Mastering in negotiations: understand each stage of the process
To have a well-developed negotiation skill can be the big differential in a successful career, especially in the purchasing department. For this reason, in the Soluparts blog we have developed a series of articles, so you can improve this so important skill.
We have started with tips on how to control your emotions in a negotiation, how to overcome the main challenges of an international negotiation, and explaining the Harvard’s technique, BATNA. You can find all this content here.
On this page, we discuss Aspirations in negotiation, a stage that precedes BATNA and helps to bring more satisfactory results, ZOPA the step after BATNA, and the application of the SWOT matrix to analyze your suppliers, their weaknesses and the best way to increase your chances of closing a successful deal.
We also talk about the negotiation process as a whole. Understanding more clearly in which moment each technique should be applied depends on a complete view of the stages that involve the negotiation process. Continue reading our content to learn more.
How to adopt the SWOT technique for assertive negotiations
2020 was a year full of crises and uncertainties, in a way that is nothing but fair to invest in being prepared for new professional approaches in 2021. With that in mind, check out our tips on how to bring the SWOT analysis matrix to your business strategy, which allows you to know your suppliers, their weaknesses and the best way to increase your chances of closing big deals!
This technique was created by Albert Humphrey between the 1960s and 1970s, and it was developed as a research project for Stanford University.
The SWOT matrix arose from the need for internal and external analysis of weaknesses and opportunities that could guide the planning and development of companies, being one of the most used tools in the business world. However, it can also be used to analyze competitors and suppliers with whom the conversation will be held to close contracts.
This analysis allows identifying strengths to be exploited to maximize opportunities, as well as finding vulnerabilities that could compromise your purchase. The use of strategy in negotiation contributes to assertive and successful results.
Every good negotiator needs to study, research, use persuasion and oratory techniques, but those alone are not enough. It is also important to discover and know how to take advantage of the best opportunities. For being an excellent strategic tool, we show you how it is possible to use the SWOT matrix in negotiations.
Preparing the SWOT analysis for your business deal
In negotiations, there are strengths, weaknesses, opportunities and threats on both sides.
By doing a SWOT analysis of the supplier you are dealing with, you are able to conduct the conversation with mastery and direct the agreement to better meet your needs as a buyer, whether by getting the best price, lead time, or other factors.
Daniel Stanton, known as “Mr. Supply Chain”, author of Supply Chain Management For Dummies and several popular supply chain courses, says that the great advantage of the SWOT matrix is that it provides the basis for analyzing the supplier. It allows the creation of a focused and forward-looking supply chain strategy, helping to strengthen the investment opportunities, examining the market and thus bringing more power to the negotiating table.
Before listing all topics to start your SWOT analysis, look for information about the company you intend to deal with on secure sources such as the company’s portal, LinkedIn, and news from trusted media outlets where they are mentioned. Although many companies offer this information in an evident manner, others may cost a little more time to research. The process can be quite challenging, but the information collected will be your starting point for structuring your matrix.
Depending on the country where the supplier is located, the sources of information may change.
SWOT analysis is a methodology that evaluates: Strengths, Weaknesses, Opportunities and Threats. Check out how to structure the method to analyze your suppliers:
What are the main positive and differential aspects of the supplier in question compared to its competitors? What strengths does the supplier have that can contribute to your business? List the main attributes that answer these questions. Also, analyze the company’s experience and its strength in the market.
What are the main disadvantages regarding an agreement with this company? Try to understand what your potential partner’s main weaknesses are and see what influences each aspect has on your goals. This study helps you to prevent future problems.
The supplier may have several weaknesses, such as logistical problems that result in constant delivery delays; financial problems, which may cause breaches of contract; problems in customer service, which makes it difficult to exchange parts, to give a few examples.
Numerous other problems can also be raised at this stage: tracking of deficient merchandise, freight and above-average deposit rates and communication difficulties. So ask yourself what is a priority for your company in that agreement, so you will know when a partner’s weakness is a deal breaker.
After the weaknesses have been raised, address them at the negotiation, questioning your future partner about them. This way, you protect your company while giving the possibility of improving and strengthening these topics. Some suppliers have disadvantages compared to others, so analyze the scenario as a whole and whether this weakness will in fact impact your purchases.
It is important to analyze what are the opportunities that this supplier has to offer. Will it be a strategic partnership? What are the main market elements that offer an advantage to your company: segments, services, products, offers? This information will be useful for you to benefit from your purchase and achieve your goals with the agreement.
If you are dealing with a supplier with faster logistics that also allows cargo consolidation or deposit near your company, it may be interesting to purchase more units of that material. Another possibility in this case is the inclusion of other brands in the contract.
For long-term contracts, it is important to understand how much this partner has invested in innovation and how it will be advantageous and will add to their purchases in the medium and long terms.
If one of your priorities is partnering with the supplier, it is clearly an opportunity for great negotiation. As well as the high demand for the products developed by the company: These opportunities are simply there to be taken advantage of.
Find out where the factories and warehouses of this manufacturer are located and analyze the trade conditions in those locations. Are they accessible or is there a risk of having to pay a lot of taxes to remove the cargo? Will your company have support in relation to manufacturing stops or external crises?
Use the listed threats to protect yourself and bargain in your favor, but make sure to check how each one can impact your purchase. Ask if the supplier is able to mitigate all possible supply risks. Also keep in mind what risks you are able to deal with and draw up a contingency plan.
After the analysis, how to negotiate?
SWOT analysis is the initial and essential step to optimize any trade. According to author Ken Dooley, it is possible to identify suppliers with other perspectives and define which path is most effective, highlighting advantages, risks and barriers.
In our article on advanced negotiations, one of the main tips is to study and prepare for the business deal. However, in addition to everything that has already been analyzed, it is important to know how to listen to the other party and keep an open mind for new possibilities, not being bound by eventual limitations.
It is also necessary knowing how to use emotion when negotiating, as it has a significant influence on this type of agreement. Learn how to control emotions and negotiate with ease in a collaborative, creative, challenging and constructive way. See also the article Triune brain: Improving purchasing negotiations that talks more about the topic.
In a year of uncertainty, that required us to reinvent ourselves several times, it’s refreshing to observe a context in which creating concrete plans and analyzing all possibilities makes paths to negotiations more clear and intelligent. In this article, we saw that using SWOT analysis is a way to help define the best buying opportunities and choosing short or long-term partnerships.
In order to use this technique it is not required to use sophisticated technologies, the methodology itself, created more than 50 years ago for strategic planning of companies, is more than enough to contribute to the analysis of possible suppliers and be the basis of agreements and contracts in any scenario.
It is extremely important for the buyer to see how the organization with whom he intends to do business is performing. For this analysis to fulfill its role, it is necessary to initially define what you want to visualize, have predefined purchase priorities and clear objectives of the contract. By unifying these four points you will have a list of the best suppliers for each purchase.
Aspirations in negotiation: how to use them in purchasing
When talking about negotiation techniques, one of the first ideas that comes to mind is the BATNA methodology (Best Alternative to a Negotiated Agreement), in fact, very useful and defended by professors in the field – and already covered in our blog.
However, there is a stage prior to the use of this technique – equally important and with fundamental participation in the final result of any agreement: that of defining the aspirations of a negotiation. To help you learn more about this concept and how to apply it in your daily life, Soluparts has gathered some important information:
What are aspirations in negotiation?
First of all, it is necessary to remember that aspirations are the stage prior to the negotiation and are based on a clear understanding of the needs of each party (which can be cost reduction, delivery time, among others).
According to Douglas Stone, Harvard professor, in his book “Difficult Conversations: How to Discuss What Matters Most” this is the first stage to start a conversation, in which the gain value is identified, one begins to understand the main interests involved in the move and to develop a fact base to support the arguments.
Translating this into actions can be simpler than it sounds. According to Andrea Kupfer Schinaider, law professor at Marquette University Law School and author of different books and articles in the field of negotiation, it is possible to establish three essential criteria to define aspiration before a negotiation: objectivity, optimism and legitimacy.
This first concern translates wishes, often expressed vaguely, into practical actions. Clear objectives, such as setting a specific price for the purchase of products or parts, must be defined before any conversation to obtain better results.
The second point, optimism, can be translated into: don’t be afraid to dare. In a negotiation, you will hardly get more than you initially asked, so defining an argument as close as possible to what the ideal outcome would be is always a good strategy for great results.
Last but not least, aspirations must be legitimate. Meaning: there must be some justifiable reason behind what is being asked for. Demands that are not fully focused on a plausible argument encourage the negotiator on the other side to make counter offerings that are meaningless or very distant from what was initially requested.
Applying these techniques to the purchase of indirect materials
Especially in the purchase of indirect materials, many challenges are placed ahead: culture, language and even barriers to reach an agreement in different regions of the world. Therefore, in international business, it is recommended that you not only know the person with whom you are going to negotiate, but also understand the role that he plays within that context.
After knowing this scenario, it is necessary to understand the organizational processes in which each professional is inserted. Although it is difficult to generalize – and many people take time to adapt to them – these processes tend to take one of several forms, namely: top down, consensus and building coalitions in several stages, according to James K. Sebenius, American economist, and Gordon Donaldson, professor of business administration at Harvard Business School.
The first consists in identifying who are the decision-makers within an organization, very common in the USA; the second addresses situations that require an agreement between members of the negotiation team on the other side or between the company as a whole and even the company with governments; and the third concerns a union of forces to make decisions, as a “winning group”.
After defining aspirations, you need to know how to use them
According to Bill McCouch, a specialist with more than 40 years of experience in the sector and SVP of Procurement Services at Corcentric, when buying indirect materials abroad it is necessary to consider 4 different topics:
- Leverage: Use market intelligence to assess suppliers against competitors. Knowing how to use information in order to be able to negotiate well with them, making them, for example, able to reduce prices.
- Timelines: Remember that not all negotiations will be simple and straightforward, but saving time is essential. Use reminders and notes to check how the buying process is going and where conversations are with suppliers. Another way to do this is by adopting specific software for the purchasing department that can help you control all your processes at the same time. See more in 10 software for the purchasing department that you need to know.
- Relationships: It is important to find the right attitude towards each person. It is possible to be formal or more friendly, as long as you can establish clear and concise communication at all times.
- Play hard: Sometimes negotiations reach an extreme point where the only possible alternative is to cancel contracts. This should be done as a last resort, but it can also be used to discredit a supplier’s value proposition.
What are the next steps?
After defining the aspirations, it is possible to move on to the other four stages of the negotiation: establish the initial positions of each party, listen and defend the justifications, bargain and solve problems and close the deal to begin the implementation.
Aspirations are an important step in any negotiation and must be defined based on three main goals: objectivity, optimism and legitimacy. Defining them can help to obtain increasingly satisfactory results – always, of course, within feasible and well-established limits.
The purchase of indirect materials involves dealing with different cultures and aspirations, in addition to different techniques for negotiations. Thus, having attention to details and knowing how to use the techniques and information to your advantage are important differentials.
On Soluparts blog you will find a learning path for you to further develop your trading techniques. Click here to access the material.
Another suggestion is to have a partner specialized in negotiation for purchases of indirect materials such as Soluparts. Our multicultural team has extensive experience in negotiating with suppliers from different cultures, located in 40 countries around the world.
Understanding ZOPA, the next step to Harvard’s BATNA
Knowing how to negotiate is an essential skill to build a successful career. Although commonly defended as something “innate”, there are techniques that can help to improve it over time, making this process much more precise and dynamic. But, of course, you already know this.
In order to go deeper into these concepts that are so necessary for the front line professionals in the purchasing sector, Soluparts will discuss another technique, also widely disseminated, called ZOPA (Zone Of Possible Agreement), which can be interpreted as a next step to BATNA.
Why ZOPA is important
No negotiation can happen without both parties finding a possible agreement zone – and, of course, the larger the zone is for both sides, the more chances are there of reaching a comfortable common ground for both parties involved.
Often, people can lose good deals because they are unwilling to talk, or insist on negotiations with parties not interested in reaching a common ground. These pitfalls have been noted by academics like Taya R. Cohen (Carnegie Mellon University), Geoffrey J. Leonardelli (University of Toronto), and Leigh Thompson (Northwestern University).
Why does this happen? According to Professor Max H. Bazerman, from Harvard University, one of the reasons is the fact that many people, when negotiating, see the situation as a dispute in which there are only the options “win” and “lose” . There is a concrete difficulty in seeing the resources that each side has with mobility and not as permanent and immutable assets – what he calls “Fixed Pie of Negotiation”.
This is an erroneous idea, since the situations where both parties are not willing to give in, or cannot do so due to the type of negotiation involved, are very rare.
Finding your ZOPA
According to Roger Fischer, William Ury and Bruce Patton, from Harvard University, knowing your area of possible agreement depends, first, on an analysis of where your BATNA is – that is, recognizing what your limit is for that situation, in order to avoid extremely unfavorable results. After that, trying to identify the BATNA of the other involved in the negotiation is also a valid strategy.
During the negotiation period, if both reach a certain point where it is not possible to find an area that does not invade the BATNA of others, there is no agreement. Often, both will leave without a common benefit alternative. Accepting something that goes beyond your limit is what they call “the trap of the deal”.
How to identify your ZOPA
According to Harvard University, you can find it from five essential steps:
1. Understand that it takes more than “skill” to close a deal
Luck, for bad or for good, plays a role here. It all depends on who you are negotiating with: there are inflexible people and others who are willing to make a deal. Even if you use your best negotiation tactics, sometimes that will not be enough to strike a deal.
2. Know your limits
At the outset, there is a clear advantage in knowing what your limits are – both for good and for bad – since before leaving a negotiation with nothing, it is possible to negotiate something that is within your area of interest. More than that, this knowledge contributes so that negotiators can try in a more incisive way that the opposite side in the negotiation reaches, at least, its acceptable minimum.
In the purchasing sector, understanding the spending limit or the maximum lead time, for example, are fundamental points to guarantee a successful negotiation with suppliers.
3. Understand that the situation can change
The ZOPA is not static during the negotiation process: it can become larger or smaller over time. Be open to change and follow the course of the negotiation, always aiming for a favorable agreement.
In the pandemic, more than ever, resilience and adaptation have been put to the test. Knowing how to be malleable and working with different cost structures, reporting on unforeseen events and other issues certainly contribute to the success of the purchasing professional.
4. Know that ZOPA can be measured
Using persuasion and other speech techniques can help the other side understand what your ZOPA is and, in a way, convince him/her to accept your terms within a negotiation. Knowing more about these techniques, without a doubt, is something indispensable for negotiators.
5. Preparation matters – a lot
Entering a negotiation requires a lot of preparation to understand what are the main points involved, in addition to establishing clear limits on what you really want to achieve. From there, it is possible to face the situation more clearly, going back and forth with the other side of the negotiation and being attentive to find a satisfactory agreement.
When it comes to preparing, to be updated in relation to the global market is essential. Culture plays a fundamental role and, in an increasingly globalized world, it is possible to meet some of its challenges. How about taking a look at our articles on the subject? How Slowbalization Affects the Supply Chain and The Second Wave Industry 4.0.
The Zopa technique for purchasing professionals – and how to go above and beyond
For a professional whose need lies in negotiating every day, it is important to set limits on your mediation skills and, above all, how far you want to go to ensure a satisfactory agreement.
This takes time and effort. But, in addition, it is possible to facilitate this work by having the right partners, willing to negotiate efficiently for you, understanding your BATNA and collaborating to ensure a satisfactory agreement between sellers and buyers. With that in mind, Soluparts has different purchase options in order to always guarantee the best cost-benefit to its customers.
In addition to studying ZOPA and developing the negotiation skills – patience, persuasion, etc. – another technique that can contribute to success is Logrolling, that is, an opportunity for mutual gains in a negotiation. Again, this is not a universal approach, but something that can be used in different cases.
The technique was discovered through experiments by Prof. Dr. Roman Trötschel, from the University of Lüneburg, Germany, who found it effective in resolving partial impasses – that is, when both parties manage to find the ZOPA for different points, but have criteria that prevent them from achieving it completely.
In these cases, the teacher assessed that it is possible to resolve situations based on the understanding of the other’s experience and what he values most. Thus, by identifying the other’s top priority and checking whether he is willing to give in, both are able to reach a mutual gain agreement.
Negotiating may seem like an art, but in reality it is a set of techniques to be perfected over time. Preparation is essential, so is mastering negotiation techniques, but it is important to understand that external factors can – and should – influence the results of a business deal.
Reducing anxiety and using other emotions to your advantage are key points towards success in any negotiation. Even in a busy day-to-day, it is possible to establish a consistent and firm set of principles, capable of assisting in the purchasing sector – both for negotiations within the company, such as positions and salaries, and for outside work relations, when purchasing indirect materials.
To continue improving your working techniques, be sure to follow Soluparts blog!
The main stages of the negotiation process: how to be prepared
Negotiating is a fundamental step to obtain good results. We already covered some aspects on how to improve this skill in our blog, such as the BATNA the ZOPA techniques. Understanding more clearly in which moment they can be applied depends on a complete view of the stages that involve the negotiation process.
According to the article “Framing Up the Characteristics of a Negotiation”, it is possible to identify the components within a negotiation as follows:
- Interests: meaning, during the preparation and planning part, identify which are the main interests involved in a deal, how long you are willing to negotiate, what is debatable and what is not, etc. Finding all the information possible and taking it to the table is an important differential to obtain good results.
- Resistance point: in general, define how far it is possible to go, what is the maximum point of flexibility for a negotiation – also called “ground rules”.
- Possible alternatives: here is the BATNA technique. Establishing what are the best skills and assets to trade are key to explore the flexibility of trading.
- Ideal point: define what is the best possible result that the negotiation can bring.
- Agreement zone: also known as the ZOPA technique, that is, justifying the points defended and attempting to negotiate from them.
- Point of agreement: establish and check the criteria for the agreement to be made, after the negotiation bargain.
It is important to remember that the lack of these procedures can bring unfavorable results to one side. Different factors can influence this decision: emotions, excessive resistance and low ability to change, unwillingness to reach an agreement and give in.These topics will be further explored below.
The main challenges of a negotiation
According to the Management Study Guide, some of the main challenges involved in a negotiation are:
1. Lack of empathy to understand the “other side” and its aspirations
It is almost impossible that, in a negotiation, both sides are willing to give in completely to the interests of the other. This generates the dispute and the bargaining power explored during the negotiation and, to make the best use of them, knowledge is required.
A part of it can be obtained from soft skills and the other part, of course, depends on the fundamental skills to negotiate. On the other hand, if there is no provision to give up on one of the parties, an agreement cannot be reached.
At Soluparts, we discussed some of these skills in previous posts on our blog. You can check them out here: 4 essential skills for a successful career
2. Lack of time
Anxiety about reaching an agreement soon may hinder the course of negotiations. Of course, often, the deadline for a negotiation – or a purchase, for example – does not depend exclusively on a single person, but knowing how to exploit it to the fullest can be a fundamental advantage to obtain significant gains.
Knowing how to manage the purchasing department is a fundamental point to understand how this can be possible in the purchase of indirect materials. And if the amount of time available is still not enough, partners like Soluparts can help.
Whether due to lack of experience, research or empathy, unpreparedness is an obstacle in negotiations. Fighting it depends on different factors – and experience undoubtedly plays an essential role in its outcomes.
We already talked a lot about the soft skills needed for a negotiation, but if professionals have difficulty in hard skills, being familiar with the digitization of processes can be an essential point.
4. Lack of patience
Tiredness, negotiations that are too extensive or factors other than work can lead to a lack of patience to make a deal – which can lead professionals to miss excellent opportunities. Being able to see the negotiation process clearly can bring mutual benefits, even in times of uncertainty.
The challenge for professionals dealing with the purchase of indirect materials
In addition to all these commonly cited barriers, professionals who deal with the purchase of indirect materials often have to deal with cultural barriers. It is a complex topic, on which it is possible to have some clues from the studies carried out by Professor James K. Sebenius, from Harvard University.
In his study, the professor says that putting aside arrogance and truly studying the way people do business in different cultures is an excellent first step for a successful negotiation.
To prove his thesis, he mentions the example of Pirelli’s attempt to acquire Continental Gummiwerke. At the time, the Italian company claimed control of most of Continental’s shares and received tacit support from Deutsche Bank and support from Gerhard Schröder, then Prime Minister of Lower Saxony, where Continental is based.
It is worth remembering that, in a transaction in the United States, having sufficient net equity can allow a business to control the company it is trying to acquire – but in Germany, governance is totally different: this is just one step for the business to be completely closed.
Failing to fully conduct the process, Pirelli was unable to complete the transaction and its defeat cost nearly half a billion dollars at the time.
The case, by itself, already reveals the need to take cultural factors seriously. But more than that, it is necessary to take the structures that make up each society seriously – including informal ones. Countries like Japan rely almost entirely on these structures in order to close deals.
Solving this problem requires an approach summarized in topics, as well as a common negotiation. According to Sebenius, some of the essentials to be considered are:
Identify the real decision makers
Find who the decision maker is, as bureaucracy or other factors can often prevent smaller leaders from reaching the expected potential of a negotiation. Going straight to the responsible for decisions can make this process easier and give you a better chance of ensuring that the deal is made.
Invest in consensus
This can take multiple forms and be a strategy in different countries. In Asia, where it is more common, it is essential to invest in different leaders so that together they form the necessary consensus for negotiation. This is the opposite extreme of going straight to decision makers, but it can be effective in different cases, knowing how to bargain with different agents at the same time. This takes time, but it can bring significant results for companies in different countries.
Identifying the main stages of a negotiation can bring gains for professionals in all fields. Knowing more about each one depends on time, effort and experience, but there is not a unique way to start learning more about it.
If you need help, Soluparts has extensive experience in negotiating with suppliers in different countries. We always work to guarantee the best cost-benefit to our customers, continuously and consistently.