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NEGOTIATION WITH VENDORS

Category: Business Paper Type: Proofreading & Editing Reference: APA Words: 3386



 Vendor Negotiation: Top 5 Negotiation Strategies That Lower Costs -  DriveYourSucce$$

Part 1

Executive Summary

NMD limited is an indian company which is facing difficulties due to the increased prices of the suppliers. This document is providing most important information related to it and describing the Aabid (CEO) was not happy due to their pricing because the cost may vary on the production. To handle this problem, CPO has adopted some strategies for negotiating and chosen the integrative negotiation policy for this issue.


 

 

Table of Contents

Introduction. 4

Question 1. 4

Question 2. 5

Using Integrating Negotiation by NMD limited’s CPO.. 6

Price sharing. 7

Ranking the order priorities. 7

Identifying Interests. 7

Creating Options. 8

Making first offer 8

Question 3. 8

Concessions. 8

Commitment tactics. 8

Inviting unreciprocated offers. 8

Question 4. 8

Authority. 9

Credibility. 9

Information. 9

Time. 9

Emotional control 9

Conclusion. 9

 


 

Introduction

            This report is telling the most important challenges which faced by NMD limited and how these are affective for the business of the company. It is also discussed about the expectations of the companies from suppliers. In this report integrating techniques are followed by Aabid to negotiate the suppliers which are telling that how these can help him to agree on the specific terms. Some techniques are also described which are related to different suppliers when they are following different negotiation techniques. In the last, some factors also discussed which can affect the successful negotiation.

Question 1

What is the main problem/ challenge that NMD Limited was facing? What were the NMD Limited’s expectations about the price change from the suppliers?

There were several types of problems faced by NMD limited because the company needs to grow and obtain a competitive advantage in the existing market. In this section it is discussed that the company was facing problems regarding prices of the equipment and the biggest problem was that the company faced challenges of pricing because the suppliers increased the prices on every equipment and it CEO of the company was not happy with it. In this regard, several types of other pricing challenges also discussed in this section. Each equipment has its own life cycle and over time changes in sales and profitability. In attempting to recognize distinctive formal steps in the sales history of representative goods, the product life cycle hypothesis was developed.The pricing strategies and problems should be varied accordingly as the product goes through every one of these stages. The product life cycle pattern, shown as the S-shaped curve, Introduction, growth, maturity and decline are four stages of a product life cycle. During these phases, sales and profits vary.The introducing (or launching) phase is characterized by relatively low levels of sales, slow rate of growth of sales, and negative or mini­mal profits. The second growth phase is characterized by two features rapid acceleration in sales and considerable improvements in product profita­bility. The third (or maturity phase) involves a slowing down of the sales growth and a stabiliza­tion of profits. The final (or decline) phase is the period during which sales start falling and profits once again start declining. There is a clear rule on where each of the stages starts or ends, and there is no need to subjectively determine the exact demarcation of those steps(Patterson, 2006).

The price implication of the elasticity values is that a low labelling should exist in early phases, since demand in those phases tends to be more price-elastic. In comparison, high marks can be applied to costs if a pear is expected to be sufficiently inelastic as it arrives at a price during the maturity and decrease period. CEO studied the question of preference, in case of young goods the skimming price and in case of mature products the penetration price. The producers should weigh a variety of major factors when deciding between these two choices. In addition, pricing practices have an effect on these themselves. In fact, some goods are less likely than others to become readily available on the market are. Therefore, these goods are not ideal for price penetration policies with, at first, poor margins, and maybe even negative ones.The second element is the possible erosion rate of the pioneer commodity. This in essence would depend on how many competitive products are placed on the market and how well the features of pioneer products can be replicated.

An overview of the success and vulnerability vis-à-vis potential competitors will contribute to the potential lead time of the original product maker with respect to technology expertise (which can be backed by patents), access to sales networks and the financial strength of potential rivals.A skimming price would be sufficient if the lead-time is very long. However, if the lead-time was short it could take a penetration period, in particular in certain markets, where the sellers may fail to manage more than part of the competing products, for the broadest possible demand before the advent of competitive attacks is launched. Again, if the commodity is believed to have significant market loyalty, it is proposed that the price of penetration is strategy.

It is not enough to pick the skimming price. The timing and scale of future price increases will have to be determined in the future. In certain cases, the hand of the maker can be associated with strategic behavior. However, suppliers can have more discretion in some cases.It is reasonable to lower the price to draw new buyers as it is thought that there have been "top" saturations in this sector (that is, a relatively small number of customers able to pay a premium price were given the opportunity to purchase. The degree to which the commodity has acquired an aura of exclusivity or reputation is also worth considering. A major decrease in prices may contribute to the loss of reputation. It would be easier to reduce a range of small costs. A technique that lies between the two ends of skimming and penetrating rates is embraced by many businesses. In the case with many emerging goods, many major corporations adopt this approach(Forkuor, Akuoko, & Yeboah, 2017).

The CEO had decided on the purchase of the transformer. Aabid previously bought the transformers at a "dream price" from one of the NMD's two suppliers, Syskateck Industries and Tyco Technocorp. Aabid didn't know how to buy it at the same price again. He predicted that the price will have risen by at least 40%.

Question 2

What type (s) of negotiations (Distributive or integrative bargaining) NMD is likely to focus on? Justify your answer. What tactics can Aabid exercise to achieve distributive bargaining? What tactics can Aabid exercise to achieve integrative bargaining?

During negotiating with the suppliers, the CPO used the integrative negotiation strategy for bargaining regarding the procurement approach with the suppliers. It is justified with the help of the providing and discussing the integrative bargaining strategies. Two individuals or groups may need to find a solution in many workplaces that they can both agree upon. In this scenario, integrative negotiation can be helpful, as the parties can work together to find a solution that is mutually beneficial. Understanding this strategy of negotiation can help you become a part of a more cohesive team. Integrative negotiation is a bargaining technique in which the parties involved work together to find a compromise that fits each one's expectations and concerns. In this method, group brainstorming and innovative thinking are also used to propose new proposals for both parties.In integrative negotiations, concessions are always common and both parties may need to sacrifice those needs in order to find a solution. Honesty can also encourage effective integrative negotiating and it can lead to a full comprehension of the matter and the happiness of each side(Giacomantonio, De Dreu, & Mannetti, 2010).

Using Integrating Negotiation by NMD limited’s CPO

It is important to understand what specific hopes and concerns of each party are before CPO presents solutions. Try asking the other sides to clarify what they want and need in the talks if you are one of those parties. You can get any group to go back and forth listing specific things. This step enables all participants to gain a lot of insight into the situation to improve brainstorm solutions adapted to all needs. The next step is to discuss the priorities of both sides. You could draw up an overview of the objectives, which the other parties want, and the goals, which both sides share. It can be easier to find common goals for a solution.When you use integrated negotiation tactics, CPO can also come up with as many ideas as possible. Both sides are able to list any possible solution and share it with the other party. In this list, you and the other party should have ideas to benefit. You could increase your chance of agreeing on the other side by completing this step.

Bridge solutions mean that both parties create new ideas that they agree on, rather than original ones. This process works by listing your needs and desires on both sides and by making everybody think of different conceptions that meet the needs of each side, so that both parties feel like working together to find a common answer.Take this example: The Marketing Department and the IT Department discuss what information they want to present to a conference about their company. Marketing is talking about everything they have accomplished recently, while IT is talking about their advancements. The allocated slot, however, is limited in time so that only a few things can be discussed. All the speaker points are written and decided to combine them. for each department. The presentation will consist of a campaign that has been promoted by the marketing department, which demonstrated the company's success in resolving a few problems(De Dreu, Weingart, & Kwon, 2000).

Logrolling is an inclusive negotiation tactic in which parties alternate who get the most positive outcome in a conflict if there are a number of problems. The group can decide that for the first issue the first party gets its preferred result, the other party gets its preferable result for the second issue and keeps on until all the problems are solved. For example, several employees talk to their employer about four different issues, including break policy, lunch, sick calling and working from home. They change who receives the preferred solution as a means of compromises. This means that employers will follow their policy to permit breaks of only 15 minutes, but employees are allowed to leave work for up to 45 minutes for lunch. They keep changing preferred resolutions until all issues are discussed.

In addition, to have a better view of anyone’s desires, you would have to bring many questions. You must be able to expose your own desires to model what sort of answer you are looking for. Practitioners often assume that the other side has an unfair advantage in exposing their interests, but that is rare.It should be tried a new tack if your attempts to uncover the interests of the other party fail. Suppose Aabid an attorney who negotiates on behalf of your firm with a potential client. You ask, "You worry more about our services' cost or quality?”His answer: 'All of them.”

There is another way of testing the interests of the supplier: "Other customers have been thrilled by our junior employees' incredible devotion to their cases, and we only employ the most. If we give them a prominent role, we will give you a lower rate of time. Will you want to explore this strategy with any of the customers? ” If this happens, bridge the gap by identifying key values that could motivate people to cooperate. Suppose a community organization, a manufacturer, challenges your company to pay greater attention to local people's health concerns. Instead of arguing that you must concentrate on the end, point out that you share the commitment of neighbors to improve their environment. Then consider trying to replace old polluting equipment with more efficient production technology, which will save your company's money in time while at the same time reducing the health risk of our communities. These ways to build meaning can be revealed, rather than having conversations overtake the discrepancies within you, by striving for a shared purpose, for example, a contribution to improving the world.

In this way Aabid must have to perform some important tactics during integrative negotiation.

Price sharing - Aabid also very vigilant about bargaining and careful not to show our cards. This approach has a negative effect on our performance and hampers confidence, though Aabid thinksit is an insightful approach. As Grant states, people always match the reciprocity rule, which is the way we perceive them. We have to deliver it first if we want to be believed. Studies have found that sharing such information improves the impact, even though it is not relevant to negotiating. Aabid does not place the cards all on the table at the beginning. Simply taking something out of Aabid will set a constructive tone for a compromise through your hobbies, your personal issues or expectations.

Ranking the order priorities - It is important to know what the biggest problems are when we negotiate, and we sequence them. For starters, if we want to close a new buyer, we can claim that the price is most important and, until we agree, no use can be made to proceed.A new method called rank ordering is proposed by grant. His study shows that by classifying all problems and making them clear, you can obtain better results. This allows all parties to compare their rankings and to define the full spectrum of choices.In the above case, if the consumer cannot meet its price, you can make trade agreements in scope or travel specifications.

Identifying Interests – In conclusion, Aabid needs to understand why people feel the way they do and why they demand. Make sure you know you are asking them so that you can better understand their interests (needs, hopes, fears or desires), not because you challenge them or try to figure out how to overcome them. Hecould wonder how you see your requirements from the other side. What does it mean that you agree with them? Are they aware of your basic interests? Do you know the underlying interests of your own? Aabid will be much more likely to find a solution for both parties if you understand both parties’ interests.As the other side would see, Aabid also needs to analyse the potential consequences of an agreement that you advocate. This is essentially the weighing process of advantages and adversities, but you try to do this from the other. A comprehensive analysis will help you to understand the interests of your opponent. You will then be better equipped to negotiate a deal, which both parties will agree to.

Creating Options - When interests are identified, the parties must cooperate to try to find the best ways of meeting those interests. Frequently by the 'brainstorm' and outlining all the possibilities anyone can think of without immediately criticizing or denying something, parties may create new ideas and desires that have not previously come up with others. It is the objective of a win-win result, which gives each side as much of its interests as possible and at the very least they see the result as a win instead of a loss.

Making first offer - There is one counsel that directly contradicts classical philosophy. Information is often matched to power in negotiations. We think it is best to take as many from another human as possible before we tap our own hand.Aabid and the CPO believe that evidence on this is clear: people making first bids are better off, closer to their target price. The explanation for this is the anchoring psychological theory. Any side continues to work on it, whatever the first number is on the table. The stage is set.We are often reluctant first because we can be far from the other party and disengage it. Galinksy states, though, that the analysis does not. He said most people first make deals that are not sufficiently offensive.Higher prices give the purchaser an outlook on the good, whilst lower prices invite the purchaser to reflect on the downside. We find knowledge to sustain this anchor, in other words.

Question 3

What tactics would each of these suppliers follow to achieve their goals?

Concessions

This one prevents dealers from making compromise so easily, probably the most common of all hard-handled techniques. It can, however, discourage parties from entering into agreements and drag commercial talks unnecessarily out. In this strategy, you can better grasp your own purposes, the correct solution to a mediated compromise and the end outcome, and don't let an offensive adversary rattle you.

Commitment tactics

Another supplier can inform Aabid that his hands are tied or his discretion to bargain with you is restricted. Do what you can to see if these tactics of engagement are real. You will find that you need to bargain with an individual with greater authority.

Inviting unreciprocated offers

If suppliers make an offer you can find that before making a counter- offer your counterparty asks you to make a compromise. Do not offset the demands by reducing them; instead, show the counterbalance you are anticipating(Zachariassen, 2008).

Question 4

Factors affecting negotiating

Authority - Authority is the first barrier to any agreement. Negotiations may begin with deliberation but have to be completed or settled to be successful. For that, the right or jurisdiction for settling the agreement should be open to all parties.

Credibility - In any form of negotiation, faith and shared trust are very important. Proven to be frank, genuine, constant and efficient, people have a say before going into the negotiating process.

Information - Negotiation also continues on the basis of statistics, estimates, past data, future developments and outlook, reports, scientific data and measurements. Knowledge, to repeat a cliché, is strength. Adequate and accurate knowledge about the different problems concerned is important for ensuring the effectiveness of a negotiating exercise.

Time - The time during which the agreement can be concluded is another critical aspect affecting the process of negotiation. Either of the sides may have a certain urgency because of which they may be in a rush to complete the agreement. The talks cannot go on indefinitely due to the time limitations, and all sides can agree to an implementation date.

Emotional control - People are not just logical, they are emotional, too. Each person has his own head and heart qualities. In circumstances of company, people determine on the basis of thought, logic and a thorough assessment of their decisions(Liu, 2002).

Conclusion

            It is concluded that there were several types of problems faced by NMD limited because the company needs to grow and obtain a competitive advantage in the existing market.Each equipment has its own life cycle and over time changes in sales and profitability. CEO studied the question of preference, in case of young goods the skimming price and in case of mature products the penetration price. Integrative negotiation can be helpful, as the parties can work together to find a solution that is mutually beneficial.Aabid and the CPO believe that evidence on this is clear: people making first bids are better off, closer to their target price. The explanation for this is the anchoring psychological theory

 


 

References

De Dreu, C. K., Weingart, L. R., & Kwon, S. (2000). Influence of social motives on integrative negotiation: a meta-analytic review and test of two theories. . Journal of personality and social psychology, , 889.

Forkuor, J. B., Akuoko, K. O., & Yeboah, E. H. (2017). Negotiation and management strategies of street vendors in developing countries: A narrative review. . Sage Open.

Giacomantonio, M., De Dreu, C. K., & Mannetti, L. (2010). Now you see it, now you don't: Interests, issues, and psychological distance in integrative negotiation. . Journal of Personality and Social Psychology, , 761.

Liu, J. (2002). Negotiating silence in American classrooms: Three Chinese cases. . Language and intercultural communication, 37-54.

Patterson, L. L. (2006). Aboriginal roundtable to Kelowna Accord: Aboriginal policy negotiations, 2004-2005. . Ottawa: Parliamentary Information and Research Service.

Zachariassen, F. (2008). Negotiation strategies in supply chain management. . International Journal of Physical Distribution & Logistics Management, , 764-781.

 

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