Diploma in Procurement & Supply

Negotiation and Contracting in Procurement and Supply

Introduction to the unit Basic concepts and approach

Overarching Learning Outcomes (knowledge and understanding)

By the end of this unit you should 

• Understand the legal issues that relate to the formation of contracts (1.0)

• Understand the main approaches in the negotiation of commercial agreements with external organisations (2.0)

 • Understand how to prepare for negotiations with external

organisations (3.0)

  • Understand how commercial negotiations should be undertaken (4.0)

Learning outcomes for this introductory session

By the end of this session you will:• Be aware of the broad requirements of this unit• Be able to relate these requirements to the

structure of this learning site• Think about your own style of learning and

develop an approach to learning that best suits your requirements

• Be aware of some basic concepts relating to the nature and role of procurement and supply

How is the learning structured for this unit?

The unit is divided into 8 learning sessions as follows:

Session 1 – Documentation and types of contractual agreements

Session 2 – Legal issues

Session 3 – Application of commercial negotiations and types of approaches

Session 4 – The role of power and different types of relationships

Session 5 – Cost/price analysis and economic factors

Session 6 – Negotiation variables and resources

Session 7 – Negotiation stages, persuasion, tactics and influencing

Session 8 – Communication skills and analysing negotiation outcomes

It would normally take one week of study to complete one session, whether you are studying through distance learning or part time evening modes of study. Intensive weekend students would probably be able to work through the sessions a little more quickly after attending the weekend session.

How do we learn?

We perceive the world around us through our senses and store and process this information in the form of memories. So these memories will be:

– Visual– Auditory– Kinaesthetic (feelings – physical and emotional)– Gustatory– Olfactory

These memories form the basis of our learning

Follow this link to find out more about preferred learning styles Learning Styles

Negotiating and Contracting – some basic concepts

The remaining slides for this introductory session look at some important basic concepts relating to negotiating and

contracting

What is a negotiation?

A negotiation is:– A process– Involving more than one party– With a purpose– Seeking to reach agreement

When might the need to negotiate arise?

There are potentially many situations in procurement and supply when a negotiation might be necessary, eg to:-– Resolve a dispute– Change terms– Improve supplier performance

Key considerations in negotiating

There are many considerations, including:-– Relative power/dependency between the parties– The importance of the contract to the purchaser (risk

versus contract value)– The importance of the contract to the supplier (client

attractiveness versus contract value)– The relationship between the purchaser and supplier– Urgency of the need– Size of the supply market

What is a contract?

The existence of a contract is fundamental to contracting in procurement in supply – A legally binding agreement – Between two or more parties– Verbal or in writing– Must meet the recognised ‘tenets’ of a contract

Why is contracting important?

Contracting, arguably, lies at the heart of procurement and supply, it:- – Establishes the framework within which the contracting

parties agree to operate – Sets out the responsibilities of all parties– Provides direction for both parties to ensure that the

contract is delivered correctly (in accordance with the purchaser’s requirements)

Key principle

Caveat emptor

Financial considerations

There are many financial considerations in negotiating and contracting, for example:-– Using techniques to achieve the best price– Using financial levers as a bargaining technique – Analysing and understanding different types of costs– Considering the supplier’s break-even point– Assessing supplier profitability

The external environment

– And of course business is not conducted in a vacuum. All organisations will be impacted by the external environment

– PESTEL analysis is an effective tool for considering the macro environment and its impact on procurement and supply

Political Factors

Economic Factors

Sociological Factors

Technological Factors

Environmental Factors

Legal Factors

The work of the Chartered Institute of Purchasing and Supply

This short youtube video is a CIPS corporate video and it outlines the areas that the institute is currently involved in.

http://www.youtube.com/watch?v=OZk_-krZhWA