oriflame purchasing management workshop module 7 – negotiation skills & agreements three...
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Purchasing Workshop Module 7 © The Delos Partnership 2005 Oriflame Purchasing Management Workshop3 When the 3 skills are needed internally Colleagues - Peers – Boss Projects Priorities Conflicts Budgets Appraisals / Pay Review Situation... Face to Face – Different levels of seniority Over the phone Using e AnytimeTRANSCRIPT
Oriflame Purchasing Management WorkshopModule 7 – Negotiation Skills & Agreements
• Three interrelated skills• Planning & Checklist• Body Language• Doing, Acting & Renegotiating• Contrasting Situations• Agreements
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Three Interrelated Skills
CommunicationCommunication& Bargaining& Bargaining
Power Power
Meeting Meeting SkillsSkills
Negotiation Negotiation
Presentation Presentation SkillsSkills
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When the 3 skills are needed internally
Colleagues - Peers – BossColleagues - Peers – Boss
• Projects
• Priorities
• Conflicts
• Budgets
• Appraisals / Pay Review
Situation...Situation...
• Face to Face – Different levels of seniority
• Over the phone
• Using e
• Anytime
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When the 3 skills are needed externally
Customer & Supplier...Customer & Supplier...
• Dealmaking
• Price Changes
• Performance Assessment
• Visits
• Projects
Situation...Situation...
• Face to Face – Different levels of seniority
• Over the phone
• Using e
• Anytime
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The Expert Negotiator …The Expert Negotiator …
Delos Negotiation Tips
• Knows the Product Position• Plans thoroughly• Uses the Power of Silence• Gives something to get something • Knows everything is negotiable• Listens Actively• Uses the Pareto Principle• Is not afraid to walk out
• Knows that information is power• Knows there no more than 3 key
issues• Never makes first offers • Never accepts first offers• Adapts the approach• Uses competition – real & imaginary• Buys time by limiting authority• Implements declaring the other side a
winner
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PPDDCC
AAPLAN THE DEAL PLAN THE DEAL AND THE AND THE NEGOTIATIONNEGOTIATION
DO THE DEAL AND DO THE DEAL AND FINALISE THE FINALISE THE NEGOTIATION.NEGOTIATION.
CHECK THE DEAL CHECK THE DEAL AND AND NEGOTIATION NEGOTIATION OUTCOME.OUTCOME.
ACT TO IMPLEMENT ACT TO IMPLEMENT THE DEAL AND THE DEAL AND NEGOTIATION NEGOTIATION OUTCOME AND OUTCOME AND START TO START TO RENEGOTIATE…RENEGOTIATE…
CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE CUSTOMER OR SUPPLIER CAN DECIDE NEGOTIATION CYCLE TIMES TIMES
Negotiation PDCA – is Critical
DDPP
CCAA
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Negotiation Planning
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SUPPLIERS SUPPLIERS VIEWVIEWWHENWHEN
SELLINGSELLINGTO YOU TO YOU
Customer Matrix Position Negotiation & Market Dynamics Credit status / Payment risks Technical & Implementation Competency Growth Potential Market Segments Selling Price Options Competition Options
Supplier Positioning Total Value Potential Risks & Cost of Change Technical Options Internal customers needs Other Supplier Options Competition strategy
PROCUREMENTPROCUREMENTVIEW WHENVIEW WHEN
BUYINGBUYINGFROM FROM
SUPPLIERS SUPPLIERS
Take a Two Way View
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InternalKnowledge
Pricing
DeliveryPerformance
Need to Improve
Terms
FutureRequirements
QualityPerformance
PotentialNew
Relationship
What is the Negotiation Purpose?
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Customers
Suppliers
Businessor
PersonalGoals
• Business &/or Personal Goals • Projects and Priorities• Risk or Total Value Improvement
Negotiation Deciders & Drivers
Negotiation Stages
The Negotiation Process
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Strategy & Negotiation Stages
1. Productand ServicePositioning 2. Market
Evaluation& Leverage
3. Team & Skill
Sets
4. Tactics, Ploys
& Approach
5. Close Out, Joint Actions &
Check
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Negotiation Skill Sets
Product &
Service
People
Functional
• Existing and Future Requirements in use
• Global market knowledge of deals, moves, pricing
• Life Cycle, Innovation and Manufacturing know-how
•
• Conflict Resolution Skills
• Interpersonal and Relationship Management
• Culture and Values
• Your business
• Your competitors
• Legal – Financial – Six Sigma – I.T. – Facilities /HSE
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Balanced Negotiation Teams
Product &
Service
People
Functional
•
• Customer
• Technical & Manufacturing
• Supply Chain & Procurement •
• Facilitator
• Good Guy – Bad Guy
• Arbitrator
•
• Your Boss
• Marketing & Sales
• Lawyer – Finance & I.T. Support – H.S.E person
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Body Language
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Body Language
Just be your natural self in business !
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Eye Contact
• Signals Sincerity
• Should be natural
• Too much looks like aggression
• Avoiding it makes you look shifty
• Difficult – Focus on the bridge of the nose
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Hands
• Hands on side of chin = listening patiently
• Steepling - Fingers Together = Confidence & Authority
• Steepling – Can help you relax
• Hand under chin & eyes closed – ZZZZ Probably Asleep
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Lying
Gestures to stop or deflect words
Hand to Mouth
Averted Gaze
Arms Folded
Hesitation
Experienced operators lie with a steady gaze
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Negotiation Checklist
• What does the negotiation support - Business or Personal goals, Vision, Strategy & Priorities?
• Who is the customer and is there a URS?• Does the negotiation support and fit with the Business Model?• Has Six Sigma methodology been used (DMAIC) ?• Who is the customer and is there a URS?• Has a risk analysis, CDA and Set Up been completed?• Has a RACCI chart been completed? • What are the current performance and total value measures?• Who needs to be involved on both sides and what are the meeting logistics &
agenda?• What are the three key goals to be achieved?• Is there a Financial plan to show the "Cost of Change"?
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Communication Strategy
Treat people the way you would like to be treated Build the relationship over time Maintain uncertainty until you have the deal you want Coach your colleagues into doing the same Know the facts... Always be professional and respectful
DD
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Do the Deal
• Emphasise the value you are giving - minimize the value you are receiving.
• Communicate your conditions first followed by your offer.
• Use the power of silence, take adjournments but keep the time from offer to contract / agreement within a reasonable time period.
• Maintain control of the process and continually recognise the area of negotiability.
• Ensure key offers are put in writing & put your final acceptance in writing.
• Use language such as "suggest" "recommend" "propose" and when making commitments "estimated" and "reasonable endeavours".
DD
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Check the deal and outcome
• Measure the total cost, benefit / disbenefit / outcome over time
• Maintain secrecy & confidentiality by communicating the outcome on a “ need to know “ basis.
• Ensure that you and your negotiation partner are committed to the outcome from organizational top to bottom.
• Create a joint communication & plan using “ Racci “ chart principles.
• Keep control by writing the agreement / contract and using your terms & conditions and lawyers.
• Maintain an open mind on the deal / outcome you have negotiated.
• Build trust by communicating positive benefits of the outcome and sticking to the deal. CC
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Act and Renegotiate
• No implementation = no credibility. This removes the basis of trust and chances of successful deal making in the future.
• Assess joint performance through an assessment scheme. Do not communicate your full benefits.
• Check on the impact of new technology, market changes, currency movements, new suppliers etc which will soon make the negotiation obsolete.
• Realise that the key to lowering costs is regular renegotiation of key elements and responsible market testing.
• Do not provide any information on the deal or negotiation outcome to other suppliers or competition.
• Decide when to renegotiate based on an assessment of value received, the supplier strategic status and future total cost potential.
AA
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Negotiation - Summary
• Understand the Product and Service Status• Take a two way view• Measure risks and benchmark on a global total value basis.• Build a financial model which shows the cost of change and net change
benefit over time.• Use direct and where safe to do so indirect leverage.• Maintain strict secrecy & confidentiality.• Ensure you have built a team and team consensus. Select only one point
for contact.• Evaluate the financial, innovation and lowest cost status of suppliers.
Quality & delivery should be givens.• Use the right performance improvement measures..
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Negotiation Excellence
• Some different Negotiation Situation examples follow
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SUPPLIER
• High level relationship
• Offers concessions
• Drives for Closure
• Special Offers
• Wants long term deal
CUSTOMER
• Uses maximum leverage
• No compromises
• Will walk away
• Aggressive
• Short term deal
Business Value
Low High
Customer isa
Key Account
Product & Supplier
are Leverage
Contrasting Business Situations
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SUPPLIER
• Premium pricing
• Cash with order
• Low attention
• Irregular supply
• No concessions
CUSTOMER
• Supply Assurance
• Pay a premium
• Constant attention
• Conciliatory
• Desperate for agreement
Business Value
Low High
Seller has a critical high cost product
Customer is
exploitable
Dominant Supplier...
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• Low Attention
• e Consortia
• Outsource – Sell Off
• R2P Freedom to ActBusiness Value
LowHigh
Development
Nuisance"C" Items
Strategic"A" Items
Leverage"A & B" Items
• Value Proposition
• Build Trust
• Long Term Perspective
• Up front investment
• Senior Teams
• Shared objectives
• P&L and Balance Sheet
• Exclusive Innovation
• 80/20 – e Auction
• Play the Market
• Aggressive
• Short Term
Stra
tegi
c Im
porta
nce
High
Relationship Overview
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Global Deal Effectiveness
Oriflame Deal Type
Global Region Market Minus Cost Plus MFN Gain Sharing
Europe (EMEA) ? ? ? ?
North America ? ? ? ?
Asia Pacific ? ? ? ?
Latin America ? ? ? ?
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Deal Type Explanation
Deal Type Explanation
Market Minus
The most common deal, where the product or service is owned by the supplier who determines market pricing that will operate in each segment & country. The seller provides a list price and specifies the price validity period. Prices vary, depending on specification, packaging and delivery terms. In return for volume/value or in recognition of the customer status, the supplier is prepared to offer the buyer discounts from the national market price.
Cost PlusCost plus deals are normally based on an "open book" principle, where the seller is prepared to allow the buyer access to product or service variable and fixed costs at the producer point. The buyer and seller then agree the profit margin to apply, distribution costs and how to share & apportion cost changes – which can be either up or down.
Most Favoured Nation
This is where a seller guarantees to provide the buyer with the lowest price within the agreed market segment. The mechanism is that the seller provides the buyer with an opening monthly price – and after the month end has closed, proactively provides the buyer with information on net prices achieved in the segment. The seller then credits the buyer back to the best net segment price and is prepared to offer further discounts for guaranteed value or volume.
Gain Sharing
The principle of gain sharing is based on seller and buyer collaboration where both operate effectively as "one company" to ensure the product or service is innovated, produced and distributed at the best possible cost without the application of profit (collaborative supply chain). The two parties agree in advance on I.P. ownership, how to subsequently apportion profit on the volumes required by the buyer, how to share margin on sales in the rest of the market and market strategy/ restrictions on sales to other customers or segments.
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Value Gap based on 100% of Spend
Value Gap Calculator
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Value Gap Percentage
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The need for Agreements
Key CustomerKey CustomerAgreementsAgreements
Supply & Service Level Supply & Service Level C.D.A.C.D.A.
DevelopmentDevelopment
Supply Side Assurance Supply Side Assurance 1. Supplier
CDA
3. Set UpPurchase Orders& Ts & Cs
4. Supply & Service Level Agreement
2. Risk Mgt
5. DevelopmentAgreement
6. ExploitationAgreement
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Performance based agreements
ConfidentialityQuality DeliveryCost
OriflameOriflameSupplier Supplier
Assurance Assurance and Performanceand Performance
Supply & Service Level is defined – Volumes, Quality, O.T.I.F., Price (Cost)
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Define the value & volume required• Estimated Supply Volume (Number of products, SKU’s & Service Level
• Exact Quality required
• Price or Cost (Invoice and Net with currency defined)
• Delivery – ex works, CIF, delivered
• Turnaround times required (lead time in calendar days)
• Inventory (buffer stocks, supplier managed inventory)
• Payment terms (from date of acceptance)
• Preferred supply plants
• Agreement period – based on supply / demand
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Questions ?