Negotiations in

Industrial Buying

Negotiating techniques and rules

of conduct
 Learning Objectives:
To know the characteristics of purchasing negotiations for
industrial purchases
Recognize negotiating situations.
To determine the factors which can weaken the negotiating
position.
Preparing for negotiations.
Planning negotiations.
Tactics in purchasing negotiations
Stages in purchasing negotiations
Rules of conduct and purchasing ethics

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Characteristics of purchasing negotiations
for industrial purchases.

Retail buyers versus industrial buyers:

The purchasing policy of a trading company is closely related to
its sales policy, because the purchase price directly influences
the sales ability and profitability of the product.
This is less so in industrial companies because the purchasing
share in the end product is lower
Retail buyers have more freedom in decision making than
industrial buyers.
The buyer of industrial goods usually has a longer term, more
intense relationship with its suppliers than retail buyers.
Price is often less important for the industrial buyer than good
quality, delivery reliability and service

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Recognizing negotiating situations

Negotiating situations are aimed at:

Bringing together the parties through concessions in such

a way that both parties can look back on the outcome of
the negotiation with some satisfaction

Negotiations concern more elements than price alone:

Negotiations concern all elements that are important in

reaching the agreement. Issues like quality and delivery
reliability, as well as after sales service are frequently
more important than price and terms of payment

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Factors which can weaken the negotiating
position

Factors which can weaken the negotiating position..

Lack of preparation time.

Lack of knowledge with regard to market developments, the
market position of the supplier and own companys relative
position.
Lack of knowledge of the suppliers cost structure.
Insufficient information on the suppliers organization.
Too little listening and too much talk on the buyers side.
Insufficient command of foreign languages.
No or very few alternative sources available.
Few valid arguments to support the buyers point of view.
A negotiating partner on the buying team speaks out of run.
Insufficient authority to close an agreement.

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Factors which can weaken the negotiating
position

Three main points which must be predetermined for every

negotiating:
Goals and objectives. Is it clear what the negotiations should
accomplish? What is the minimum result that must be achieved
and what are the maximum concessions one is willing to make?
Authority. What authority does the negotiator have to make a
deal? Does he/ she have the necessary support from higher
management levels?
Expertise and knowledge. Do the people who are going to
conduct the negotiation have the required expertise and
knowledge? Are they experts on the subject? Do they actually
know the business?

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Preparing for negotiations

Its important to find out at an early stage what the other partys view of
the negotiations will be:
What exactly are they hoping to achieve?
What interests are possibly shared?
What are the expected potential subjects the other party wants on
the agenda?

Its important to find out as much as possible about the other party:
New supplier: examination of annual reports and bank references
Existing supplier: analyze relationship over past years and past
performance.

Furthermore: having gathered the information, think about

possible points of agreement
Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
 Planning negotiations

When the homework is done, planning of the negotiations can

begin. There are 10 steps in this process
1. Establish the objectives of the negotiation for yourself
2. Gather facts that can have a big impact on the negotiations
3. Asses the power position of each of the parties
4. Determine the points of common interest
5. Make a list of questions
6. Define your tasks
7. Decide on the composition and division of roles in your
negotiating team
8. Plan your concessions
9. Agree upon the negotiating tactic you will follow
10. Indicate how you think you will conclude the negotiations

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Tactics in purchasing negotiations

Take-it or-leave-it. One party wants to impose its terms on the

other party, without concessions.
Bogey. The buyer approaches the supplier in a very friendly way
and comments on his proposal positively. However he lets know
that, if there is to be any business, the proposal has to be slightly
adjusted.
Chinese crunch. Here it is declared that an agreement is possible
as soon as he solves just one little problem.
Auction. the buyer makes the supplier explain why they should do
business together.
Good guy-bad guy. Purpose of this tactic is to dim the other partys
expectations about the outcome of the negotiations.

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Stages in purchasing negotiations

Four stages can be identified in the course of the process:

1. Exploration. Both parties try to get acquainted. Next they try to
discover mutual interests and intentions. They also try to asses
the importance of the negotiations for the other party.
2. Reflection. This stage consists in digesting the information
received from the other party. Does this information necessitate a
revision of your objectives?
3. Negotiation. Concessions are made on both sides. It is important
to check how the other party responds to concessions made by
you.
4. Closing. Repeat and summarize the agreements that have been
made. Is the other party satisfied with the results?

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Rules of conduct and purchasing ethics

Questions can raise on the side of the buyer as to how far one
should go in a relationship with a supplier.
Questions that may occur:
How should confidential supplier price information be handled?
How to deal with quotations: should we only use quotations if we
are considering requesting a firm bid from a supplier, or do we also
use them to check current suppliers prices?
What is the maximum share we as customer want to have in the
suppliers turnover?
Do we always strive to have at least two suppliers (dual sourcing)
or are single sources allowed in particular circumstances?

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

 Conclusions

Negotiating is an important aspect of the buyers activities and it

takes up a large part of his time

Before starting negotiations with a supplier, it is important to

determine:
The goals and objectives
What authority the negotiators have to conclude an agreement with the
suppliers representatives (and vice versa)
What information is required to negotiate effectively

A sound preparation is half of the job!

Cengage Learning Purchasing & Supply Chain Management 4 ed (1-84480-024-5)