Eskom Procurement Book 2015

NEGOTIATION

Negotiation characteristics

Characteristics of win-lose negotiation • Strict use of power by one party over another. • Adversarial competition played out at the negotiating table.

Characteristics of win-win negotiation

• Primary use of power is to focus on common rather than personal interests. • Likely to engage in open sharing of information.

7.3 NEGOTIATION STRATEGY Crafting a negotiating strategy is a critical part of the negotiating process. This is the area that most typically results in the success or failure of a negotiation. It requires some definition: success, in procurement, does not mean simply getting the lowest price or the greatest amount of value-add from a supplier. It means achieving a mutually beneficial agreement with the best possible supplier, based on the short- and long-term goals of the organisation. By way of example: an organisation is a major supplier of various forms of tape to resellers throughout South Africa. Its mission statement is ‘To be the best supplier of quality tapes to retailers in SA.’ Typically, companies negotiate with their suppliers on price to enable them to maximise their margin while maintaining some leeway to price themselves competitively. This can result in the adoption of a ‘win-lose’ strategy in negotiation, i.e., the company goes into supplier negotiations aggressively, demanding the lowest possible landed cost and possibly resorting to threats of finding another supplier if demands are not met. In this case, however, other factors may outweigh price in importance to the company. If the company purports to be the best supplier of quality tapes, it must be able to back up that claim with consistency of product quality and service levels that beat all competitors. The best supplier is therefore not necessarily the cheapest, but rather the one that offers the best guarantee of quality control in manufacturing and is prepared to share the burden of servicing its marketplace, while offering an acceptable price. A ‘win-lose’ approach to the negotiations would probably cause bad blood: at best, the supplier would probably accept the imposed pricing, but make up its margin erosion by scaling back service or providing lower-quality product. Negotiation strategy, then, must be linked to what the company stands for and what it wants to achieve. The negotiation strategy should be written down and agreed upon by all those directly involved on the negotiator’s side. Some of the important considerations when setting the strategy include: • What are our overall strategic objectives, both short and long term? • What decision do we want the other party to make? • What are the disadvantages in the decision for the other party, and how can we overcome them?

148 CHAPTER 7