Strategic Sourcing: Fact-Based Negotiation (FBN)
Fact-based negotiation is a process for seeking a win-win outcome in negotiating in procuring specific category of inputs. It is based on two fundamental principle of collaboration and leverage bargaining that are guided by facts through a series of analy
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Abstract
Fact-based negotiation is a process for seeking a win-win outcome in negotiating in procuring specific category of inputs. It is based on two fundamental principle of collaboration and leverage bargaining that are guided by facts through a series of analyses. This chapter details a step-by-step approach in performing a factbased negotiation. It includes negotiation tactics that will allow buyers to persuade the suppliers to comply with the negotiated deals. Keywords
Fact-based negotiation • Negotiation tactic • Supplier response • Negotiation planning • Supplier selection • Supplier measurement
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Fact-Based Negotiation
Fact-based negotiation is intended to arm the negotiating team with any and all facts necessary to reach a desired outcome. The process consists of the following four sub-processes: • • • •
Negotiation strategy and case building Supplier response and positioning Negotiation planning, discussion and resolution Supplier evaluation Details of each sub-process are given below.
© Springer Science+Business Media Singapore 2016 S. Parniangtong, Supply Management, Management for Professionals, DOI 10.1007/978-981-10-1723-0_6
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6.1.1
Strategic Sourcing: Fact-Based Negotiation (FBN)
Negotiation Strategy and Case Building
This sub-process begins with selecting compelling facts to determine the leverage points of both the buyer and supplier and strategies for countering the supplier’s leverage points. The buyer can then shape the negotiation’s goals and objectives to involve defining a Least Acceptable Solution (LAS), Maximum Supportable Solution (MSS) and Best Alternative (BA). This sub-process includes developing a strategy for switching to a new supplier (see Fig. 6.1). Conceptually, negotiations are approached through two extreme strategies: collaborative and leveraged bargaining. Most negotiations will most likely fall in the middle of the two extremes. A collaborative negotiation takes a non-confrontational, problem-solving and collaborative approach to develop multiple options to find an option that yields to principle, not pressure. Leveraged bargaining is about hard bargaining on concrete facts with the goal of winning or breaking even. The buyer’s relative leverage can be used to predict how close it will come to achieving MSS. The matrix shown in Fig. 6.2 can help define the negotiation approach that is best suited for an individual situation.1 Based on internal data, analyses and category strategy, a buyer should be able to determine the advantages it can exploit during the negotiation process. These advantages can build around a much larger purchased volume relative to the supplier’s production capacity; purchasing a commodity-like goods that has many suppliers; and the potential increase in purchasing volume in the future. The industry and supplier knowledge obtained from a supply industry structure analysis, industry structure analysis and the supplier’s customer buying practices allows the buyer to develop a list of advantages that suppliers may try to leverage. For
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