NEGOTIATION AS TOOL FOR EFFECTIVE MATERIAL PRICING

LITERATURE REVIEW

This helps to examine the various contribution made by authors in relation to negotiation as it help towards effective materials pricing. Current literature is reviewed here as they tend to provide a broad view of the subject matter.

2.1     Negotiation

Monczka, Trent and Handfield (2001) sees negotiation as the process of formal communication either face-to-face or via electronic means, where two or more people come together to seek mutual agreement about an issue or issues.

The negotiation process involve the management of time information and power between individuals and organization who are independent.

Each party has a need for one of the other yet recognize that concession are often required to satisfy that need without willingness to compromise most negotiation result in deadlock or a failure to agree.

Lysons and Farrington (2006) sees negotiation as any form of verbal communication whereby the participant seeks to exploit their relative strength of bargaining position to achieve explicit or implicit objective within the overall objective or purpose of seeking to resolve the identified areas of disagreement. He further said in others, proper negotiation involves the following:

a)                 Communication between the parties involved.

b)                Parties seeking to influence their relative strength i.e. trying to capitalize on openings and propositions as to have advantage over the negotiating partner.

c)                 Parties having implicit and explicit objective which may mean they both want to transact at a better price and still maintain their organizational interest.

d)                The purpose or objective of negotiating is to collaborate so as to resolve identified discrepancies. In the purchasing, such discrepancies usually centered around price, terms and condition, insurance, mode of payment etc.

Thus negotiation could be either be a “win-win” or “win-lose” basis, the former is based on partnership as both parties seek to satisfy each others interest amicably, while with latter, one of the parties must have an advantage at all cost.

Brutt, Dobler and Starling (2003) pointed that negotiation is one of the most important and interesting as well as challenging aspect of supply management. In industry and at most level of government, the term “negotiation” frequency causes misunderstanding. In industry, negotiation is sometimes confused with “haggling” and “price chiseling”. In government, negotiation is frequently perceived to be a nefarious means of avoiding large contracts superstitiously to favoured suppliers.

Bailey and Farmer (2001) observed that negotiation forms a sustainable part of the job of most purchasing people with a measure of responsibilities like salesmen, they need to be proficient in such skill, preplanning a negotiation ensure that what is agreed is implemented to analyze and interpret information and to be aware of danger of making unwarranted assumption they need to understand something about human behavior, need and motivation and also to develop good interactive skills.

2.2     Objective of Negotiation

Monczka, Trent and Handfield (2001) ascertain that “first step of the planning process involves developing specific objectives sought from the negotiation. The primary objectives in a purchasing negotiation is to reach an agreement covering the purchase of goods and services. Moreso, the objective of negotiation is to reach agreement on fair and reasonable price between the buyer and seller. Example of objectives for a specific buyer preparing for a negotiation might include the following:

i)                   Achieve a unit price.

ii)                Achieve a delivery lead time.

iii)              Improve quality from 300 parts per million defects to 30 parts per million defect.

iv)              Persuade the supplier to give maximum cooperation to the purchaser.

v)                Develop a sound and continuing relationship with competent suppliers.

vi)              Exert some control the way in which the parties execute contract.

They further stressed that “not all objective may be equally important. So that purchases must begin to identify the importance of each objectives.

REFERENCES

Bailey, P.E, Farmer, D. (2001). Purchasing Principle and Management. 6th Edition, London: Prentice Hall.

Dobler, D.W. & Starling, S.L. (2003). World Class Supply Management. 7th edition, Boston: McGraw Hill Irwin.

Hassan, M. (2008). Purchasing for the Tyro. Kaduna: Aziki Global.