Effective Negotiation Strategies and Ethical Supply Chain Management

Posted on Mar 24, 2025 in Business Administration and Management (BAM)

What is Negotiation?

Negotiation is the process of formal communication, whether face-to-face or via electronic methods, where two or more parties come together to find mutual agreement on an issue or issues.

Five-Phase Negotiation Process

  1. Identify or anticipate a purchase requirement.
  2. Determine if negotiation is required.
  3. Plan for the negotiation.
  4. Conduct the negotiation (execute and manage).
  5. Finalize the agreement.

Sources of Negotiation Power

  1. Informational power: Persuasion and convincing through facts, data, and information.
  2. Reward power: When one party can offer something of value, rewarding the other party upon agreement to their terms.
  3. Coercive power: The ability to punish financially.
  4. Legitimate power: Power derived from an individual’s position, such as a manager, CEO, or minister.
  5. Expert power: Related to informational power; an expert prepares well for negotiations, researches information, and knows how to use it effectively.
  6. Referent power: Power stemming from the negotiator’s attractiveness and personal qualities.

Negotiation Blocking Techniques

  1. Change the subject.
  2. Narrow the answer (answer in general terms).
  3. Answer a question with a question.
  4. Use humor.
  5. End the topic.
  6. Use body language.

Supplier Measurement

It’s important to measure supplier performance continuously because their performance affects our quality.

What to Measure?

  1. Delivery performance: How the supplier delivers the purchased product in terms of quantity and due date (quantity and time).
  2. Quality performance: Measuring quality performance by comparing current quality to past quality and comparing the supplier’s quality with that of other suppliers.
  3. Cost reduction: Comparing the supplier’s prices with market prices, assessing their price flexibility, and evaluating how the quantity purchased affects price reduction and optimal shipment for cost reduction.

Supply Base Optimization

Creating a management base system for suppliers to achieve the optimal number of suppliers with the best quality.

Advantages of an Optimized Supply Base

  1. Buying from world-class suppliers.
  2. Lower supply base maintenance cost.
  3. Lower total product cost.
  4. Lower supplying risk by selecting suppliers carefully.

Risks of Having Fewer Suppliers

  1. Supplier dependency.
  2. No competition.
  3. Lack of supply.

Ethics

Ethics are the principles or standards of human behavior, sometimes called morals. Ethics is a normative science because it relates to norms of human behavior.

Numerous factors influence ethics, including family, education, religion, gender, age, culture, and experience. Creating a strong corporate culture is very important.

Values of Ethical Behavior

  1. Honesty
  2. Professionalism
  3. Responsible management
  4. Serving the public interest
  5. Commitment to the law

Norms of Ethical Behavior

  1. Consider the organization’s interest in all transactions and believe in its policies.
  2. Buy with integrity, striving to gain the best value for each dollar spent.
  3. Strive to increase knowledge of materials and processes and create performance procedures.
  4. Increase managers’ purchasing knowledge and performance through professional development programs.
  5. Work with honesty in buying and selling and reject all unethical business practices.
  6. Encourage others to practice the professional code of ethics of purchasing management.
  7. Cooperate with all organizations and individuals engaged in activities that enhance the development and standing of purchasing and material management.

Rules of Conduct

  1. Respect the confidentiality and accuracy of information received in duty and do not use it for personal gain.
  2. Competition: Avoid any arrangement that might prevent fair competition.
  3. Business gifts and hospitality: To protect the image and integrity of the company, these should not affect your decisions.
  4. Differentiation and harassment: No one shall participate in any acts of differentiation and harassment towards any person they have business with.
  5. Environmental issues: Members should recognize their responsibilities to environmental issues in alignment with their organization’s goals and mission.