Eskom Procurement Book 2015

NEGOTIATION

The above can be easily avoided by using LIMs to determine at which point to walk away from a deal. LIMs could be set at the following levels by B: Like: R5.50 (based on current market prices). Intend: R4.03 (the mid-point between L and M). Must: R2.56 (based on cost price and the guarantee of some profit). In any negotiation, the company must assume that the supplier is better prepared than it is. The supplier will, therefore, also have prepared its own LIMs, which in this case are as follows: Like: R2.20 (based on current market prices). Intend: R3.17 (the mid-point between L and M). Must: R4.14 (based on the highest possible price to ensure profitability). Comparatively, the two standpoints look like this: Company A Supplier B Like R2.20 R5.50 Intend R3.17 R4.03 Must R4.14 R2.56 The BA therefore is somewhere between R2.56 and R4.14; beyond these points either A or B will likely walk away from the deal. In this scenario, supplier B should open slightly above its most desired position, i.e., R5.55, knowing that it is going to negotiate from there. Company A will do the same and counter-offer just below its ‘Like’, so R2.15. After protracted negotiation, a settlement is reached at R3.32 – favouring the customer but still within sight of both parties’ ‘Intend.’ In view of the above, the importance of adequate preparation cannot be overemphasised. A negotiator must consider what information will be needed and eventually revealed to the other side, as well as the timing and manner of its revelation. Often negotiators conceal information rather than communicate it. This can lead to hours of irrelevant argument. The negotiator must clearly define his/her most favoured position, the likely settlement position, the limit of his/her authority, the concessions he/she is prepared to make and the financial and legal consequences.

7.4.2 INFORMATION

7.4.3 STRATEGY

Planning strategy is an important part of preparation. It must not be too inflexible and the negotiator must be able to respond to developments within

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