Negotiation in the New Millennium
William L. Michels, C.P.M.
William L. Michels, C.P.M., Chief Executive Officer, ADR North America, LLC, Ann Arbor, MI 48106-0366, 734-930-5070, www.adrna.com, firstname.lastname@example.org
Linda P. Michels. C.P.M.
Linda P. Michels. C.P.M., Director, ADR North America, LLC, Ann Arbor, MI 48106-0366, 734-930-5070, www.adrna.com, email@example.com
85th Annual International Conference Proceedings - 2000
Introduction. As we approach the new millennium, our profession is undergoing change. The many acquisitions and divestitures of the 1990s have restructured supply chains. In many cases, supply links have shortened as companies drive vertical integration to improve profits. Many buyers are finding that the choice of suppliers is limited and negotiating power is minimized.
The world of e-commerce is also changing the opportunities for face to face negotiations. The e-world is open to anyone with a PC, and relationships are developing a role of lesser importance in the transaction.
Traditional Negotiation. In many of the traditional negotiations, approaches have existed where buyer power is enabled through alternate supplier choices. With these negotiations, the buyer is able to negotiate tactically using positional bargaining as a key driver of the negotiation. The main goal is to drive the components of a deal to a position that is acceptable or win/win. In this traditional type of negotiation, buyers have relied on the first four of the five methods of persuasion to gain successful agreement. These five methods of persuasion are:
- Logical reasoning
- mastery of facts and data
- ability to make objective comparisons
- presentational skill
- Positional Bargaining
- adopting a defensible position
- "if ... then" exchange of concessions
- closing the gap
- Use of Emotion
- tuning in to ego needs
- building positive relationships, or
- personal manipulation
- Power, threat and coercion
- application of force
- perceived ability to damage the other side
- risk of counter-productive attack/defend cycles
- Application of Principles
- focusing on overlapping needs and interests
- generating options and guiding principles
It is this last method of persuasion that buyers must gain competence in to deal with the changing supply marketplace. It requires that the two (or more) negotiating parties' objectives do not differ - in other words, that they use "principled negotiation". This session will discuss principled negotiation in depth: the fundamental ground rules, including conflict management; agreement on the core principles of the relationship; examples of guiding principles which may be used to underpin a principled relationship; and, the difficulty involved in rigorously analyzing and assessing the implications of the core principles and the long term implications since the principles are linked to core business needs of all parties.
Increased Market Difficulty. As industries consolidate by acquiring competitors, buyer power is diminished and market difficulty is increased. One of the best examples of this is the food industry. In 1980, there were at least 10 suppliers of metal cans and six suppliers of glass. Today, there are two national competitors of each.
The merged, large companies have been able to balance capacities with supply, thus creating an environment of price domination. A second example of this can be found in the corrugated industry, where the controls can be dominated at the linerboard mills.
New skills, new thinking. With these changes, it is important to develop a more strategic approach to negotiation. These strategic negotiation skills involve far more than the focus on skills and behavior in isolation from a true business context, which most negotiation seminars tend to focus on. The strategic approach to negotiation must:
- be principle based
- be relationship backed
- be business to business
- have interlocked business needs
- have inter-dependent strategies
- not overlook an outsourced approach
To adopt this approach to negotiation, buyers must enhance their techniques and styles. Their skills must include:
- Technical skills
- Relationship skills
- Analytical skills
- Business skills
- Cross functional skills
- Behavioral skills
E-procurement. Where does negotiation occur in the e-world? More fundamental, what is a signature/what is a contract in the e-world? Some large corporations want suppliers to buy from their other suppliers, in essence, they want to control their supply chain. The e-world gives them the platform to build a convincing argument that they are reducing their supplier's cost through complexity reduction and lower transaction costs. Where does the purchasing department fit in this scenario?
It appears that there may be no place for the transactional buyer in the new millennium. Buyers of the future will be joining the best consortiums, applying maximum leverage on the supply base. Working with the e-consortiums will require skillful negotiations and strong analytical skills to assure that the competitive advantage of e-commerce is realized. The new e-world will also lend itself to exploitation and require some re-negotiation after the fact. Buyers with appropriate negotiation skills will be driving the e-procurement groups.
Conclusion. The changing world of purchasing is an exciting time. As we approach the new millennium, it is time to hone our negotiation skills, including principled negotiation, framing of principles, achieving cost transparency, relationship mapping and building relationships. This session will present techniques to get there.