Bargaining for lower price is a phenomenon that is common amongst all people, but negotiation is not a mere bargaining for lower prices. It aims at obtaining the best value for the money spent by the organisation, taking into account the overall requirements of quality, quantity and timely supplies.
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Moreover, the purchasing executive has not only to optimise today’s purchases but also should not jeopardise tomorrow’s bargaining power. His dealings in the market should have a long range perspective and improved corporate image. An able negotiator must be skillful, well prepared and learns from each negotiation, so that his performance is better in the succeeding transaction.
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Webester defines negotiation broadly as “conferring, discussing or bargaining to reach agreement in business transactions”. To be fully effective in purchasing, negotiation must be utilised in its broadest context i.e., as a decision making process.
In this context, negotiation is a process of planning, reviewing and analysing 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.
Usually, negotiations are held with the suppliers after the receipt of quotations. The purpose need not necessarily to fix the price. It can also be to finalise various other details like specifications, delivery terms or other terms and conditions.
Occasionally, however, negotiations are conducted as a first step to a purchase it may be that a new source is to be developed or may be to sub-contract the work to a particular manufacturer, and so on. The detailed quotation from the supplier follows as a consequence.
Objectives of Negotiation:
The objectives of negotiation are as follows:
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1. To get the supplier to perform the contract at time.
2. To obtain a fair and reasonable price for the quality specified.
3. To develop a sound and continuing relationship with competent suppliers.
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4. To persuade the supplier to give maximum cooperation to the buyer’s company.
1. To get the supplier to perform the contract at time:
Inability 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 requisitioners to submit their purchase request early enough to allow for necessary purchasing and manufacturing lead times and (2) failure of buyers to plan the delivery part of negotiations properly. Because unrealistic delivery schedules reduce competition, increase prices and jeopardise quality, it is important that buyers negotiate delivery schedules which suppliers can actually realistically meet, without endangering the other requirements of the purchase.
2. To obtain a fair and reasonable price for the quality specified:
The seller’s quoted price cannot always form the starting point for the negotiation. It has to be something more logical based on cost price analysis or price forecast. The typical bargaining positions of the purchaser and the seller are indicated very precisely by the Fig 18.1.
The objective of the negotiation is to bridge the gap the difference. The closer the purchaser approaches his objectives, the more successful is his negotiation effort. The seller is to be brought to the purchaser’s objective by logical persuasions or negotiating skill.
3. To develop a sound and continuing relationship with competent suppliers:
When negotiating with suppliers, a buyer should recognise 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 realise that any advantage not honestly won will in all likelihood be recovered by the supplier at the later date — probably with interest. Thus, as a matter of self interest, buyers must maintain a proper balance between their concern for a suppliers’ immediate performance on the one hand, and their interest in the supplier’s long run performance on the other.
4. To persuade the supplier to give maximum cooperation to the buyer’s company:
Supplier 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.