Bargaining and Negotiations

BARGAINING AND NEGOTIATIONS

Bargaining is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices. Optimally, if it costs the retailer nothing to engage and allow bargaining, he can divine the buyer's willingness to spend. It allows for capturing more consumer surplus as it allows price discrimination, a process whereby a seller can charge a higher price to one buyer who is more eager (by being richer or more desperate). Haggling has largely disappeared in parts of the world where the cost to haggle exceeds the gain to retailers for most common retail items.

In almost all large complex business negotiations, a certain amount of bargaining takes place. One simplified 'western' way to decide when it's time to bargain is to break negotiation into two stages: creating value and claiming value. Claiming value is another phrase for bargaining. Many cultures take offense when they perceive the other side as having started bargaining too soon.

The Difference between Negotiation and Bargaining

Good negotiation actually either gets you to the point where you can bargain or better yet get you to the point where you don’t need to bargain at all. Bargaining is what people typically think of as haggling, point counterpoint or pushing back and forth in what many people look at as a zero sum game. Most people look at point counter point as being all that negotiation involves. What I want, what I’m unwilling to give up and what I’m willing to trade in order to get what I want.

While the terms “bargaining” and “negotiating” seem synonymous, there’s a distinct difference between the two. Bargaining involves streamlining wants and needs into a single focus. Before you ever step foot on the lawn where your neighbours’ yard sale is taking place, you know in your mind that all the hand-written sticker prices are not permanent. Your goal is to get the item you desire at the lowest price possible. Your neighbour’s goal on the other hand, is twofold—she wants to get rid of as many items as possible, and she wants to get the most amount of money for them.

Negotiation is a broader communication between two people that involves what influences the other side and what drives them. It’s asking open ended questions about what their motivations and goals are the entire communication process around bargaining. Bargaining is a small subset of negotiation. Negotiation is a much broader idea. A negotiation is really any communication between two parties where you need or want the other party to do something.

Price Determination

PRICE DETERMINATION

Pricing is the process of determining what a company will receive in exchange for its product. Pricing factors are manufacturing cost, market place, competition, market condition, brand, and quality of product. Pricing is also a key variable in micro economic price allocation theory. Pricing is a fundamental aspect of financial modelling and is one of the four Ps of the marketing mix. (The other three aspects are product, promotion, and place.) Price is the only revenue generating element amongst the four Ps, the rest being cost centres. However, the other Ps of marketing will contribute to decreasing price elasticity and so enable price increases to drive greater revenue and profits.

Determining Specific Prices and Policies

The last step in pricing strategy is selecting specific prices and formulating policies to help manage the pricing strategy. Pricing methods are first examined, followed by a discussion of pricing policy.

Determining Specific Prices

It is necessary to either assign a specific price to each product item or to provide a method for computing price for a particular buyer-seller transaction. Many methods and techniques are available for calculating price.

Price determination is normally based on cost, demand, competition, or a combination of these factors. Cost-oriented methods use the cost of producing and marketing the product as the basis for determining price. Demand-oriented pricing methods consider estimated market response to alternative prices. The most profitable combination of price and market response level is selected. Competition-oriented methods use competitors’ prices as a reference point in setting prices. The price selected may be above, below, or equal to competitors’ prices. Typically, one method (cost, demand, or competition) provides the primary basis for pricing, although the other factors are also considered.

Pricing decisions are always affected by competitors’ prices and their potential actions. Pricing methods that use competitors’ prices in calculating actual prices include setting prices equal to or at some specified increment above or below the competition’s prices. In industries such as air travel, one of the firms may be viewed by others as the price leader. When the leader changes its prices, other firms follow with similar prices. American Airlines has attempted to perform such a leadership role in the United States, although its pricing changes are not always adopted by competing airlines. Another form of competition-oriented pricing is competitive bidding where firms submit sealed bids to the purchaser. This method is used in the purchase of various industrial products and supplies.

Reverse auction pricing is an interesting competitive form of Internet pricing. Buyers benefit through savings and suppliers expand their market coverage. This method of determining price involves sellers bidding for organizational buyers’ purchases.

Many times, supplier performance is rated, and these ratings are presented by the site as a benefit to current and prospective buyers. Free markets.com conducts online auctions of industrial parts, raw materials, commodities, and services. Suppliers bid lower prices in real time until the auction is closed to fill the purchase orders of large buying organizations.

The sharing of information benefits both buyers and sellers, although the buyer controls the process. The underlying logic is that prices continue to fall due to declining bids until a stable market price is reached.

While considering competitive price levels is a necessary part of setting prices effectively, it is important to avoid any form of collusion or cooperation with competitors in setting prices. In most parts of the world such practices are illegal and offenders face severe punishments if these practices are detected by regulatory authorities.

TQM

Quality management history, gurus, TQM theories, process improvement, and organizational 'excellence'

The history of quality management, from mere 'inspection' to Total Quality Management, and its modern 'branded interpretations such as 'Six Sigma', has led to the development of essential processes, ideas, theories and tools that are central to organizational development, change management, and the performance improvements that are generally desired for individuals, teams and organizations.

Total quality management (TQM)

Total Quality Management features centrally the customer-supplier interfaces, (external and internal customers and suppliers). A number of processes sit at each interface. Central also is an organizational commitment to quality, and the importance of communicating this quality commitment, together with the acknowledgement that the right organizational culture is essential for effective Total Quality Management.

Quality process improvement tools and techniques

A wide range of tools and techniques is used for identifying, measuring, prioritising and improving processes which are critical to quality. Again these ideas and methods feature prominently in modern interpretations of Total Quality Management methodology, such as Six Sigma. These process improvement tools and techniques include:

Ø  DRIVE (Define, Review, Identify, Verify, Execute), process mapping, flow-charting, force field analysis, cause and effect, brainstorming, Pareto analysis, Statistical Process Control (SPC), Control charts, bar charts, 'dot plot' and tally charts, check-sheets, scatter diagrams, matrix analysis, histograms. 

Quality management systems

A 'Total Quality organization' generally benefits from having an effective Quality Management System (QMS). A Quality Management System is typically defined as: "A set of co-ordinated activities to direct and control an organization in order to continually improve the effectiveness and efficiency of its performance." Customer expectations inevitably drive and define 'performance' criteria and standards. 

Total Quality Management & Strategic Planning

Top of Form

The Primary Elements of TQM

Total quality management can be summarized as a management system for a customer-focused organization that involves all employees in continual improvement. It uses strategy, data, and effective communications to integrate the quality discipline into the culture and activities of the organization.

·         Customer-focused.

·         Total employee.

·         Process-cantered.

·         Integrated system.

·         Strategic and systematic approach.

·         Continual improvement

·         Fact-based decision making.

·         Communications.

These elements are considered so essential to TQM that many organizations define them, in some format, as a set of core values and principles on which the organization is to operate.

Total Quality Management

                     Total quality management (TQM) consists of organization wide efforts to install and make permanent a climate in which an organization continuously improves its ability to deliver high-quality products and services to customers. TQM enjoyed widespread attention during the late 1980s and early 1990s before being overshadowed by ISO 9000, Lean manufacturing, and Six Sigma.

                       Total Quality Management (TQM) is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through on going refinements in response to continuous feedback. TQM requirements may be defined separately for a particular organization or may be in adherence to established standards, such as the International Organization for Standardization's ISO 9000 series.

                       

                        In the planning phase, people define the problem to be addressed, collect relevant data, and ascertain the problem's root cause in the doing phase, people develop and implement a solution, and decide upon a measurement to gauge its effectiveness  in the checking phase, people confirm the results through before-and-after data comparison  in the acting phase.

                       Implementing quality improvement is fraught with difficulties and many TQM initiatives run out of steam and lose their effectiveness. We have provided some suggestions about how TQM can be best implemented to ensure that long-term quality improvement is achieved.

What are the main implementation issues in TQM initiatives?

                        

                      To realize that TQM is not a ‘quick fix’ but a long-term approach to quality. Good quality needs to be underpinned by systems with clearly set out goals and guidelines.

The need for top management commitment because TQM involves the whole organisation without top level support any such initiative is doomed to failure. This support usually is evidenced by an executive champion, and a high level steering group.

Implementation of Quality

                        The implementation of total quality is similar to that of other decentralized control methods. In developing TQM, companies need to understand how consumers define quality in both goods and services offered. If a company pays more attention to quality in its production processes, fewer problems are bound to occur when the product is in the customers’ hands. Management should make a commitment to measure the performance of a product relative to its quality through customer surveys, which can help managers to identify design, manufacturing or any other process that has a bearing on the quality of a product or service, and therefore provide an opportunity for continuous improvement.

Conclusion and recommendation

The advantages of TQM have been widely discussed, but the challenges of implementation have received little attention. A quality philosophy is required for the successful implementation of a quality project. This philosophy must facilitate a long-term lifestyle change for a company. Teamwork is the key to involvement and participation. Groups should be encouraged to work closely and effectively, and should focus on quality improvement and customer satisfaction.

SUPPLY CHAIN MANAGEMENT: THE POWER OF PARTNERSHIP

What makes strategic alliances in the supply chain successful? What is the impact of trust and commitment? And how are the alliances managed?

In fact, interdependence, trust, commitment and coordination (the main attributes of an alliance) emerged as the key factors in determining success. The conclusion is therefore that building trust and coordinating activities are the cornerstones of a successful chain alliance. Managers need to ensure that their employees understand that an alliance arrangement offers their company significant benefits.

Trust and supply chain partnership

Supply chain partnership (SCP) theory says that companies involved in frequent and long-term transactions are often offered incentives to not engage in opportunistic behaviour, over time encouraging them to create trust. Each companies use different approaches to manage their suppliers, one way is the establishment of alliances and partnerships.

Similarly, increasing pressure for better performance in aspects like cost reduction and product development leads companies to focuses on supply chain partners and supply.

COOPERATION THROUGH TRUST.

Trust, is defined as a general expectancy held by a channel member that the word of the other can be relied upon. That is, one party has confidence in an exchange partner’s reliability and integrity. Trust, as a means of engendering cooperation between allying partners, receives support in the literature.

Trust may lead directly to cooperation, or indirectly through development of commitment, which then leads to cooperation. A partner committed to the relationship will cooperate with another because of a desire to make the relationship work. In interfirm relationships, commitment and trust are seen to have strong positive relationships with cooperation in industrial marketing; the concepts of trust and commitment are used as mechanisms to enhance relationship marketing, which refers to unique value-added partnerships for which the buyer may be willing to pay a price.

Given that trust and commitment lead to the desired outcome of supply chain cooperation, we examine what can be trust and commitment in a supply chain.

New ways of information sharing, as well as sharing of information usually not shared between partners, can be vital in attaining supply chain cooperation.

Trust is shared values. Shared values are the extent to which partners have beliefs in common about what behaviours, goals, and policies are important or unimportant, appropriate or inappropriate, and right or wrong. Thus, shared values lead to trust and commitment and, in turn, cooperation.

In a supply channel of the type proposed in this article, channel members are likely to share common economic goals.

Conflict Resolution

When the benefits of channel—member cooperationare shared among the members, no formal action is necessaryto redistribute benefits, since all members are betteroff through their cooperation. However, if the benefitsare unequally distributed, and an individual member mayor may not be better off economically, then some mechanismis needed to balance the benefits among the membership. Ensuring cooperation in a supply chain when a formalmechanism is not present or is not to be used requiresother mechanisms that are less direct and obvious.

At least two major and distinct informal mechanisms,power and trust, can be used to generate cooperation in asupply chain. These mechanisms are usually regarded asalternatives to each other. Power is a central concept becauseits mere existence is thought to condition others. Power is also seen as a central tenet in achieving cooperation.

GLOBAL SOURCING

• The practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing always want to exploit global efficiencies in the delivery of a product or service. These efficiencies include reduce cost skilled labor, reduce cost raw material and other economic factors like tax breaks and low trade tariffs.

The whole point of global sourcing is to find better sources of supply around the world, offering improved quality and lower prices.

How To Make Global Sourcing Work

Here’s a five-point strategy for making your first global sourcing foray successful.

1. Source to a country with reduce labor costs and good quality control.

Companies usually had a ten to thirty five per cent cost savings by sourcing.

In the past, China was considered the go-to country for the lowest pricing and acceptable quality. (Be careful here because the transportation cost alone from China to your factory door can increase the price preferred on your landed price per unit; make sure the price your supplier offers sans transportation costs defeats all other competing supplier auctions a hundred times over to ensure you end up with the lowest possible price). But now, companies are turning to such destinations as Korea, India and Vietnam for alternative low-cost country suppliers, especially since China is slowly raising its pricing.

The key to global sourcing success lies in you doing your homework in advance. Know what pricing you need and the quality, product specifications and timeline that will fit with your overall strategy.

2. Source to a country where you can take a plane ride with comfort and ease.

Once you enter into a relationship with a supplier thousands of miles away, you will want to visit as often as warranted. These visits are to spot-check the supplier’s facility to ensure they are obeying with local laws and regulations, monitor its work force, access the market on the ground to learn of any competitive threats or supplier knock-offs that might be in the works and, lastly, see that your product is being made to meet your specifications.

Having said all this, you have plenty on your plate, so why pick a market that is hard to get to or expensive to visit often and is not visitor friendly? Think this through. Since you will be traveling to this market often, love it and get comfortable over the long run. This is a strategic decision you are making, not a flash in the pan or tactical move that offers a quick short-term solution!

3. Source to a country where you can understand the language.

Let’s say you’ve travelled to Vietnam and were lucky enough to find a good interpreter for your business meetings. He or she does an excellent job handling negotiations, and after hours of working through the deal, your interpreter leaves the room for a short break at a critical moment. Your key Vietnamese contact says: “I want to buy 20,000 of your widgets.” And your response is a blank shocked. Why? Because you didn’t speak the language and don’t know what he said. Sure, this sounds like a far-fetched example, but it can happen and will happen if you don’t have an employee who watches out for your best interests and speaks the language of the country where you are about to conduct business.

Don’t take chances. Either do business in a country where you understand the language, don’t do business there or hire a person who is have skilled in the language that is being spoken. Communication is very important when dealing with global supply sources. Details matter. That’s what quality is all about.

4. Source to a country where you can respect and abide by the laws.

China sound complicated? Then don’t go there. If you are reading too much lately about how China does not offer appropriate intellectual property protection to companies, then take your sourcing business elsewhere. It may or may not be true, but the uncertainty alone will never allow you to feel completely confident about a supplier.

Go to a country where legal protection is available and the laws are clear, easy to comply with and enforced if broken.

5. Source to a country where you can trust the people you do business with.

You must become a true insider wherever you decide to do business, and the only way to accomplish that is to get to know the person with whom you wish to have a relationship, no matter how much time it takes.

If you don't trust and respect your supplier contact, there’s no point in continuing the relationship. If it doesn’t work out, you’ll survive. And, who knows, you might even meet someone else with whom you can do your best and most inspired global sourcing business.