
4.   Negotiator judgments tend to be anchored upon irrelevant information—such as an initial offer.
5.   Negotiators tend to rely on readily available information.
6.   Negotiators tend to fail to consider information that is available by focusing on the opponent’s perspective.
7.   Negotiators tend to be overconfident concerning the likelihood of attaining outcomes that favor the individual(s) involved.

Value Creation

Interdependent relationships should lead to value creation but may lead unfortunately to conflict.  Our goal is to enlarge the pie by creating value through creative problem solving.  However, this may be difficult given the differences and interesst of both parties to the negotiation.  If you add more than two parties to the negotiation, you can imagine how complicated problem resolution can become.  In addition to the interest differences, you could have difference of opinion (how valuable something is), differences in risk aversion, (how much risk are they willing to accept that the outcome will materialize), and differences in time preference (impatient or not).  This all leads to the differences we find in each of us and how we tackle problems.

Conflict

Conflict is always a possibility when it comes to conflict resolution.  That is part of the process.  The goal is to control or avoid it.  The conflict arises "due to the highly divergent needs of the two parties, a misunderstanding that occurs between two people, or some other, intangible factor."  Obviously, conflict will arise if we are truly looking at a fixed pie with no chance to enlarge the pie.  Sometimes there is simply one person who can win.  Conflict can be positive as we learn through conflict resolution but it can also be destructive.  The competitive process may allow only one winner if goals are opposite.  Misperceptions and bias as we mentioned earlier come into play at the negotiation table and are part of one's basic core beliefs and values and thus insurmountable.  Emotions may get in the way of calm behavior thus defeating the negotiation purpose and leading to decreased communication.  Negotiators who are willing to wait longer, probe more patiently, and appear less eager for settlement, usually appear more successful because this can be a successful tactic as most Americans are uncomfortable with long pauses in negotiations.  Sometimes shouting occurs whereby no communication (and hence problem solving) is going on.  Sometimes the issues are so blurred and generalized, it is hard to define exactly what the issue is that needs to be resolved.  Rigid commitments do not allow for concessions.  Sometimes we become so personally involved in the process we fail to see the similarities but only see the differences.   The worst case is the escalation of the conflict; resolution becomes impossible, thus taking the intervention of third parties.  An interesting point is that one of the reasons for going to court is that each party tends to view its own chances in court as better than the other side viewed them; however, firms are primarily risk averse and decision regretful, and that they desire to avoid paying lawyer's fees by settling disputes inside of the negotiation context.  Figure 1.1, on page 17 has a good chart on the functions and benefits of conflict.

Conflict Management

Figure 1.2, page 18, Conflict Diagnostic Model, is an important model.  Leonard Greenhalgh identified seven perceptual dimensions that effect how easy or difficult an issue will be to resolve and will aid in developing ways to resolve a dispute.  I think these are important concepts to understand because it determines your negotiation strategy.  
Page 19 has a good chart on the Dual Concern Model, Figure 1.3  The point of this chart is that depending on how concerned you are regarding the other person's relationship versus just your own goals, will determine which of the five approaches to use to manage conflict.  One is the degree of concern a conflicting party shows for his own outcome, and the second is the degree of concern shown for the other's outcome (the degree of assertiveness a conflicting party maintains for his own preferred solutions or outcome, and the degree of cooperativeness a party shows toward working with the other party to achieve their goals).
Dealing with conflict is a central part of the negotiating process.  There are five modes of behavior that are commonly used to deal with conflict:  competing, collaborating, avoiding, accommodating, and compromising.  The effect on outcomes that would be created by choosing one style over another is not certain; what was examined by many writers were the reasons that one style is commonly chosen over another.  A negotiator may make this choice based on rational criteria, such as selecting the style that is most likely to lead to the desired outcomes.  However, everyday experience (and systematic research) indicates that the choice may also be an expression of a negotiator's personality.  It is that personality predisposition that is discussed here.
  The five major conflict management styles are defined below:

1.  A contending (competing) style, high on assertiveness and low on cooperativeness (win/lose).  Any method is justified to gain your goal but it can lead to judgment distortions by both parties regarding their positions.2.  A yielding (accommodating) style, low on assertiveness and high on cooperativeness.  Letting the other person win is par for the course and may be appropriate if the relationship is more important than anything else.  However, it is a bad habit to get into.
3.  An inaction (avoiding) style, low on both assertiveness and cooperativeness.  Withdrawal or passivity is usually found in this style.  It works best when you can meet your needs without negotiation at all, time is unavailable, or it is quicker and easier to take the alternative versus accepting what may result from the negotiation.
4.  A problem solving (collaborative) style, high on both assertiveness and cooperativeness.  This shows a high concern for both parties' outcomes but may lead one party to be taken advantage of by a contending-style negotiator.
5.  A compromising style, moderate on both assertiveness and cooperativeness. Thos could be just a way of pleasing the other party without any effort.

Research has supported the premise that individual conflict management styles vary according to two factors:  the nature of the situation (i.e., negotiators make rational choices about which strategy to use), and individual biases to use certain styles regardless of the situation.  In addition, individual differences in conflict management style have been correlated with other measures of personality.  Using the Myers-Briggs measure of personality styles, research reports a significant relationship between preference for:  (1) integrative styles (a win-win perspective on conflict) and extroversion; (2) distributive styles (a win-lose perspective on conflict) and introversion; and (3) styles of conflict management and "thinking" as opposed to "feeling" individuals.  Research suggests that individuals high in a competitive style would be lower in risk taking (higher in internal control), higher on needs for power and control, and lower on needs for affiliation.  Similarly, individuals strong in collaboration would be more likely to be task oriented, creative, and capable of dealing with complexity.  Each of these relationships is derived through inference, however, and is not a result of direct research with instruments.  Similar inferences are drawn between individuals with particular conflict orientations and their actual behavior in conflict situations.  If the stakes for winning are high and outcomes are derived through individual effort, then individuals with strong competing modes should dominate the situation; if outcomes are derived from joint efforts, then individuals with a strong collaborative mode should dominate.  In contrast, if the stakes are low for an individual, then that individual would be more likely to ignore the conflict (avoiding mode) or allow the other to reap what little resources are available (accommodating mode).Despite current debate about the extent of the usefulness of models of conflict styles, the development of measuring instruments, identification of common styles, and the relationship of these styles to conflict behavior has received considerably greater verification than that of the effects of personality variables.

Chapter 2 - Negotiation:  Strategizing, Framing, and Planning

In the broadest sense, the negotiation begins with the origin of a firm's requirements for specific materials or services.  The ultimate in purchasing value is possible only if design, production, purchasing and supply, and marketing are able to reconcile their differing views with respect to material or service specifications.  Buyers must always think in terms of total cost of ownership and total value, not in terms of price alone.Probably 90 percent or more of the time involved in a successful negotiation is invested in preparing for the actual face-to-face discussion.  The outcome of contract negotiations hinges on relative buyer-seller power, information, negotiating skills, and how both perceive the logic of the impending negotiations.  Each of these controlling factors can be influenced by adroit advanced planning. 

Goals

Begin proactively by defining general goals and setting specific objectives by scanning the environment (opportunities and threats) and analyzing relative strengths and weaknesses of both parties.  Before one can sit down and negotiate, you must have an idea of what you want to negotiate and achieve.  Identifying all goals in "specific, measurable, focused, realistic target" terms is a joint process with your purchasing team.  However, there are boundaries to the goals so they may be unattainable.  In that case, you must decide to accept a lesser goal or cancel the effort.  Some of the goals will be more important that others so those must be identified as what I like to refer to a "must haves" and then there are others that I refer to as "nice to haves" which would be less important than the top priority goals.  In addition, some of the goals are going to be interrelated and those cases must be identified.  Getting one without the other may result in the loss of both goals.  During the actual negotiations, concessions will be offered in an effort to reach agreement.  However, that requires that you identify those items that you may be willing to live without (the nice to haves), and could offer as trade offs or sacrificial lambs.

Both the other party and your organization will develop these goals and objectives which you would like to procure; however, there should be some overlap in the goals.  "Goals that are not linked to each other often lead the parties either to talk past each other or to intensify the conflict."   If your goal is a single event, it is likely you will use a distributive style but if your goal is a long-term event where relationships will become important, it is likely that you will use a collaborative style.  

Strategy--the Overall Plan to Achieve One's Goal

As we mentioned above, your plan includes your goal(s) which will determine your strategy.  That leads us to the second step of the negotiation process and that is to develop your strategy or action plan that gives you the best chance to gain your objective (goal) using information gained during your research.  Your strategy is made up of tactics which should support your strategy and thus your goal.  "Tactics are short-term, adaptive moves designed to enact or pursue broad (or higher-level) strategies, which in turn provide stability, continuity, and direction for tactical behaviors".  I will include a list of tactics in later lessons.  Goals lead to strategies which leads to tactics which should be "structured, directed, and driven by strategic considerations."It is very helpful to consider both the relationship and substance of negotiations.  This determines the negotiation context by drawing from the current situation to determine what the future situation could be.  This could determine whether you share the pie, grab it, or give it away.
You should determine the relative power of each party (the extent of each party’s dependence on the other).  It could be independence, dependence, or interdependence.  This would determine whether you use competing, accommodating, collaborating, or withdrawing strategies.  You should determine how important successful negotiations are to your organization as well as the other party.  This could lead to a trusting, collaborative strategy where organizations are interdependent and mutually supportive which leads to win/win through joint problem solving with both parties disclosing information.
The analysis could also lead the negotiator to use an open subordination, or a yield/win strategy if the outcome is significant to one party.  Here, the goal is to try to dampen hostilities, increase support and foster a more interdependent relationship with "soft" competition.
The analysis could also lead the negotiator to believe the best strategy is firm competition or a win/lose strategy.  This could lead the negotiator to exert power to gain significant outcomes, with little trust in the other party.  Here, the relationship is not good in that it is usually highly aggressive, threatening, and may use bluffing.
The last suggested strategy is active avoidance where neither relationship nor outcome is important to the negotiator.  In this case, negotiations could be delegated to another staff member.


During prenegotiation planning, determine if assumptions and expectations are accurate and modify if needed.  Also, determine the level of conflict, differences or degree of supportiveness or hostility between each party’s interests.
Robert Kuhn wrote an interesting article on strategic planning and points out that there are three general kinds of strategic attitudes in negotiations.
Simple and direct in which you come right to the point which may be startlingly effective by disarming the other side and driving to quick resolution and is effective when you've worked with the other side before, the deal is bogging down or immediate closure is a goal.
Then there is press and push where shoving starts and sensitive points are squeezed.  To be effective, the pressing and pushing should be subtle or the other side will think you are twisting their arms.  It may be effective when your side is stronger, the other side needs a quick close, or you want to assess their limits.
The third attitude is cool and aloof which uses reverse psychology by playing hard to get.  This can be effective when the other side is stronger, your side is under time pressure, or you have other alternative deals.
He also suggests additional tactics to consider such as:
1.  Patience - Use when the other side is highly volatile, you set the pace – you control the deal.
2.  Slow Agony - Defense again high pressure.
3.  Apathy - Defends against high pressure.
4.  Empathy/sympathy - Show concern to break deadlocks and bridge gaps. . 5.  Sudden Shifts - Dislodge blockage and overcome obstacles.
6.  Faking - Protect particular point and concede what you had planned to concede all along.
7.  Walking - Other side has more power and has pushed too hard/too long.
8.  Fair Accompli - Threat to take unilateral action when you control a critical issue.
9.  Salami - Gives a little here, little there but beware and set strict limits.
10.  Limits - Use when the other side keeps pushing.
11.  Deadlines - Avoids hasty decisions.  Setting deadlines puts pressure on both parties.  Real or perceived limits affect and constrain the negotiation process.  This is also a very effective sales technique.
12.  Antagonism - Disarm by sidesteps, not body blocks.

Defining the Issues--The Process of "Framing" the Problem
We have now decided on our (1) goal(s), (2) strategies, and (3) tactics.  Our next step is to frame the negotiation.  By framing, I am referring to how we want the other party to interpret the message through filters that exists in each of us (what we hear isn't necessarily what is said).  A frame orients the other person to listen with a certain disposition and focuses attention on the most pivotal or salient issues.  "Thus frames emerge as the parties talk about their preferences and priorities; they allow the parties to begin to develop a shared or common definition of the issues related to a situation, and a process for resolving them."

There are a number of frames defined in your textbook as follows:

• Substantive - what the conflict is about.
• Outcome - how focused the negotiation is on achieving the goal (win/lose or lose/lose).
• Aspiration - satisfying both sets of goals (win/win).
• Conflict management process - the process used to reach agreement.
• Identify - how the parties see themselves.
• Characterization - how they see the other party (good guy or bad guy).
• Less-gain - how both parties see the risk of gaining or not gaining their goals.

Framing is not one dimensional and negotiators may try different tactics or viewpoints.  However, the other party may see through this, resulting in a conflict as the other party feels the first party is not being honest.  Also "particular types of frames may lead to particular types of agreements."  We may also use different frames given the negotiation situation.  You see this in listening to politicians.  However, we all have a frame that we are most comfortable with which will differ given the differences in background, personality, and social context.

However, you also look at frames (as explained by our authors) through what their interest is versus what their position is; what is right or fair and who feels they have the upper-hand (power) during negotiations.  Which frame we have or use will result in different strategies and tactics.

Each negotiator should enter the negotiations with a plan.  However, as negotiations progress and negotiators discuss their points, things change, issues change, how we look at the issues will change, thus effecting the discussions.  Your text brings out four points concerning framing:

• Negotiators tend to argue for stock issues, or concerns that are raised every time the parties negotiate, especially if they feel the previous outcome was less than satisfactory.
• Each party attempts to make the best possible case for his or her preferred position or perspective by trying to control the focus of the negotiations.
• Frames may also define major shifts and transmissions in the overall negotiation when they share joint perceptions of the conflict or review relevant history thus allowing for a change to a collaborative negotiation.
• Multiple agenda items operate to shape the issue development frames because there are both major and minor issues allowing for tradeoffs and combination discussions.

Understanding the Flow of Negotiations:  Stages and Phases.

I have always looked at negotiations being in four phases:  preparation, the establishment of objectives, and face-to-face discussions resulting in agreement on all items and conditions of a contract, or a decision not to enter into an agreement with the potential supplier.  Your authors break in up into seven phases:

• Preparation
• Relationship building
• Information gathering
• Information using
• Bidding
• Closing the deal
• Implementing the agreement

Which phases you use and which order you follow may well depend on your culture.  We will discuss this during International Negotiations.

However, we both agree that the planning phase is by and far the most important.

Getting Ready to implement the strategy:  the planning process

 Your plan should be simple, specific, and flexible.  It is very helpful during the ideas stage (brainstorming), to jot down jumbled ideas about the negotiation and thoughts about the other party.  Gather your arguments based on facts, data, and rationalization. Knowledge is power.  The more knowledge the negotiator acquires about the theory and practice of negotiation, the seller's negotiating positions and the product being purchased, the stronger his or her own negotiating stance will be.  A negotiator without a thorough knowledge of the product or service being purchased is greatly handicapped.  A negotiator is similarly handicapped if he or she has not studied and analyzed every detail of the supplier's proposal.  Whenever feasible, before requesting bids, the negotiator should develop an estimate of the price and value levels for the items being purchased.  Knowledge of current economic conditions in the market for the product or service in question is also an essential element of preparation.  Tactics such as murder-boards or mock-negotiations can be of value in preparing your strategy.The negotiator must:  (1) possess or gain a technical understanding of the item or service to be purchased, (2) analyze thebuyer's and seller's relative bargaining positions, (3) have conducted a price or cost analysis (as appropriate), and (4) know the seller.
Know the Item or Service:  The negotiator does not need to understand all the technical ramifications of the item being purchased; he/she should have technical support for that.  But it is essential that he or she have a general understanding of what is being purchased, its market, the production process involved, and any other issues that will affect quality, timeliness of performance, and cost of production or service.  The negotiator should understand the item's intended use, any limitations, and the existence of potential substitutes.  The negotiator should be aware of any prospective engineering or service problems which may arise.  The negotiator should be aware of the item's procurement history and likely future requirements.  Ideally, the negotiator will be familiar with any phraseology or customs relevant to the industry.
Having prepared for negotiations, the first step is to identify each issue (terms and conditions such as price, delivery, quality, etc.) involved in the negotiations.  When you define the issue, you have to consider the overall situation, your past experiences in similar negotiations, the research you gathered and any discussions held with upper management or consultants that could provide guidance.
Your next step is to make a list of all the issues and break them into high, medium or low importance and whether any are connected.  A fireplace with a chimney won't help you.  Don't hesitate to include sacrificial lambs as many issues allow for many possible arrangements although having too many can bog down the negotiations if not held in check.
Third comes defining your interests regarding the issues, not your positions.  What is it you really want:  If I gave you an orange, is it the juice, the meat, or the rind.  This process helps you decide on what your really want to negotiate for.
The fourth and firth steps set out your objectives.  
Establish an objectives for each identified issue for both your side first but also the other negotiator and the zone of overlap or gap. You want to make sure you are in the driver's seat and not reacting to his plan.  Negotiation objectives must be specific.  General objectives such as "lower than previous prices," "good delivery," or "satisfactory technical assistance" are inadequate.  For each issue to be negotiated, the negotiating team should develop three specific positions:  (1) a target position, (2) a minimum position, and (3) a maximum position.  Using the cost objective as an example, the minimum position is developed on the premise that every required seller action will turn out satisfactorily and with minimum cost.  The maximum position is developed on the premise that a large number of required seller actions will turn out unsatisfactorily and with maximum cost.  The target position is the negotiator's best estimate of what he or she expects the seller's actual costs plus a fair profit should be.
In developing concrete objectives, actual dates are established for delivery schedules, actual numerical ranges for quality acceptance, and actual dollar levels for applicable elements of cost.  The major elements of cost which traditionally are negotiated and for which target, maximum, and minimum positions are developed include labor hours, rates and categories; quantity, type and price of materials; overhea and general and administrative rates; profit; and any other expense such as engineering, tooling, maintenance, etc.  In addition to determining his or her own position for each major issue, the buyer and the negotiating team members must estimate the target, maximum, and minimum positions of the seller's potential issues.  Determining the seller's maximum position is easy; it is the offer made in the seller's proposal.
All negotiations should have objectives; several objectives are common to all procurement/sales negotiations:

1.  To obtain the quality specified.2.  To obtain a fair and reasonable price.
3.  To get the supplier to perform the contract on time.

In addition, the following objectives frequently must be met:

1.  To exert some control over the manner in which the contract is performed.2.  To persuade the supplier to give maximum cooperation to the buyer's company.
3.  To develop a sound and continuing relationship with competent suppliers.
4.  To create a long-term partnership with a highly qualified supplier.

Obtaining a Fair and Reasonable PriceIn the majority of cases, the establishment of a fair and reasonable price for the desired level of quality becomes the principal focus of the negotiation process.  This aspect of negotiation ranges in complexity from the use of price analysis to the more complex analysis of the potential supplier's cost elements.  While the buyer focuses on obtaining a fair and reasonable price, this must be done within the context of obtaining the lowest total cost.
On-Time Performance
The ability to meet delivery schedules for the quality and quantity specified is the single greatest supplier failure encountered in purchasing operations.  This results primarily from:  (1) failure of the requisitioners to submit their purchase requests early enough to allow for necessary purchasing and manufacturing lead times, and (2) failure of buyers to plan the delivery phase of negotiations properly.  Because unrealistic delivery schedules reduce competition, increase prices, and jeopardize quality, it is important that buyers negotiate delivery schedules which suppliers can realistically meet, without endangering the other requirements of the purchase.
Maintaining Control
Deficiencies in supplier performance can seriously affect, and in some cases, completely disrupt the operations of the buyer's firm.  For this reason, on important contracts, buyers should negotiate for controls which will assure compliance with the quality, quantity, delivery, and service terms of the contract.  Traditionally, controls have been found to be useful in areas such as man-hours of effort, levels of scientific talent, special test equipment requirements, the amounts and types of work to be subcontracted, and progress reports.
Reward Cooperation
Cooperation is best obtained by rewarding those suppliers who perform well with future orders.  In addition to subsequent orders, however, good suppliers also expect courtesy, pleasant working relations, timely payment, and cooperation from their customers; cooperation begets cooperation.
Think Continuing Relations
When negotiating with suppliers, a buyer should recognize that current actions usually constitute only a part of a continuing relationship.  Negotiating conditions which permit buyers to take unfair advantage of sellers invariably, with time, change to conditions which allow sellers to "hold up" buyers.  For this reason, the buyer must realize that any advantage not honestly won will, in all likelihood, be recovered by the supplier at a later date, probably with interest.  Thus, as a matter of self-interest, buyers must maintain a proper balance between their concern for a supplier's immediate performance on the one hand and their interest in the supplier's long run performance on the other.

In addition to costs, specific objectives should be established for all items to be discussed during the negotiation, including:

1.   All technical aspects of the purchase. 2.   Types of materials and substitutes. 3.   Buyer-furnished material and equipment. 4.   The mode of transportation. 5.   Warranty terms and conditions. 6.   Payment terms (including discount provisions). 7.   Liability for claims and damage. 8.   Free on Board (FOB) point. 9.   General terms and conditions.

Other objectives may include:

1.   Progress reports. 2.   Production control plans. 3.   Escalation/de-escalation provisions. 4.   Incentive arrangements. 5.   Patents infringement protection. 6.   Packaging. 7.   Title to special tools and equipment. 8.   Disposition of damaged goods and off-spec materials.

Part of setting your objectives is knowing your limit and alternatives.  Obviously, the limit is just how far up you can go; it sets your upper limit during negotiations.  If you had $100,000 budgeted to buy the item, that would be your limit.  However, it may be that you could lease the item for the period that would cover your need.  The more alternatives you have, the more power you have to reject the offer.
Setting your targets and opening offer is crucial because your target is what you consider a realistic point in the negotiations you hope to reach.  It may be possible to combine objectives and bundle them together to make an attractive offer.  In the previous case, the $100,000 would be your upper limit but you have priced other items and believe you can negotiate $80,000 which would be your target.  However, if you could get it for $70,000, it would allow you to buy additional needed equipment.   Hence, the $70,000 could be your opening offer.  I have found that if your opening offer is too low, you will be dismissed by the other negotiator as being unknowledgeable and offering unrealistic prices. 
Buyer's Bargaining Strength:  The buyer's bargaining strength usually depends on three basic factors:  the extent of competitionpresent among potential suppliers, the adequacy of the cost or price analysis, and the thoroughness with which the buyer and all other members of the buying team have prepared for the negotiation.  Intensive supplier competition always strengthens a buyer's negotiating position.  Competition is always keenest when a number of competent sellers eagerly want the order.  General economic conditions can bear heavily on the extent to which a firm really wants to compete.  A firm's shop load, its inventory position, its staff resources, and its back-order position are typical factors that also bear heavily on the ever changing competitive climate.
Adequacy of Cost or Price Analysis:  A comprehensive knowledge of cost and price analysis is one of the basic responsibilities of all negotiators.  When an initial contract is awarded for a portion of a supplier's production capacity rather than for a finished product, cost analysis becomes vital.  In this situation, the negotiators are not prepared to explore with the supplier the reasonableness of its proposals until after a comprehensive analysis of all applicable costs has been completed.  For follow-on contracts, and for contracts for common commercial items, price analysis is usually sufficient to assure the buyer that prices are reasonable.  In the aggregate, the greater the amount of available cost, price and financial data, the greater the buyer's chances for a successful negotiation.
Know the Seller:  A professional buyer and members of the negotiating team should endeavor to know and understand both the prospective supplier's firm and its representatives.  This requires investigating their credentials, their legitimacy, their integrity (can you believe what they say) and how they have negotiated in the past (are they open or do they withhold information).  Buyers at a leading east coast firm prepare for critical negotiations by reviewing financial data and articles dealing with their prospective suppliers.  The buyers and all negotiating team members should know how the supplier's business is faring, their current workload, key personnel changes, and so on.  This level of preparation pays dividends when conducting face-to-face negotiations!In summary, the objectives of negotiation require investigation of every area of negotiation considering both short-term and, normally, long-term performance for both parties.  The buyer's major analytical tools for negotiating prices were discussed in the preceding lessons; such things as price analysis, cost analysis, and learning curves.  Additional negotiating tools, as well as the development of strategy and tactics for negotiation, are discussed throughout this and later lessons.The sixth step is to consider how your negotiation plan will affect any stakeholders (bosses, observers, the community, etc.).  You can do this during the planning stage by identifying the stakeholders or those individuals who will be effected by any agreement you reach.
The seventh step brings in the other party which I included during your own objective settings.  I don't believe you can set your own objectives as effectively as when you consider the other side's objectives at the same time.  
The Seller's Bargaining Strength:  The seller's bargaining strength usually depends on three basic factors:  (1) how badly the seller wants the contract, (2) how certain he or she feels of getting it, and (3) how much time is available to reach agreement on suitable terms.
The buyer should encounter no difficulty in determining how urgently a seller wants a contract.  The frequency with which the salesperson calls and general market conditions are positive indicators of seller interest.  The closer the negotiations are to the end of the seller's accounting cycle and how close they are to making their revenue projections will effect their bargaining position.  Sellers' annual profit and loss statements, as well as miscellaneous reports concerning backlog, volume of operations, and trends are valuable sources of information about individual sellers.  Publications such as the Department of Commerce's "economic indicators," The Federal Reserve Bulletin, industrial trade papers, and local newspapers provide a wealth of basic information about potential suppliers and their industries in general.  Knowing such information can help set your objectives.
The less a seller needs or wants a contract, the more powerful its bargaining position becomes.  The presence of an industry boom, for example, places it in a strong position.  On the other hand, when a seller finds itself in a general recession or in an industry plagued with excess capacity, its bargaining position is decidedly weakened.
If a seller learns that its prices are lower than the competition's or learns from engineering or production personnel that it is a preferred or sole source of supply, it naturally concludes that its chances of getting the contract are next to certain.  In these circumstances, a supplier may become extremely difficult to deal with during negotiations.  In extreme situations, it may be unwilling to make any concessions whatever.  When this happens, the negotiator may have limited alternatives; to accept the supplier's terms or whether he or she can fall back on better alternatives.  When trapped by such circumstances, a negotiator can threaten delay to search for other sources.  Such threats are likely to be ineffective unless the seller knows that alternative sources are actually available and interested in the business.  An alternative threat which may be effective when patents are not involved is the threat to manufacture the needed item in the buyer's plant or supply the service personnel as required.  When made realistically, when the supplier believes the buyer has the technical capability, the determination, and the capacity to make the product, this threat usually gains concessions.
A firm's negotiating position is always strengthened when the company has a clear policy that permits only members of its purchasing department to discuss pricing, timing, and other contractual terms with sellers so make sure the other party has the authority to commit his or her company to the agreement.  Most prenegotiation information leaks that give sellers a feeling of confidence about getting a contract occur in the technical departments of a firm.  Such leaks can be extremely costly, and because they are often undetected by general management, they can be a continuing source of profit loss.
Short lead times drastically reduce the buyer's negotiating strength.  Conversely, they significantly increase the seller's bargaining strength.  Once a supplier knows that a buyer has a tight deadline, it becomes easy for the supplier to drag its feet and then negotiate favorable terms at the last minute when the buyer is under severe pressure to consummate the contract.  This is a common occurrence at the end of the government's fiscal year.
It can be beneficial if you understand his negotiation style such as what strategies and tactics the other party is prone to use and what his or her BATNA is likely to be.  A lot of this information can be gained before negotiation actually begin through conversations held in setting the agenda and meeting time and place.

Your author's list the eight step in setting your strategy.  This should not be a single effort but done with your purchasing team.
The ninth step talks about planning the actual negotiations themselves making sure your case is clearly stated. 
The last step is devoted on the logistics of the negotiation.  Setting us the issues, which order the issues are brought up, and when and how long negotiations will be held.  One thing to consider is the physical appearance of the negotiation setting.  A round table could be used denoting comfort and constructiveness.  Intermixing is another choice which results in a relaxed, collaborative setting while using seating by opposite sides usually denotes less collaboration.  What roles will be assigned to negotiation members, when and where will the negotiations be held, who will participate in the negotiations, can it be done in stages, etc., also need to be decided.  
During this phase, a determination should be made on the location of the actual negotiations.  A benefit of holding negotiations on your own site includes having easy access to the backup data, staff, and other support.  However, a benefit of holding negotiations at their site include having the power to "walk away."
In preparing your negotiation game plan, it is helpful to determine if you make the first offer, make sure it is reasonable versus so extreme that it hinders reaching agreement later.  It is extremely important that the negotiations be documented.  I have found it easier to decide on exactly what was agreed upon and document the agreement at that time, with both parties initializing the issue resolution.

Now you are ready to sit down at the table.  Usually face to face negotiations can be broken out into four phases.
Fact Finding:  During the initial meeting with the potential supplier, the negotiating team limits discussions to fact finding and general, information-seeking questions to learn about circumstances and objectives.  Any inconsistencies between the supplier's proposal and the buyer's information are investigated to gain a better understanding of both the supplier's position and strengths and weaknesses.  This will give the buyer an opportunity to learn about circumstances and objectives of the other party (potential and actual choices) and their strengths and weaknesses and preferences and intensity of their objectives.  Here is where there is more talking and more divulging of information.The Recess:  During the recess, the negotiating team should review its objectives in light of its assessment of the relative strengths and weaknesses of both sides which may result in a revision of its objectives and their acceptable ranges as well as the agenda it desires to pursue.  Many suggest that the issues should be discussed in the order of their probably ease of solution since it may develop an environment of cooperation which may facilitate solving the more difficult issues later.
Narrowing the Differences:  During this phase, the negotiator defines each issue he or she has identified, stating the facts and assumptions, and attempts to convince the other representative that their position is reasonable with the goal being to obtain beneficial terms using principled offers and concessions with high but rational objectives.  This phase normally consists of concessions that become smaller as both sides approach their target position.  Your concessions should be paced and linked to those of the seller, but not necessarily to the same level or degree.
It is here that you will react to an extreme first offer.  When two offers are on the table, the midpoint is a natural focal point so be aware of the seller's first offer when you make your counteroffer.  Any arguments used should be factual, believable, unemotional, and comprehensive.  It is during this phase that both sides explore alternative trade-offs that might simultaneously enhance the interests of both sides.  Candor is necessary.
The traditional negotiator negotiates from the outside in.  They begin by asking for more than they expect to settle for, then gradually move inward until the buyer and the other side overlap  This allows exploration of various possible agreements before settlement and allows the buyer to obtain as much information as possible about the other negotiator and their preferences.  It also gives a sense of movement.
The collaborative negotiator negotiates from the inside out, starting with an exchange of views about underlying needs and interests and then works at the level of interests rather than positions.
With unequal power negotiation, WIN/WIN may not be possible if both sides are going after the same thing.  If one party is in the power position in this winning situation, the goal is to leave the other person feeling that he or she also won something.
If agreement cannot be reached on an issue, the negotiator moves on to the next issue.  Frequently, discussions on a subsequent issue will unblock an earlier deadlock.  Problem solving and compromise are used to find creative solutions where both parties win.  If a satisfactory agreement cannot be reached, the negotiating team has the choice of adjourning or moving on to hard bargaining.
Hard Bargaining:  This involves the take-it-or-leave-it tactics where you may threaten to break off negotiations or make statements that limit your further flexibility.  The experienced negotiator does not bluff unless willing to have the bluff called or leave the other negotiator feeling abused or unfairly treated.  Such feelings set the stage for future confrontations, arguments, unsatisfactory performance, and possible claims.
If negotiations become locked, it may be possible to add new issues or arrangements, gather additional information, or replace negotiators.  It is also possible to add an intervenor such as a mediator or an arbitrator.

Documentation 

Personnel turnover and the frailties of the human memory make accurate documentation of the negotiation essential.  The documentation must permit a rapid reconstruction of all significant considerations and agreements.  Documentation begins in the purchasing office with the receipt of a purchase requisition and continues with the selection of potential suppliers and their proposals.  Documentation of the actual negotiation must be adequate to allow someone other than the buyer to understand what was agreed to, how, and why.
The pre and post negotiation memorandums are the key to documenting price reasonableness.  It tells the story of the procurement and should discuss the procurement situation, the proposal, the buyer's analysis, the basis for the negotiation objectives and the basis for the price as considered fair and reasonable.  As the permanent record of the decisions and memorandums, chart specifics from proposal through analysis and any necessary negotiations.  The amount of detail will be determined largely by the complexity of the procurement and the requirements of the buyer's organization.
The normal format for a prenegotiation memorandum includes:  subject, introductory summary, background, the negotiation situation with facts and identified issues, negotiation objectives (minimum, maximum and target), relative buyer/supplier strengths and weaknesses and negotiation priorities and potential tradeoffs which result in your strategic plan.  Identifying your positions and the other party's positions will help you identify any zone of overlap or gap.  Including additional topics such as your arguments and any you anticipate from the other negotiator with your counter arguments will prove helpful as well as any possible tactics you plan on using.  The post-negotiation memorandum will include the negotiation results and any miscellaneous information.
The subject should give the reader a complete picture of the negotiation and include such information as the supplier's name and location and a brief description of what is being purchased.  In the introductory summary, the contemplated contract type and the type of negotiation action involved, together with comparative figures of the supplier's proposals will be documented.
The background section will provide information on what is being brought, any numerical identification, and who is involved in the procurement along with quantities and item descriptions.
The procurement situation discusses factors which will affect the reasonableness of the final contract including the price and such things as outside influences, supply and demand, time and delivery schedule pressures, and information on previous buys of the same or similar items.  The issues covered in this section should be those issues that will be negotiated, i.e., price, quality, delivery, warranty, etc.
The negotiation objectives and positions and relative buyer/supplier strengths and weaknesses should be documented as a reference point for your position going into the negotiations and should be agreed to by all interested parties.  It is also helpful to document any erroneous assumptions.
The negotiation results should include the buyer's negotiation objectives, results and any significant considerations and agreements.  The general rule is to portray the negotiation as it actually took place and it should allow someone other than the buyer to understand what was agreed to.  It provides a thread of continuity from the supplier's proposal, to the buyer's objectives, and to the negotiated results.  A more complete record can make preparations for the next negotiation much easier and can add in the transfer of information to a new buyer.  It is suggested that you document any facts that differed from your assumptions such as  strengths/weaknesses.

The Dynamics of Negotiation

The seller's positions are generally all higher than the corresponding positions of the buyer.  The closer the two objectives are initially, the easier the negotiations.  As negotiations proceed, the seller tends to make concessions from its maximum position toward its target.  Simultaneously, the buying firm's negotiators reduce their demands, moving from the minimum position toward the target.  Usually, little difficulty arises during this preliminary skirmish.  This is not to say that this part of the negotiation process is easy or that it does not take time.  Normally, vigorous testing is required to convince each party that the other is actually at his or her target.  Each party attempts to convince the other that the target has been reached before this has, in fact, occurred.As each party approaches its target, negotiation becomes difficult.  The distance between the buyer's target and the supplier's target can well be called the "essence" or "heart" of the negotiation.  Any concession made by either party from its target position will appear unreasonable to him or her based on the previous analysis of the facts.  Changes in position, therefore, must now be the result of either logical persuasion and negotiating skills (entailing further investigation, analysis, and reassessment of the facts) or the pressure of brute economic strength.
It is in the area of objective persuasion that the skillful negotiator stands out.  He or she makes progress by uncovering new facts and additional areas of negotiation that permit the supplier to reduce its demands.  For example, an analysis of the supplier's manufacturing operations might reveal that if lead time were increased by only one week, the job could be done with fewer machines making longer production runs.  This change could substantially reduce the supplier's setup and scheduling costs, thus permitting a price reduction.  Additional lead time might be made available by a slight modification in the buyer's production schedule.  The cost of making this change could well be much less than the seller's savings from the longer production runs.  Thus both parties would profit from the change.  It is this type of situation that competent negotiators constantly seek to discover and exploit in their attempt to close the gap between the seller's target and their own.
In some sole source negotiations, the seller's target is to maximize its position at the expense of the buyer.  In these situations, a continuing relationship is of secondary interest to the seller; therefore, it uses its bargaining strength to maximize price, rather than to achieve a mutually advantageous contract that will lead to continued business.  The buyer who senses such a situation should start negotiations by attacking the reasonableness of the seller's cost breakdown, using his or her own prepared cost estimates as the basis for such contentions.  In the absence of competition, this is a buyer's most logical and most effective plan of action.  If the supplier refuses to divulge its cost data, the negotiator has only three available courses of action.  He or she can appeal to the seller's sense of reason, pointing out the potential negative long run implications of such actions; a second approach is to fight force with force by threatening to use substitutes, or to redesign and manufacture the product; and a third alternative is to further develop and refine the firm's cost estimating models and utilize them more forcefully in pursuing the original course.
When faced with this type of problem, the negotiator must attempt to bring the supplier's price as close to the target as possible.  In the short run, the buyer usually pays the seller's price.  In the long run, the buyer works toward the development of competing sources, substitute products, and compromises with the supplier.
If a seller's negotiation objective is to resolve issues as quickly as possible, employing logical analysis rather than economic bargaining power, it is sometimes reasonable for the buyer to start negotiations by proposing his or her actual target as the counteroffer to the seller's proposal.  In fact, in industrial situations where continuing relationships are the rule, each successive negotiation brings the target of both parties ever closer together.  Under these conditions, buyers and sellers need develop only their target positions; there is no need for maximum and minimum positions.

A Successful Negotiator

The characteristics of successful negotiators should now be clear.  These people are skillful individuals, with broad business experience.  They possess a good working knowledge of all the primary functions of business, and they know how to use the tools of management, accounting, human relations, economics, business law, and quantitative analysis.  They are knowledgeable about the techniques of negotiation and the products their firms buy.  They are able to lead conferences and to integrate specialists into smoothly functioning teams.  In addition to being well educated and experienced, successful negotiators excel in good judgment.  It is good judgment that causes them to attach the correct degree of importance to each of the factors bearing on the major issues.  Combining their skills, knowledge, and judgment, they develop superior tactical and strategic plans.  Additionally, they consider problems from the viewpoint of the firm as a whole, not from the viewpoint of a functional manager.Fully successful negotiators share three common attributes:
1.  All realize that specialized training and practice are required for an individual to become an effective negotiator.  Although some people have stronger verbal aptitudes than others, no one is born with negotiating knowledge and skills.
2.  All habitually enter into negotiations with higher negotiating goals than their counterparts, and generally they achieve them.
3.  All are included, or are destined to become included, among an organization's most highly valued professionals.

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