Negotiations are probably as old as civilization itself; and has perhaps existed for as long as mankind has existed. Even in the days of barter exchange, negotiations would have taken place to determine the rates of exchange: how much cloth for how many hunting tools, for instance. Negotiations form the basis of commerce and whether it’s with money or barter, it influences the extent of benefits that a buyer or a seller can gain out of the business transaction.
While negotiations are used for a diverse range of purposes, in our discussion today, we will confine ourselves purely to negotiations in the context of commerce and business transactions.
Corporations use negotiations extensively when they buy or sell goods or services. The factors which are important in negotiations are an extensive, as well as nuanced background knowledge, a sharp mind to keep focused on the points that matters, an open market, time on hand and the tools at your disposal to direct and manage the negotiation process.
I will try and explain each of these factors in detail and how they affect a negotiation outcome.
Background knowledge is pertinent in a negotiation. For example, when an organisation is buying a product, if the purchaser doesn’t know the item thoroughly, on the negotiation table, he won’t know how to handle the discussion with the sales representative. A detailed knowledge of what the item is made of, what are the price factors of its ingredients and cost of manufacture, can lend an upper hand to the purchaser.
Next is knowing what matters in the negotiation process. This time I will consider an example of a sales manager negotiating with his customer. Say for example, there’s an overstock position in his warehouse. Therefore, while negotiating, he may want to use strategies like bundling sales, discounts etc. The focus then is on how fast he can free up the locked-up capital from his finished goods inventory.
An important factor when negotiating would be the consideration of the market situation; an open market would be more advantageous, although this is easier said than done. Most market situations have the appearance of being open, although they are not. By this I mean, whether you are buying or selling goods or services, you are often restricted to whom you can buy from or sell to. For example, as a purchaser you are restricted to buy from approved suppliers or contractors. As a seller, you can be constricted to sell to purchasers who have access to your plant site. These conditions, over a period of time, can lead to situations of cartelisation of suppliers and buyers, which inhibit all fair chances of effective negotiations.
One of the most important factors, which influences the other factors mentioned above, is time. Ample time means, enough time to prepare well for your negotiations, locate more suppliers or buyers, prepare your documentation better and more objectively, and understand your needs with greater clarity. On the other hand, less time or emergency buying, or sale means higher chances of ineffective negotiations.
So, how does one effectively tackle these challenges and come out on top in the negotiation process? It’s by using the modern tools of negotiations. The most effective tools have been around for some years. These are called eAuctions or electronic auctions. Electronic auctions were pioneered by an American firm, Freemarkets, in the late nineteen nineties. eAuctions have thereafter permeated across multiple business operations, across multiple sectors and in most corporates, big or small. From the private sector to the government, everyone uses eAuctions to drive efficient and effective negotiations in their workplace. So, what are eAuctions exactly?
They are electronic negotiations held between a group of bidders, who wish to either sell or buy from an organisation. The negotiations happen in a virtual room, in anonymity, and between the participants, instead of with the client. One of the most popular forms of auctions are called: ‘English No Ties Auction’. In this auction, the bidders log on the auction website at a particular time and enter their bids. The challenge is, each bidder must bid higher than the current market bid, if they can. Hence, the bidders effectively bid against each other rather than with their client. In most cases, eAuction provides the most effective negotiation process to reflect the best possible market price.
However, as we saw before, effective negotiation isn’t a result of only one factor. Other important issues are knowledge, number of bidders and the focus points of the negotiations. Here specialist eAuction companies, like mjunction services limited, prove to be very effective. These companies have in-house category management professionals, who work in their specified categories on a daily basis and with the relevant suppliers in those categories for multiple customers. These experts know the important levers which matter the most in the purchase or sales process. They therefore advise their client managers on the right RFQ or the sales catalogue, timing of the event. They are also able to study the current way of doing business and provide inputs on how to transform the process into a more effective, robust and lean method. Often a good and a great negotiation outcome depends on identifying and accessing a large pool of genuine suppliers or buyers. Companies like mjunction often have a team of active market makers who are continually searching for new buyers and sellers in the market, and thus provides an immediate jump to more competitive bidders to the process, after a due validation process.
It is often seen that with the support of such external experts, organisations see a sharp increase in their net revenues by 15 to 25% and a reduction in their procurement budget between 5 to 15%! That effectively adds up to 40% to their overall bottomline, and who would say no to that!
But some people, indeed do. Mainly because of fear of losing control, loss of power and fear of redundancy. And more often than not, such people have typically been repeatedly doing the same job, year after year, without enhancing or gaining new skills. It then depends on their management to see the bigger picture and take appropriate decisions.
So, finally, it’s not negotiations v/s eAuctions.
eAuctions are in fact the next step in the evolution of negotiations. eAuctions bring about faster, more effective and better results to the negotiation process. With proven results and guaranteed transparency, it does seem foolish to go back to manual negotiations.
It’s like an iPhone compared to a Nokia 3310! Like we will never go back to the 3310, it makes no sense why we should go back to one-on-one negotiations?
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Nice blog Anirban. I agree with your views
Interesting and Informative Blog!