COST NEGOTIATIONS

Research shows that purchased materials account for up to 70% of the costs incurred by companies. Studies also reveal that ‘negotiating’ is used to determine prices and other delivery requirements in 60% to 70% of these purchasing transactions. A quick calculation, therefore, suggests that negotiations play a direct role in determining 40% to 50% of a company’s total cost. A well-structured negotiations strategy in the area of purchasing, therefore, can play a significant role in increasing the profitability of a company. Yet, most companies do not have a formal negotiations strategy.

A negotiation is a basic means of getting what you want from others. It is back-and-forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed. Our express focus in this course will be on cost-negotiations. There are two parts to this course: (1) understanding the cost behavior and (2) understanding a scientific process to negotiation.

Cases, simulated exercises, and speakers will be used to provide real life experience. Students will learn to develop, plan, and implement cost-negotiation strategies. They will be encouraged to test their own strengths and weaknesses as negotiators in order to enhance their personal effectiveness.

My objective in this course is to add value to you. This added value consists of the following capabilities that you would apply to improving the operating system:

C The ability to assess the potential contribution of suppliers and effective purchasing and supply management to corporate or organizational strategy and objectives.

C The ability to assess the strengths and weaknesses of existing suppliers, purchasing and supply management organizations, policies and practices.

C The ability to plan, develop, and conduct a negotiation - both with domestic and international suppliers.

C The ability to distinguish between ethical and un-ethical behavior in negotiating process.

Your participation in class will provide the basis for my judgement of your normal level of day-to-day preparation. You should be prepared in each class (assigned text and cases) to participate voluntarily and when called upon. It is your responsibility to advise me and get assistance if you are unable to participate. Regular attendance is important. If you miss one class, or a substantial portion of any of the four Saturday sessions, you will not be able to successfully complete the course.

Group assignment will consist of three cases that you will complete in groups of two students each. The written analysis of the case will be due at the beginning of the class period. The analysis should be typewritten. There is no page limit. However, in the past good case analyses have been typically 5-6 pages long (double space) and are accompanied with exhibits. How to approach a case will be discussed in the first class.

Each group will make a case-presentation once during the course. The date of your group-presentation will be made known to you in the first class. Please prepare for 12-15 minute presentation using power-points, followed by questions.

A two to three page (single space) detailed entry discussing the topic of the week that is substantiated by your personal experience. You can borrow the experience of your colleagues at workplace if your own work does not help substantiate the topic and/or rely on articles in magazines. The dates for journal entries are Oct. 30, Nov. 13, and Dec. 4.

This project gives you a chance to integrate what you have learnt in this class to a real life situation. The project may be customized to your liking. There is no page limit for the final report. I am interested in depth, quality, and completeness, rather than verbosity.

Dates	Topic	Readings
Oct. 16	Introduction to my scientific approach to Negotiation. What is the process of negotiations? When should you negotiate? What can you negotiate? Who are the key stakeholders and what are their interests? Case Discussion Role playing exercise Video	handout
Oct. 30	What is cost modeling and target costing? What are primary and secondary sources of information? What is competitive intelligence gathering? How can you prevent suppliers from gathering back-door information? Case discussion Group Case Analysis Role playing exercise Guest speaker	handout
Nov. 13	How should gathered information be organized to form BATNA? What are target and resistance points and how can you identify them? How can you strengthen your BATNA and weaken your supplier’s BATNA? What is the difference between positions and interests? How can you resolve conflicting interests using independent standards? How do egos, emotions and perceptions affect negotiations? What role does personality play in negotiations? Case discussion Group Case analysis Role playing exercise Guest speaker	handout
Dec. 4	What are the different elements of global environment that affect negotiations? How can you evaluate the outcomes and the effectiveness of a negotiating team? How to document your experiences to make the knowledge available to others within the company for future use? Group Case analysis Role playing exercise Project Presentations	handout

Individual project & presentation	200 points
3 Group Case Analysis + 1 presentation	90 + 10 points
Group Cross Questioning	10 points
3 Journal entries	90 points
Class Participation & attendance	100 points
Total	500 points

Date	Case Due	Groups Presenting the Case	Group Cross Questioning on the case
October 30	TBA	1 and 6	2 and 3
November 13	TBA	2 and 5	1 and 4
December 4	TBA	3 and 4	5 and 6