Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
EFFECTIVE NEGOTIATION IN PURCHASING & SUPPLY:
COURSE BOOK UPGRADE
Welcome to the ‘bonus’ features of your Study Pack! This material is intended to
support, extend and focus your study and revision for your Effective Negotiation in
Purchasing & Supply exam.
CONTENTS
Latest material added:
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
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Course Book Upgrade
Use the News
Mark Maximisers
Can You Test Me On This?
February 2010
February 2010
February 2010
February 2010
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
UPGRADE
The business environment is subject to constant, rapid change. And that means not
only emerging developments in purchasing and supply – but new examinable topics,
issues and case studies. Even the best Course Book material can look dated within
months of publication. But this Upgrade tool gives us the opportunity to enlarge and
enhance our syllabus coverage on a regular basis: keeping you constantly up to date
and in the loop.

Amendments and errata are where we put right our occasional bloopers.

Updates are for examinable events (such as new legislation) that occur during the
shelf life of the printed Course Book.

Additions are topics that came up in the latest exams but aren’t covered in the
current edition of the Course Book.
Please contact us if you spot any errors, or facts that are past their use-by date, in
your Study Pack. We’ll gratefully ‘patch’ the problem here – and incorporate the
amendments in the next editions of the Quick Start Guides, Course Books and
Passnotes.
AMENDMENTS & ERRATA
None that we are aware of at this time.
UPDATES
None that we are aware of at this time.
ADDITIONS
Add to Chapter 2, after paragraph 2.8
Using SWOT analysis in negotiation
2.9
The worksheet shown in Figure 2.3 above suggests how SWOT analysis of a supplier
may be used to support negotiation.

It gives a rounded picture of a supplier’s abilities, resources, competitive advantage
over its competitors etc – enabling the buyer to develop a BATNA based on the
desirability of using this supplier.

It identifies areas of weakness in the supplier that may be exploited in negotiation
leverage – or may be the focus of negotiated improvement/risk management.

It highlights issues (eg weaknesses, threats) which may become priority areas for
negotiation and risk management.

It highlights opportunities which can be exploited or maximised through
negotiation (eg through gain sharing).

It highlights risks/threats which can be minimised or managed through negotiation
(eg through risk sharing).
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
2.10
In addition to carrying out SWOT analysis on the supplier, the buyer may benefit
from carrying out pre-negotiation SWOT analysis:

On its own organisation, in order to generate relevant negotiating objectives,
variables and alternatives (eg opportunities to be explored and exploited; threats
to be countered), and to assess the strength of its bargaining position in relation
to the supplier

On its negotiating position and resources, in order to assess its relative
strengths and weaknesses: strengths that can be built upon (eg by empowering
skilled negotiators); weaknesses that can be countered (eg by planning or
tactics); opportunities that can be exploited (eg by timely negotiation); or
threats/risks mitigated (eg by careful ratification).
Add to Chapter 4, after paragraph 1.19
1.20
Understanding fixed and variable costs can help a negotiator in various ways.

Calculating a supplier’s cost structure can help to determine the parameters for
reaching negotiation on price (and other issues, such as cost reduction targets
or supplier development).

Establishing cost per unit can help in making direct comparisons between
different suppliers.

Understanding variable costs can help to determine economic order quantities,
minimum order units, and potential for economies of scale.

Understanding variable costs can also help a buyer to assess the reasonableness
of a supplier’s proposed price increases (eg on the basis of raw material cost
rises).

Understanding fixed costs can help in understanding the supplier’s resistance
points and walk-away position, because of the supplier’s need to cover fixed
costs.

Understanding fixed costs can also indicate the level of profit a supplier is
seeking. Once the supplier has covered fixed costs, any price in excess of
variable costs will be sufficient to make a contribution to profit, so the buyer
may hope to negotiate movement on price.

From the supplier’s view point, sales people need to generate enough business
to cover fixed costs – and this may motivate them to do a deal.
Add to Chapter 5, after paragraph 2.7
2.8
Various methods of setting market-based prices, drawn from Marketing disciplines,
include the following.

Price skimming: setting high prices in order to ‘skim’ the available profits from
a relatively price-insensitive market. This is generally associated with smaller
market segments, where customers are willing and can afford to pay a premium
price eg for a unique, prestige or innovative product or service. It is a strategy
often used in the early stages of the product lifecycle, to recover research,
development and launch costs: prices are generally lowered as competitors
enter the market (inspired by the high profit margins available).
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010

Penetration pricing: establishing low prices that will attract customers, relying
on high volume sales and economies of scale to generate profit. The low profit
margins may also help to discourage competitors. This strategy may be used (if
the organisation can keep its costs low enough to make it viable) to increase
market share or stimulate the growth of the market. It can also be used as a
temporary promotional strategy in the early stages of the production life cycle:
eg as a ‘special launch price’ to get customers to sample the product.

Economy pricing: based on a strategy of low-pricing, offering perceived
economy or ‘no frills value’ to customers – and creating price-based competition
with competitors.

Premium pricing: based on a strategy of high-pricing, creating the perception
of premium quality or prestige to attract customers. Premium pricing is often
associated with branded products, enabling the producer to offset branding
costs, as well as maintain a quality brand.

Psychological pricing: setting prices in a way that is designed to manipulate
the perceptions of customers (eg by charging £9.99 to create the perception that
the product is ‘under £10).
Add to Chapter 5, after paragraph 3.13
A basic breakeven point calculation formula
3.14
If asked to calculate a breakeven point from data given, the simplest way is to plug
the data into the following simple formula.
Breakeven point
(in units)
=
Fixed costs
Selling Price minus Variable Cost per unit
You can then multiply this number of units by Selling Price (per unit) to get a breakeven
point in Sales Revenue terms.
Add to Chapter 6, replacing paragraph 2.26
2.26
We noted in Chapter 1 that a comfortable work environment is conducive to
agreement. More specifically, thought may be given to matters such as:

Seating arrangements, which may both facilitate or hinder negotiation (eg in
terms of proximity between parties, directions faced, physical barriers between
parties) and set the tone of the negotiation (eg adversarially facing each other
across a table or side by side). Seating arrangements may also be an expression
of power (eg the equality of a round table, or the ‘top’ position of the head of
the table).

Access to information and communication facilities (eg having files, data
projectors, white boards and other tools to hand)

The ‘tone’ set by the venue (eg via lighting, comfort and other attributes):
collaborative or adversarial, intimidating, power-displaying, relaxed/informal and
so on
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
The tidiness, comfort and quality of the room, furniture and facilities, which
impacts on the comfort of the participants, the image projected by the hosting
organisation – and the impression given of how the negotiation is regarded

The size of the room, and the number of people it comfortably accommodates.
(A small number of people in a large room may be intimidating, for example,
while a large number of people in a small room may create pressure through
discomfort)

The availability of break-out rooms (for adjournments and confidential side
discussions)

The availability of rest rooms and refreshments, for adjournments, breaks – or a
simple glass of water during discussions
Add to Chapter 8, after paragraph 1.8
Why is ratification important?
1.4
The importance of ratification in the negotiation process can therefore be
summarised as follows.

It ensures that the final summary is as agreed in the negotiation meeting(s).

It provides a foundation for the on-going buyer-supplier relationship, based on
commitment to formally and mutually agreed terms and conditions.

It provides a tool for gaining stakeholder ‘buy in’ to the agreement, on the basis
of the authority of the ratifying parties.

It provides an agenda for action and allocation of responsibilities/accountabilities,
so all parties know what they have to do.

The minutes/summary acts as a written record and confirmation of the
agreement, should this be required for follow-up, control and/or dispute
resolution.

Formally and mutually agreed points can be incorporated into the development
of contracts without further discussion.
Add to Chapter 9, after Table 9.8
5
Effective listening skills
5.1
Listening is a key activity in any negotiation. It is estimated that around 60% of verbal
interactions is spent on listening. The activity of listening includes two basic activities:

Hearing what the other party says. Potential barriers to successful hearing may
include not just hearing impairment but environmental or background noise;
technical noise (eg a poor telephone line); and psychological noise (eg emotions
or distractions interfering with accurately receiving the other person’s
‘message’).

Interpreting and understanding the meaning and intent of what is being said.
This can be a particular challenge in cross-cultural negotiation, as we will see in
Chapter 10, due to language and cultural differences. However, there is potential
for misunderstanding and miscommunication in all contexts, due to factors such
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
as bias, assumptions, expectations, perceptual distortion, different backgrounds,
technical vocabularies and so on.
5.2
Mulholland (The Language of Negotiation) highlights perceptual distortions which get in
the way of effective listening:

Selective listening: the hearer only hears what he expects, wants or is able to
hear

Adaptive listening: the hearer hears some aspect of the message that superficially
‘fits’ his own experience, expectations or attitudes, and allows this to colour the
whole message: ignoring aspects that are new or different, and filling in ‘blanks’
with his own perceptions as if they were those of the other person.
In order to minimise the distorting effect of such listening habits, negotiators need to
utilise intentional listening techniques to establish, clarify and check accurate hearing
and interpretation.
5.3
5.4
5.5
There are three basic modes of listening: passive, acknowledging and active.

Passive listening is a style of listening which implies hearing, but without any
attempt to engage the other person: in other words, you let their words ‘wash
over you’ (or, more likely, ‘in one ear and out the other’).

Acknowledging is a style of listening which indicates basic attentiveness by giving
feedback signals to show the other person that you are listening and that the
message is being heard (eg eye contact, nods, ‘uh huhs’).

Active listening is a listening style which fully uses the feedback potential of
verbal communication. Gillen (1999) defines it as listening ‘in which you engage
the speaker in dialogue and use behaviours that help you listen in the full sense
of the word’.
Active listening is helpful in:

Facilitating understanding, by encouraging the other person to give information

Encouraging more open, honest and spontaneous communication, by supporting
the speaker

Facilitating understanding, by enabling the listener to clear up potential
misinterpretations and distortions

Facilitating subsequent recall of the message (useful in study, as well as
negotiation, situations)

Building initial rapport and subsequent collaborative relationships (if desired)
with the speaker.
Active listening involves co-operating with the speaker to facilitate better
understanding and communication. Active listening behaviours include:

Building rapport: creating a supportive listening/relational environment

Signalling attentiveness/interest: eg by alert posture, appropriate eye contact,
physical and non-verbal encouragers (gestures, nods, uh-huhs)

Signalling empathy: seeking to understand the other person’s perspective and to
demonstrate this to them: eg by ‘reflecting back’, summarising or paraphrasing
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what someone has just said (or the feelings underlying what they have just said),
or maintaining a facial expression appropriate to what the person is saying
5.6

Engaging actively in the process (without interrupting): eg summarising, reflecting
back, seeking clarification, asking questions and so on. Interventions should be
appropriate to your purpose in listening, whether that be to build rapport,
support the other person in communicating, or to gather and evaluate data
(which may require a more critical questioning style).

Being alert to perceptual bias, which may (Guirdham) distort what we hear, if it
conflicts with what we want to hear, or seems inconsistent with our impression
of the speaker, or triggers a negative emotional response in us. In order to hear
what is actually being said, we need to ‘bracket’ our responses: be aware of
them, acknowledge them, but keep them separate, for the moment, from the
listening activity.

Using feedback: eg giving nods, requests for clarification or requests for more
information; being alert to the other person’s non-verbal cues as to attitude or
emotion.
Athos & Gabarro identified five ‘reflective’ listening responses which Lewicki
suggests can be effectively used in negotiation to elicit meaningful information.

A greater emphasis on listening than speaking

Responding to personal points (eg feelings, beliefs and positions) rather than
abstract, informational points

Allowing the other person to frame the direction of conversation

Summarising or clarifying what the other person has said, rather than suggesting
what (s)he ought to think or feel

Responding to feelings that are expressed by the other party.
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
USE THE NEWS
Here we pick up on some of the Hot Topics covered in the ‘In the News’ feature. We
consider how they might come up in exam questions – and how you can use the
examples and illustrations in your answers.
Chapter 3: Supply and demand; evaluating supply risk
No analysis of the supply market – or the negotiating environment – would be
complete without acknowledging the global financial crisis of 2008–2010. Our In the
News feature gives a general round-up of the kinds of impacts the GFC has had on
purchasing decision-making, and would be worth looking at for background to topics
such as:

Understanding buyer and supplier perspectives on costs and break-even

Understanding pressures on profit margins

Sustainable/ethical negotiation, given the risks of driving suppliers into financial
difficulty

Pressures for purchasing negotiators to deliver value or low price, to support
organisational survival and recovery

The need to negotiate terms to support suppliers (eg enhanced credit terms or
faster payment)

The need to negotiate terms to mitigate the risk of supplier failure (eg termination
clauses, retention of title clauses)

Negotiating in such a way as to maintain good supplier relationships, to help
minimise supply risk, and to leverage supplier relations for collaborative value
improvement

‘The temptation is to focus on using power in the marketplace to wrest lower
prices from our suppliers. [But] in times like these it is essential we use the entire
range of best-practice strategies and tactics. By doing so, we contribute to the goal
of not only surviving the recession but emerging from it with strong, reliable
supply chains and sound supplier relationships.’ (Supply Management, 28/5/2009)
Look out for Part A case studies set in GFC-affected environments, or with struggling
suppliers.
Chapter 6: Power base
We note in Section 3 that the bargaining position of a buyer or supplier may derive
from the size of the organisation or its commercial strength in relation to the other
party. If a power imbalance of this type is featured in a case study scenario, it is worth
bearing in mind that collaborative purchasing (or supply) may be one way of
increasing the power of the smaller party: small buyers (and/or suppliers) may form
networks, hubs or consortia to aggregate their demand and negotiate better deals from
a position of greater strength. Before you recommend such a strategy, however, be
aware of the pros – and cons: the In the News feature sets out some of the main ones,
for private and public sector alike.
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
MARK MAXIMISERS
Here we throw in a variety of quick tools to focus your revision and beef up your
exam answers, including: key definitions and quotes, memory-boosters and case-study
examples and illustrations.
Of course, there are similar features in the Course Books and Passnotes. Think of
these Bonus Pack ones as a double bonus: they give you some extra options – and
they help keep the Course Books short!
EXAMPLES & ILLUSTRATIONS
Chapter 3: Caveat emptor
In Section 3, we explain the legal principle that a buyer is not protected in law for his
foolishness or negligence in making a bad bargain. A new piece of case law [Connolly
Ltd v Bellway Homes Ltd] is relevant here. Connolly agreed to sell land to Bellway,
with a gain sharing formula based on the difference between the value of the land at
contract date (‘the base value’) and its improved value (on grant of planning
permission). Bellway’s surveyor suggested an unjustifiably high base value, expecting
Connolly to negotiate it down – but Connolly’s surveyor, relying on Bellway’s
superior local knowledge, accepted the figure unchallenged. There were subsequently
no ‘gains’, Connolly lost out – and took Bellway to court.
The High Court ruled that a new base value could not be substituted in the contract:
Connolly had simply done a bad deal in agreeing the higher value, but both parties
had clearly intended that value to apply – caveat emptor!
However, the court also ruled that Bellway’s suggested base value was so far from a
genuine estimate that some dishonesty could be inferred: this was a case of intentional
false representation, and Connolly could recover damages for deceit.
The moral of the story for negotiators:

‘While a degree of exaggeration about the value of goods is an accepted element
of the process, representations which are too “wide of the mark” run the risk of
going beyond what is reasonable and of raising inferences of dishonesty.’

‘When faced with a formula prepared by your supplier, do not rely simply upon its
market knowledge. Do your own research, and if you disagree with the supplier’s
figures, challenge them and ask to see the supporting evidence.’

‘If writing formulas, ensure all pricing or market information on which they are
based is accurate and up to date, and if you need to include estimated values, do so
in good faith: don’t incorporate information which you know or suspect is
incorrect.’
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Chapter 3: Determinants of supply
In Section 2, we note that certain industries are susceptible to uncontrollable factors
which may affect supply and price.
The effect of hurricanes on the US Gulf Coast in September 2005 is a prime example
of the role of weather in determining supply of certain commodities: both its
importance – and the fact that it cannot be controlled (or even predicted with
certainty).
The world’s energy markets braced themselves for a second shock yesterday as Hurricane
Rita edged closer to the Gulf coast of Texas, threatening oil refineries that account for a
quarter of America’s fuel production… With winds of 165 mph, Rita is… bigger than
Hurricane Katrina, which last month knocked out 9% of American fuel production. Anticipating
turmoil, traders pushed the price of crude oil up $12 per barrel in early trading… while natural
gas hit a record high… In Washington, the International Monetary Fund gave warning that
high oil prices presented a “clear and present danger” to economic prospects.
Carl Mortished & Gary Duncan, The Times September 22, 2005
A further example is spiralling oil and gas prices. Output of gas from the North Sea
has steadily reduced to the point where the UK is no longer self-sufficient – and there
are new concerns over the prospect of an interruption to Russian gas supplies to
Europe. For a highly practical view of what this means, see ‘The pressure of rising gas
prices’, by Anusha Bradley and Rebecca Ellinor, Supply Management 19 January
2006.
Chapter 6: Power base
An interesting case study in the obtaining and use of negotiating power was reported
in Supply Management, 23 August 2007.
Low-cost airline easyJet has, since its formation in 1995, grown to be the fourth
largest scheduled airline in Europe (by passenger numbers): its eight-person
procurement team now manages an annual spend of more than £1 billion (covering
aircraft, maintenance services, catering, uniforms, carbon offsets and staff training).
This has increased easyJet’s bargaining power and enabled it to transform its
negotiation process, as seen in the award of a £490 million, 10-year contract for
maintenance and overhaul of aircraft engines (to GE Aviation) in the summer of 2007.
At the final stage of negotiations, the procurement manager rejected the terms and
conditions provided by each of the final four bidders, and told them that the final
stage of negotiation would centre on easyJet’s own stipulations. The terms and
conditions provided by GE, Snecma, Lufthansa Technik and Pratt & Whitney were
‘too conflicting because of their different company outlooks and different cultures’.
Replacing them with easyJet’s terms:

Was seen as an equal starting point for all the suppliers, not disadvantaging those
whose contract may have been good in one way yet bad in another
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010


Kept easyJet’s needs at the centre of discussions, rather than what the suppliers
wanted
Sent a strong message to the marketplace about how easyJet wants to do business.
This was a bold approach in the airline and aerospace industry, because the supply
market is quite narrow and vendors have, until now, been able to dictate deals. (GE
Aviation won the contract.)
Chapter 8: Supplier relations
In Section 3, we discuss the importance of positive ongoing supplier relationships. It
is worth being aware of the implications of different negotiating approaches and styles
for relationship management and development, in any scenario question. An article by
‘Rebecca Ellinor (‘Crowd pleaser’, Supply Management, 13 December 2007)
discusses a number of ways in which supplier relationship management relates to
negotiation.

Being an attractive customer – or ‘customer of choice’ – is particularly important
in a seller’s market (and even more so for critical or strategic purchases). ‘Since
some suppliers will be providing goods to your rival as well as your company,
they can compare how they are treated by each, which can in turn influence their
behaviour’. Preliminary research in the US car manufacturing industry suggests
that strong supplier relations actually lower the price of goods, rather than creating
‘soft’ price negotiation.

As numbers of suppliers are reduced, suppliers become more powerful, and have a
greater stake in the buyer’s business. It is no longer possible to ‘whistle, get a
supplier, hit them on the head, get a good price and call them back in 12 months’:
relationships of respect, transparency and information sharing are required.

The challenge is for buyers to ‘apply just the right amount of pressure: for years,
we’ve trained, selected and incentivised people to squeeze suppliers and treat
them as beasts. The more pressure you put on the better you feel – but the more
value you destroy. Of course, you need to be competitive but you also need to
develop relationships – not with every vendor, but with those who are strategic to
the company.’

The key may be to collaboratively negotiate mutual interest and relationship
targets (eg increased productivity or risk mitigation) and solutions to problems –
‘which traditional negotiators won’t be able to do’ – and to competitively negotiate
for an increased share of the resulting value gains (eg on price).
The senior assessor feels that ‘A good relationship can help facilitate a negotiation.
Yet a deal needs to be struck that can contribute to the firm’s bottom line – and that
sometimes means using competitive threat.’ Her advice is to focus on achieving a
mutually beneficial agreement – whatever the negotiation style or approach.
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Chapter 9: Skills and attributes of negotiators
In Section 2, we discuss a number of ‘behavioural technologies’ in negotiation. One
that is not included there – but is added on page 46 of your Passnotes – is
Neurolinguistic Programming (NLP). It is worth looking at the Passnotes coverage, as
NLP was the subject of a ‘Knowledge Zone’ article by the senior assessor for this
paper in Supply Management, 7 June 2007.
The senior assessor believes that ‘NLP could prove to be an invaluable negotiation
tool’, and focuses on particular linguistic techniques including:



‘Tag questions’: eg ‘We’ll agree on that, won’t we?’ The first part is effectively an
‘instruction’ – but it is disguised, and made more acceptable, by being turned into
a question. Tags are often reinforced by body language such as nodding.
‘Double binds’: eg ‘You’ll be signing the contract today or tomorrow?’ Again,
there’s a disguised instruction, made acceptable by apparent freedom of choice –
while limiting the options to an either/or (both favourable to the influencer).
‘Negative suggestion’: eg ‘I’m not saying you will do it that way…’ Again,
there’s a disguised instruction, made acceptable by the stated lack of coercion.
Sales people have used these technologies for years. One approach to avoiding being
manipulated by them (as in Table 7.4 in the Course Book: know how to counter
persuasive ploys!) is the ‘ABC’ process.



Acknowledge it for what it is
Break down the content (to analyse how you are being manipulated)
Challenge it (eg ‘that would seem to imply that there are only two options, but
there’s another possibility’)
In Section 3 of Chapter 9, we review the discussion on the differences between men
and women as negotiators. In another Knowledge Zone article (Supply Management,
2 August 2007), the senior assessor revisits this discussion, noting that:



Evidence suggests that men are more geared towards recognising and responding
to threat and that they orient themselves toward controlling such environments.
Conversely, women seek and promote safety and are geared toward consensus and
adaptability.
Two-thirds of men who take the Myers-Briggs Type Indicator test score highly as
‘thinkers’ (make decisions based on objectivity and logic) and two-thirds of
women as ‘feelers’ (subjective decision making based on values).
According to recent research, most women find negotiating an ‘unpleasant
experience’ and prefer ‘relationship focused’ discussion to ‘competitive’
negotiation.
In particular, it should be noted that the Senior Assessor (in a recent exam report) is
disappointed to see gender and racial stereotyping creeping into discussion on these
issues. Make sure that you cite a credible theory, rather than making generalisations.
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Another Knowledge Zone article (Supply Management, 3 January 2008), emphasised
the extent to which ‘soft skills’ (or relationship skills) are key to supply chain
management.
‘Traditionally within the supply chain we are trained with a “technical skills set” – inventory
control, warehouse management and procurement strategy, for example. However, the
technical skill set is just the “qualifier”: what really makes the difference is relational skills….
To be winners, all organisations must have an emphasis on soft skills… It has never been
more true to say that competition is not between individual companies but between the supply
chains they are part of. Poor relationships are also a major source of supply chain risk and
can result in a loss of competitive advantage for the whole supply chain, so develop the
“relational skill set” to make your organisation more resilient.’
Richard Wilding, Cranfield School of Management
This article goes on to focus on emotional intelligence (EQ), as defined and
discussed in Section 3 of Chapter 9.
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MEMORY BOOSTERS
Chapter 1: Phases of negotiation
We set out various versions of the phases of negotiation, and if asked for a certain
number of phases in an exam question, it would help to be able to access an
appropriate model (rather than picking and mixing from different models, which
carries the risk that you’ll miss out an important phase). You may like to try the
following (strangely visualisable) mnemonics.
Syllabus version
Pr epare
O pen
Test
M ove
Agree
Finalise
Greenhalgh
P reparation
R elationship building
I nformation G athering
I nformation E xchange
B idding
C losing the deal
I mplementation
Kennedy 4-phase
P repare
D ebate
P ropose
B argain
Protest More Agricultural
Fertiliser?
Preparing Relationship Is
Great, IE: Better Closure
Insured.
Preppy Deb Props up the
Bar?
(If you don’t like it – don’t use it! Just an example of the kind of mnemonic that can
be made up to help you remember lists. Even better, if you make up your own: it’s
this process that fixes the details in your memory…)
Chapter 3: Environmental analysis
Following the syllabus, we refer to the PESTLE model in Chapter 3 of the Course
Book, as a framework for analysing external/macro environment factors. Bear in mind
that you may also see the following variants.
P
E
S
T
Political/legal
Economic
Socio-cultural
Technological
S
T
E
E
P
L
E
Socio-cultural
Technological
Economic
Ecological
Political
Legal
Ethical
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Chapter 2: Supplier evaluation
Frameworks such as Carter’s 10 Cs and the examiner’s FACE2FACE are useful – but
not easy to remember. You may like to try the following mnemonic or format.
Comp etence
Comp atibility
Comp liance
F ixed assets
F inancial stability
A bility to deliver
A bility to work
together
C ost
C ommitment (to
quality
E fficiency
E nvironmental
policy/capability
(3 Comps)
Con trol
Con sistency
(2 related Cons)
Cos t
Cas h
(Cos Cash is
important!)
Comm itment
Clean liness
(Come
clean!)
Cap acity
(To Cap it all off)
Chapter 3: Determinants of demand
Looking for a handy way of remembering the major influences on demand? Here’s a
mnemonic for 10 of them.
A QUIET (PPP) FM Station:
A
QU
I
E
T
P
P
P
F
MS
Advertising
Quality
Income
Expectations
Taste
Price: goods
Price: substitute goods
Price: complement goods
Facilitators
Market size
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
LINKS
For interesting ‘hubs’ for case studies, articles and discussions, try:
http://www.about.com/business
(Just bear in mind that it’s a US site…)
Mind Tools is a helpful site with lots of tools and frameworks for analysis and
decision-making. Definitely worth a browse:
http://www.mindtools.com
And of course, check Supply Management journal, if you haven’t read it lately…
http://www.supplymanagement.co.uk
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
CAN YOU TEST ME ON THIS?
The old syllabus exams used to feature short-answer questions. Although the new
syllabus uses the case study and essay format, it is still designed to test your
knowledge: you are expected to show awareness and understanding of concepts,
theories and models – not just practical experience and common sense!
There are quick Self-Test questions at the end of each chapter in your Course Book.
Here are a few more, to help you identify areas for closer reading or revision. Some
people like doing quizzes and questionnaires. Try and think of this as fun…
Test your knowledge quiz
1.
What activities might be included in the planning phase of negotiation?
2.
In what situations might (a) probing, (b) leading and (c) hypothetical
questions be useful for a buyer in negotiation?
3.
Distinguish between positional bargaining and interest-based or principled
bargaining.
4.
What kinds of information are included in an analysis of supply market
structure?
5.
List criteria that might be used in supplier evaluation and selection.
6.
Give two examples of (a) political and (b) socio-cultural factors in the
negotiating environment?
7.
Draw Kraljic’s grid.
8.
‘When the price elasticity of demand is greater than 1 (PED > 1), a price
change is more likely to cause a change in the quantity demanded.’ True or
false?
9.
Explain how you would separate out the variable cost element of a semivariable cost.
10.
What are the advantages and disadvantages for a supplier of open book
costing?
11.
What is the difference between a ‘mark up’ and a ‘margin’?
12.
What are ‘straw issues’ in a negotiation?
13.
When might a supplier’s position be particularly strong in a negotiation?
14.
List five tactics for gaining commitment to the final deal.
15.
Explain the influencing approaches ‘threat’, ‘emotion’, ‘logic’, ‘compromise’
and ‘bargaining’.
16.
What is a ‘post settlement settlement’ (PSS) option?
17.
What three aspects of body language are important in negotiation?
18.
Identify three practical/purchasing and three cultural considerations when
negotiating an international contract.
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
19.
Identify the main drawbacks of (a) e-negotiation and (b) telephone
negotiation.
20.
List three rapport-building techniques.
Answers
1.
Lewicki identifies several stages in planning: defining the issues; defining the
bargaining mix (MIL); defining interests; defining limits; defining objectives
and opening bids; defining constituents; understanding the other party; selecting
a strategy; planning the presentation and defence; and defining protocols. (See
Chapter 1, Section 1.)
2.
Probing questions may be useful in trying to tie down an answer. Leading
questions may be useful in ‘conditioning’ or gaining acceptance of a view.
Hypothetical questions may be useful in enabling options to be discussed
without commitment. (See Chapter 1, Section 3.)
3.
Positioning bargaining is where each side takes a ‘position’ on an issue, arguing
in its favour and attempting to get an outcome as close to that initial position as
possible: the bargaining style may be hard or soft (concessions in order to reach
agreement). Interest-based or principled bargaining sees parties working
collaboratively to attack a shared problem or to maximise a shared opportunity:
the bargaining style is both hard (on the problem) and soft (on the people). (See
Chapter 1, Section 5.)
4.
Analysis of supply market structure elicits information such as: number of
buyers and suppliers in the market; methods of pricing; degree of product
differentiation; and technology development. (See Chapter 2, Section 4.)
5.
Criteria that might be used in supplier selection include: Carter’s 10 Cs
(competence, capacity, commitment, control, cash, cost, consistency, culture,
clean, compliance) or FACE2FACE factors (fixed assets; financial stability;
ability to deliver; ability to work with the buyer; cost; commitment to quality;
efficiency; and environmental management). (See Chapter 2, Sections 1 and 3.)
6.
Examples of political factors include: the socio-economic goals of government
and the role of pressure groups. Socio-cultural factors include cultural
differences impacting on negotiation and consumer trends. (See Chapter 3,
Section 1.)
7.
See Chapter 3, Figure 3.2.
8.
True. When PED>1, demand is relatively elastic. (See Chapter 3, Section 2.)
9.
The high-low method allows you to compare the level of cost in a period of high
production output with the level of cost in a period of low production output: the
additional cost must be the variable cost. (See Chapter 4, Section 1.)
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Effective Negotiation Bonus Pack © Profex Publishing Limited 2010
10.
Advantages of open book costing include: foundation for supplier development,
and development of trust (creating potential for on-going business).
Disadvantages include: risk to confidential information; loss of power in the
relationship; and risk that benefits will not accrue to the supplier. (See Chapter
4, Section 3.)
11.
A mark up is the profit element expressed as a percentage of cost. A margin is
the profit element expressed as a percentage of selling price. (See Chapter 5,
Section 1.)
12.
Straw issues are concessions that cost nothing to give, but can be traded for
more important items, often by ‘talking up’ their value. (See Chapter 6, Section
1.)
13.
A supplier’s position might be particularly strong (Lyons & Farrington) where:
the buyer’s requirement is urgent; the supplier is indifferent to the business; the
supplier enjoys a near monopoly; the supplier has a leading reputation; the
supplier owns essential tools/machinery; or the supplier is well briefed about the
buyer’s position. (See Chapter 6, Section 2.)
14.
Five tactics for closing a deal (Lewicki) include: providing alternatives;
assuming the close; splitting the difference; exploding offers; and sweeteners.
(See Chapter 7, Section 3.)
15.
See Chapter 7, Table 7.3.
16.
A PSS option is an agreement that parties can later return to issues they have
agreed on, with a view to subsequent refinement. (See Chapter 8, Section 1.)
17.
Three aspects of body language which are important in negotiation (Lewicki)
include: eye contact, body position and non-verbal encouragement or
discouragement. (See Chapter 9, Section 1.)
18.
Practical considerations in international negotiation include: international
quality standards; delivery modes and lead times; currency of payment; use of
Incoterms; and jurisdiction issues. Cultural considerations include: being aware
of business and cultural customs; being aware of differences in non-verbal
communication styles; and managing language differences and their power
implications. (See Chapter 10, Section 3.)
19.
The main drawbacks of e-negotiation include: lack of off-task interaction;
temporal synchrony bias; burned bridge bias; squeaky wheel bias; and sinister
attribution bias (Thompson & Nadler). The main drawbacks of telephone
negotiation include: bias to the stronger case; lack of non-verbal cues to check
sincerity; environmental distractions; lack of back-up visual data; bias towards
the caller; and pressure to close. (See Chapter 11, Sections 1 and 2.)
20.
Rapport building techniques include: matching/mirroring body language and
vocal mannerisms; listening actively; empathy; common ground; and using
people’s names. (See Chapter 11, Section 3.)
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