Supply Chain
Buying Negotiations : What Are Your BATNAS ?
By Michael Nzule
Once upon a time , the key drivers behind procurement function of an entity used to be around two key areas . These were sourcing decisions ( buying function ) and supplier performance management or simply vendor management . The premise of these being to get right deals that preserved value for money and sustained effectiveness in all procurement decisions , leading to profitable and sustainable supply chains .
One of the key skill and capability for effective procurement is negotiation . The ability to identify a wide pool of suppliers to close a good deal is great . This requires great negotiation skills . Negotiation is a skilful art . It determines just how well the buyer can “ double deal ” as many qualified suppliers as possible to deliver savings and value . There is however , a real risk in “ over negotiating ” or “ under negotiating ” depending on who in the deal has dominant power . Other critical factors besides getting a legally compliant agreement , include considerations for ethical sourcing practices . Some decisions may also be subject to regulatory requirements and compliance .
In the recent past , the market place has been treated to cases where suppliers have alleged exploitation by their customers , due to their superior bargaining power . The main complaints being abuse of buyer powers . The buyer powers have been skilfully crafted into binding one-sided sale and supply agreements . The cited abuses of power in the buying decisions include forced lower than market prices , margin squeeze , promotional supplies and product displays , forcing suppliers to post their own staff to outlets at own costs , charging non-negotiable rebates based on sales , besides punitive product recall and expiry conditions .
This begs the question - how did the suppliers get to this position where the agreements are lopsided towards the buyer ? Could there have been any alternatives besides having to turn to the regulator for intervention ? Can fines and penalties be the best outcome ? How does the procurement loop look like when the buyer dictates everything ? This
In the strategic management of the procurement function and specifically buying process , it is very important to gauge buyer powers . Buyer powers may grow over time . The need to evaluate and re-negotiate performance on contracts is critical , at predetermined time intervals or on achievement of business targets and milestones . may kill businesses and relationships . The core to thriving business between trading partners is all about creating and sustaining amazing relationships . Back to where it started - did the sellers under negotiate ? Did they undersell - or did they just create a vacuum that got the buyers into very high-power position . Did the deal create mutually acceptable and contracted exits ?
This brings us to the question around creating BATNAs in a negotiation process . A BATNA is an acronym . This stands for Best Alternative To a Negotiated Agreement . This is usually the hidden card in negotiations . This is the best escape route for a thought-out exit . This is the most strategic and advantageous option that a negotiating party can execute in the event of failed negotiation . The best alternative should always be guarded and kept away from the other party as much as possible . It is important in the negotiation process to know that the other negotiating party will also have their BATNA . And that they can also execute it !
Let us explore some examples of BATNAs . A manufacturer of leading fast-moving goods will have well defined route to consumer for the products . While negotiating with leading supermarket outlets , one BATNA for this manufacturer could be direct sales to stockists , whole sellers and distributors , should the route of supermarkets become an unprofitable route . They could also choose regional distributors who are allowed product access at factory prices .
In construction projects , BATNAs may include materials and labour contracts or labour only contracts . BATNAs include developing the whole set of feasible
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