D4 - 3.0 How To Prepare For Negotiation W/ext Orgs

Front 1

Discuss resourcing considerations when organising a negotiation with an external organisation

Back 1

• Room
• IT
• People
• Facilities
• Finance

Front 2

Explain the importance of setting objectives and defining variables when preparing for a commercial negotiation.

Back 2

• SMART objectives
• LIM framework
• Relationship strategy

Front 3

Outline the risk that exchange rates present when negotiating for an international purchase

Back 3

• risk in international sourcing
• has to identify who bears th erisk and how it can be shared

Front 4

From a buyer’s perspective, outline the impact of FOUR different market structures on commercial negotiations

Back 4

- Perfect Competition

- Monopolistic competition
- Oligopoly
- Monopoly

Front 5

Identify THREE macro-economic factors and explain how each can influence a commercial negotiation.

Back 5

• Inflation = affects suppliers cost and prices, price escalation might be required
• Employment levels = availbiltiy of labour costs and disposable income of demand
• Exchange rates = risk for international sourcing, imports more expensive
• p.135

Front 6

Suggest FIVE sources of information on macro-economic factors.

Back 6

• p.52
• Forecasts
• Financial reviews
• Finanical markets e.g. exchange rates
• Websites and information services e.g. Chamber of Commerce
• Macro economic analysis, Gallup

Front 7

Explain, using examples, how a purchaser might define the variables required when preparing for negotiation.

Back 7

• p.143
• Price = price review mechanism, terms of payment
• Delivery = delivery times, LIT
• Contract = use of subcontractors, dispute resolution

Front 8

Explain how a purchaser might establish a range of acceptable positions for the negotiation of variables.

Back 8

• Use MIL framework
• Put the above variables into Must, Intend, Like to acheive
• p.145

Front 9

Explain FIVE sources of information that a buyer might use to understand micro economic factors that affect negotiations.

Back 9

• buyers own database
• trade confrences
• industry magazines
• suppliers financial accounts
• meet the buyer events
• competitors
• online market exchanges
• p.124-5

Front 10

Explain TWO ways in which changes in the macro economic business cycle might impact on commercial negotiations.

Back 10

• Depression
• Recovery
• Boom
• Reseccsion
• Apply, capacity, price and consumers to each stage

Front 11

Explain the following

TWO approaches that a supplier might use when calculating its costs prior to a negotiation.

Back 11

1. Marginal costing: uses only the variable cost to produce a unit. Fixed cost are not included.

2. Absorption costing: calculates total cost of producing unit. As well as the variable costs, a fair allocation of fixed costs are included, plus a markup.

Front 12

Explain THREE reasons why a procurement organisation might attempt to analyse a supplier’s cost structure when preparing for a commercial

Back 12

• ?

Front 13

Examine FIVE resources required for an effective face-to-face negotiation meeting.

Back 13

• personeel
• finance
• space and facilities
• ICT
• Time
• ??

Front 14

Suggest FIVE points that should be considered when preparing for a telephone negotiation compared with a face-to-face negotiation.

Back 14

• p.159
• Agenda
• Who calls who

Front 15

Describe FIVE costs that should be considered when calculating the lifecycle cost of an item, apart from the purchase price of the item.

Back 15

* maintenance costs* operational costs* disposal costs* fuel costs* servicing costs* training costs* disposal costs

Front 16

List all stages of the procurement cycle

Back 16

1. Specifcation 2. Define contract terms 3. Source the market 4. Appraise suppliers 5. invite quotations or tenders 6. Analyse responses and select 7. Negotiate best value 8. Award contract 9. Contract/Supplier Management 10. Identify Needs

Front 17

Using Examples, explain the difference between direct and indirect costs.

Back 17

Direct costs: * Direct materials: paper, ink, glue* Direct labour: production employees labour costs* Direct expenses: payable royalties* e.g oil used in machinery* Salaries* Also known as overheads

Front 18

Name and draw the kraljic matrix

Back 18

1. Leverage: cost/price management, multiple suppliers, supply abundant2. Non-critical: Functional efficiency, local suppliers, supply abundant3. Strategic: long term availability, established global suppliers, supply scarce4. Bottleneck: cost management and secure supply, global suppliers, supply scarce

Front 19

List the market-driven pricing approaches

Back 19

Price volume 2. Penetration pricing 3. Market skimming 4. Contribution pricing 5. Promo pricing 6. Price discrimination 7. Competition pricing

Front 20

What is mark up?

Back 20

profit/cost

Front 21

What is margin?

Back 21

profit/selling price

Front 22

What is contribution?

Back 22

revenue - variable costs

Front 23

What is break even point?

Back 23

fixed costs / (selling prices - variable costs) It is the point where the qty covers cost to make neither a profit or a loss

Front 24

What are the types of cost based pricing?

Back 24

1. full cost
2. cost plus or mark up
3. marginal
4. rate of return
5. contribution

Front 25

Why are cost based pricing approaches limitied?

Back 25

1. ignore competition and other influences on pricing
2. inflexible
3. no incentive for supplier to reduce or manage costs
4. supplier may ignore potential profits

Front 26

What are the factors in a buyers decison on price?

Back 26

1. buyers bargaining power
2. number of suppliers/substitues in the market
3. type of purchase
4. price paid by competitors
5. total benefits offered
6. what buyer can afford
7. What is reasonable
8. What is fair

Front 27

What is the difference between price and cost?

Back 27

Price is what the seller chargers.

Cost is what the buyer pays for to aquire and utilise the goods.

Front 28

What is 'Cost behaviour'

Back 28

The way in which the costs of an output are affected by flucuations in the level of activity. Either volume of production of level of sales.

Front 29

What is the High-Low method?

Back 29

When costs are a mix of fixed and variable you need to determine the fixed element. Use the high-low method to do this.

Based on looking at the total cost when activity is at a high level and compare to when it was at a low level.

Front 30

Describe the main approaches to costing

Back 30

1. Marginal costing: uses only variable costs to derive a unit costs
2. Absorption costing: attempts to calculate the total cost of producing item. Porportion of fixed costs is added into unit costs plus a mark up for profit

Front 31

What are the reasons for wanting profit?

Back 31

1. business has covered its costs
2. encourages mantaining ownership
3. reinvestment to develop the business

Front 32

What is the margin of safety?

Back 32

the differnece between the planned sales level and the breakeven point. The margin of safety is often expressed as a % of the planned sales

Front 33

What are the range of matters to be negotiated and agreed in relation to price?

Back 33

1. type of pricing arrangement
2. the price or fee schedules
3. what is to be reimbursed
4. Contract price adjustment
5. available discounts
6. terms of payment

Front 34

What are the three types of pricing agreements in contracts

Back 34

1. Fixed price: agreed in advance, may include CPS, supplier bears all risk
2. Incentivised contracts: such as bonus payments
3. Cost plus: buyer reimburses for costs incurred performing the contract pluis a profit percentage

Front 35

Why are fixed price agreements advantageous for the buyer?

Back 35

1. financial risk
2. cashlow management
3. supplier motivation
4. simplicity

Front 36

What are some sources of macro economic data to support negotiations?

Back 36

1. forecasts, reports, statistics surveys
2. published analysis
3. published by financial institutions
4. published by commodity markets
5. economic indicies
6. websites information
7. online databases and reports

Front 37

Describe the two key micro economic concepts?

Back 37

1. Market mechanism: the relationship between supply and demand and how price effects both

2. Market structure: the degree of competition in the market and the different types of markets

Front 38

What is purchasing research and what are the basic aspects when entering a negotiation?

Back 38

the systematic study of all relevant factors that affect purchasing goods and services. In relation to a sourcing exercise three basic aspects inclide:

1. Demand analysis

2. vendor analysis

3. supply market analysis

Front 39

What are the sourcs of information or micro economic factors?

Back 39

• communication with suppliers
• own database
• marketing communications
• onlin market exchanges
• advisory services
• trade fairs
• informal networking

Front 40

Relating to the Market Mechanism, that are the factors influencing demand?

Back 40

• price of subtitutes
• price of complementary goods
• disposable income
• consumer preferences and attitudes

Front 41

Relating to the Market Mechanism, that are the factors influencing supply?

Back 41

• production costs
• technology
• number of suppliers in the market
• expectations of economic health

Front 42

What is equilibrium price?

Back 42

Where the supplier wants to sell at the same price the consumer wants to buy

Front 43

What is the price elasticity of demand?

Back 43

The sensitivity of demand to changes in price

The more elastic the more demand will increase when you lower price and demand will decrease if you raise price.

Measured as %change in qty demanded / %change in price

if elasticity is > than 1 change in price will lead to a significant change in revenue

if elasticity is < than 1 changes in price will have less effect on demand

Front 44

What are the four basic market structures?

Back 44

1. Perfect competition
2. Monopoly
3. Monopolistic competition
4. oligopoly

Front 45

What are the market conditions for perfect competition?

Back 45

• there are many buyers and sellers
• the goods being marketed are identical
• perfect information about the market is available to all parties
• no economic friction
• no barriers to entry or exit
• perfect mobility

Front 46

What are the market conditions for monopoly?

Back 46

• only one supplier for the goods exists
• there are barriers to entry
• no close substitues

Front 47

What are the market conditions for monopolistic competition?

Back 47

• there are many suppliers
• goods are different
• there are barriers to entry

Front 48

What is an oligopoly and what are the market conditions for it?

Back 48

A small number of large producers dominate the market.

• there is little price competition
• competition takes non-price forms
• prices are set by non-competitive means to maintain price stability and avoid price wars

Front 49

What are the porters five forces?

Back 49

1. Potential new entrants

2. substitute products

3. buyer power

4. supplier power

5. competition/rivalry

Front 50

How does macro-economic factors affect procurement?

Back 50

1. economic activity/wealth of a nations/disposable income
2. Business cycles/strength of economy/willing to invest
3. employement and umemployment levels
4. taxaxtion
5. exchange rate
6. interest rate

Front 51

What are the four main phases of a business cycle?

Back 51

1. depression
2. recovery
3. boom
4. recession

Front 52

What are the five key questions in preparing for a negotiation?

Back 52

1. what do we want?
2. how valuable is each want to us?
3. why do we want what we want?
4. what is our entry point?
5. what is our exit point?

Front 53

What is the bargaining mix?

Back 53

the total pachage of isses on the agenda for a negotiation.

A large mix can mean a lengthly negotiation however also allowes more possible groupings for trade-offs between issues

Front 54

What are SMART objectives?

Back 54

1. Specific
2. Measureable
3. Acceptable
4. Realistic
5. Tentative

Front 55

What is the difference between 'positions' and 'interests' in integrative bargaining?

Back 55

Positions are the parties 'stances' e.g. opening bid, target point.

Interests are underlying needs, values, wants and concers of why they want what they want

Front 56

What do parties in conflict base the strategies on according to Lewicki et al?

Back 56

1. Interests: what they need

2. Rights: who has legitimacy or fairness

3. Power: who can excercise most influence

Front 57

What are the different interests are work in a negotiation according to Lewicki et al?

Back 57

• Substantive
• process
• relationships
• interests in pricicple

Front 58

What are the elements involved in the defintion of presenting issues?

Back 58

• define the problem that is mutually acceptable
• state the problem toward practicality
• state the problem as a goal and identify obsticles to obtaining that goal
• seperate the problem from th esearch for soluitons
• seek to understand the problem referencing interests of both parties

Front 59

This a number of protocol issues in negotiations?

Back 59

1. what agenda should be followed
2. where will the negotiation be held
3. how long will it take
4. who willl be involved
5. what might be done if it fails
6. how to keep track of what is agreed
7. how do we know if we have a good agreement

Front 60

What are the six main resources required to support a negotiation?

Back 60

1. Personnel
2. Finance
3. Time
4. Information
5. Space and facilities
6. ICT

Front 61

What are the advantages of conducting a negotiation on 'home ground'?

Back 61

1. familiarity with surroundings
2. accessibiltiy to resources
3. immediate presenceof support networks

Front 62

What are the advantages of using teams in negotiations?

Back 62

• improve performance and decisons
• faciltitate coordination
• facilitate communication
• motivate individuals

Front 63

What are the reasons for using teams?

Back 63

1. wider contribution of skills
2. informationshoring and discussion
3. shared responsibiltiy
4. back up eachother
5. take different roles in negotiation for tactics

Front 64

What are the disadvantages of teams?

Back 64

1. group decisons take longer
2. have to give attention to team dynamics
3. variety of views can create a poor bagaining postion
4. intra-team competition

Front 65

What factors distinguish a telephone negotiation from face to face?

Back 65

1. 75% of information is from non-verbal cues
2. face-to-face encourages ofcused attention
3. Telephone limits shared use of supporting documentation e.g. sample products
4. arguements tend to fail on telephone
5. pressure to conclude before hanging up
6. technical problems