Oriflame Purchasing Management Workshop Module 7 – Negotiation Skills & Agreements Three...

Oriflame Purchasing Management WorkshopModule 7 – Negotiation Skills & Agreements

• Three interrelated skills• Planning & Checklist• Body Language• Doing, Acting & Renegotiating• Contrasting Situations• Agreements

Oriflame Purchasing Management Workshop2

Purchasing Workshop Module 7

© The Delos Partnership 2005

Three Interrelated Skills

CommunicationCommunication& Bargaining& Bargaining

Power Power

Meeting Meeting SkillsSkills

Negotiation Negotiation

Presentation Presentation SkillsSkills




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




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




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




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




Negotiation Planning




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




InternalKnowledge

Pricing

DeliveryPerformance

Need to Improve

Terms

FutureRequirements

QualityPerformance

PotentialNew

Relationship

What is the Negotiation Purpose?




Customers

Suppliers

Businessor

PersonalGoals

• Business &/or Personal Goals • Projects and Priorities• Risk or Total Value Improvement

Negotiation Deciders & Drivers

Negotiation Stages

The Negotiation Process




Strategy & Negotiation Stages

1. Productand ServicePositioning 2. Market

Evaluation& Leverage

3. Team & Skill

Sets

4. Tactics, Ploys

& Approach

5. Close Out, Joint Actions &

Check




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




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




Body Language




Body Language

Just be your natural self in business !




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




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




Lying

Gestures to stop or deflect words

Hand to Mouth

Averted Gaze

Arms Folded

Hesitation

Experienced operators lie with a steady gaze




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"?




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




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




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




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




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..




Negotiation Excellence

• Some different Negotiation Situation examples follow




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




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...




• 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




Global Deal Effectiveness

Oriflame Deal Type

Global Region Market Minus Cost Plus MFN Gain Sharing

Europe (EMEA) ? ? ? ?

North America ? ? ? ?

Asia Pacific ? ? ? ?

Latin America ? ? ? ?




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.




Value Gap based on 100% of Spend

Value Gap Calculator

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5% 10% 15% 20% 25% 30%

Value Gap Percentage

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'Annual Spend £250m'

Annual Spend £500m

Annual Spend £750m

Annual Spend £1,000m




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




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)




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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