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Why must service providers and buyers be able to negotiate?

The IMM Graduate School | Why must service providers and buyers be able to negotiate?Dr Beverley Waugh and Dr Myles Wakeham

Service providers/suppliers must understand their customers, their customers’ procurement management, and negotiation! The main goal of the logistics services and procurement function is to ensure the provision of these services as required! In general, services and products that are purchased or ordered and obtained, for external and internal customers respectively, should comply with the quality requirements. The internal customers are other functions such as the finance department, human resource department in the organisation that the purchasers purchase products or services for. It is important to realise that no matter who the customers are (whether external or internal) that the purchaser should always ensure that the correct levels of quality products or services are purchased according the customers’ requirement. Once again, the task of supply management with regard to supplier quality, is increasingly related to the important aspect of the relationships with suppliers, and particularly the quality dimension of this relationship! Negotiation in this aspect of supply management can be critical. Understanding negotiation in purchasing transactions and the negotiation process itself, along with tactics used in negotiation, negotiation strategies, and circumstances, are critical.

However, even before negotiation takes place, organisations that are users of logistics service provision, and organisations that are providers of logistics services, must consider certain potential contributors to the relationship. According to Kujawa (2004) these include the following:

  • Buyers must recognise the role and importance of logistics
  • Buyers must identify their core competencies and non-core activities
  • Buyers must consult and involve all functions impacted by logistics
  • Buyers must decide upon the most appropriate outsourcing relationship
  • Buyers must undertake the steps necessary in the outsourcing process
  • Buyers must facilitate and manage the transitioning of resources
  • Providers must understand the market
  • Providers must grow and strengthen their service provision
  • Providers must build excellent relationships with their clients
  • Providers must consider collaborating with other providers

Overall the market for and procurement of services, for example logistics, will continue to grow, with the parties’ expectations of each other rising. These expectations and the fulfilment thereof enhance the importance of negotiation. Negotiation however is not restricted to one specific field, industry or service/goods provider or buyer.

Negotiation is a process whereby two (or more) parties with common and, at times, conflicting interests strive to reach mutual agreement on specific contractual terms by making constructive proposals through face-to-face or electronic means of communication, resulting in mutual satisfaction and paving the way for future relationships and agreements. Furthermore, negotiation strategies (or styles) can be divided into constructive and competitive negotiation. (Badenhorst-Weiss et al. 2018).

Effective negotiators recognise that very few negotiations are conducted in a purely win-win or win-lose context. Moving towards win-win negotiations means that the negotiator must be willing to use a blend of win-win and win-lose strategies. Overall planning should consider the relative emphasis on win-win and win-lose strategies throughout negotiations. (IMM SCM303, 2018). Applicable to both buyer and provider, are the following examples of the circumstances under which negotiations should take place: Cost-effectiveness, competition in the marketplace, technology, quantities, risk, alliances and long-term agreements, normal relationships with suppliers, changes in specifications, post-tender negotiations, and management approach to supply. In fact, subjects for negotiation in purchasing and supply management are almost inexhaustible. (Badenhorst-Weiss et al. 2018)

Negotiation also has a ripple effect in the sense that it can spark other negotiations on matters arising from the decision or influence further negotiations. The negotiation process also involves the management of time, information and power between individuals and organisations that are interdependent and consists of various phases and elements. Negotiation tactics are short-term plans and actions employed to execute a strategy, cause a conscious change in a counterpart’s position or influence others to achieve one’s negotiating objectives. The use of tactics at the right time can lead to a better result for negotiators or rescue them from a difficult situation. The purchaser and supplier should keep abreast of different tactics and be alert to their application by the other party. (Badenhorst-Weiss et al. 2018).

Negotiation is thus a technique that service providers and purchasing and supply management can use most successfully, not only to determine purchasing prices, but also for a variety of other considerations with regard to the supply of services or products.

Many an outsourcing arrangement between a buyer and a service provider/supplier could even be enhanced by taking note of the above points prior to or during the outsourcing process.!

Why must service providers understand procurement?

The IMM Graduate School | Why must service providers understand procurement?Dr Myles Wakeham and Dr Beverley Waugh

Service providers/suppliers must understand selection processes, evaluation criteria, relationship management that their customer organisations/procurement managers pursue to decide to select them or to decide to reject them!

The main goal of the logistics services and procurement function is to ensure the provision of these services as required! This must support the uninterrupted flow of goods and services in order to supply what is required by the end customer – received on-time and in good quality. The interaction between the procurement/supply function and other organisational functions thus also largely determines the success of the organisation. (Badenhorst-Weiss et al. 2018).

The service providers/suppliers must also be working with their customers/the buyers through collaboration in order to improve cost, quality, delivery and time as well as other performance measures. Collaborations and alliances require a considerable amount of commitment by the purchasing organisation, but this is critical as the suppliers impact final products and customer service!

Supplier relationship management thus focuses on the interaction between the purchasing organisation and the upstream supplier. Purchasing organisations use supplier relationship management to manage their supplier base. Purchasing organisations will stop using poor performing suppliers and develop the remainder of the suppliers to form some sort of collaboration. Most organisations recognise the need for collaboration as a good way to reduce costs, and to improve quality, delivery, and other measures of performance.

Supply management’s responsibility for supplier quality, is increasingly related to important aspects of the relationship with suppliers, and particularly the quality dimension of this relationship! The key account managers, for example of service providers, could support a customer’s supply manager by being more proactively involved in the quality of their organisation’s service provision to them.

Suppliers and buyers must also understand the importance of negotiation strategies and circumstances under which negotiation takes place. It is important to understand negotiation in purchasing transactions, the negotiation process itself, along with tactics used in negotiation. (IMM SCM303, 2018). Suppliers of goods and services would do well to understand these various concepts and aspects and to ensure that they are equally well versed in negotiation strategies, circumstances, subjects, processes and tactics!