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65 Cards in this Set

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Discuss resourcing considerations when organising a negotiation with an external organisation



  • Room
  • IT
  • People
  • Facilities
  • Finance

Explain the importance of setting objectives and defining variables when preparing for a commercial negotiation.

  • SMART objectives
  • LIM framework
  • Relationship strategy

Outline the risk that exchange rates present when negotiating for an international purchase

  • risk in international sourcing
  • has to identify who bears th erisk and how it can be shared

From a buyer’s perspective, outline the impact of FOUR different market structures on commercial negotiations

- Perfect Competition


- Monopolistic competition
- Oligopoly
- Monopoly

Identify THREE macro-economic factors and explain how each can influence a commercial negotiation.

  • Inflation = affects suppliers cost and prices, price escalation might be required
  • Employment levels = availbiltiy of labour costs and disposable income of demand
  • Exchange rates = risk for international sourcing, imports more expensive
  • p.135

Suggest FIVE sources of information on macro-economic factors.

  • p.52
  • Forecasts
  • Financial reviews
  • Finanical markets e.g. exchange rates
  • Websites and information services e.g. Chamber of Commerce
  • Macro economic analysis, Gallup

Explain, using examples, how a purchaser might define the variables required when preparing for negotiation.



  • p.143
  • Price = price review mechanism, terms of payment
  • Delivery = delivery times, LIT
  • Contract = use of subcontractors, dispute resolution

Explain how a purchaser might establish a range of acceptable positions for the negotiation of variables.


  • Use MIL framework
  • Put the above variables into Must, Intend, Like to acheive
  • p.145

Explain FIVE sources of information that a buyer might use to understand micro economic factors that affect negotiations.



  • buyers own database
  • trade confrences
  • industry magazines
  • suppliers financial accounts
  • meet the buyer events
  • competitors
  • online market exchanges
  • p.124-5

Explain TWO ways in which changes in the macro economic business cycle might impact on commercial negotiations.

  • Depression
  • Recovery
  • Boom
  • Reseccsion
  • Apply, capacity, price and consumers to each stage

Explain the following


TWO approaches that a supplier might use when calculating its costs prior to a negotiation.


1. Marginal costing: uses only the variable cost to produce a unit. Fixed cost are not included.



2. Absorption costing: calculates total cost of producing unit. As well as the variable costs, a fair allocation of fixed costs are included, plus a markup.

Explain THREE reasons why a procurement organisation might attempt to analyse a supplier’s cost structure when preparing for a commercial

  • ?

Examine FIVE resources required for an effective face-to-face negotiation meeting.

  • personeel
  • finance
  • space and facilities
  • ICT
  • Time
  • ??

Suggest FIVE points that should be considered when preparing for a telephone negotiation compared with a face-to-face negotiation.

  • p.159
  • Agenda
  • Who calls who

Describe FIVE costs that should be considered when calculating the lifecycle cost of an item, apart from the purchase price of the item.

* maintenance costs* operational costs* disposal costs* fuel costs* servicing costs* training costs* disposal costs

List all stages of the procurement cycle

1. Specifcation 2. Define contract terms 3. Source the market 4. Appraise suppliers 5. invite quotations or tenders 6. Analyse responses and select 7. Negotiate best value 8. Award contract 9. Contract/Supplier Management 10. Identify Needs

Using Examples, explain the difference between direct and indirect costs.

Direct costs: * Direct materials: paper, ink, glue* Direct labour: production employees labour costs* Direct expenses: payable royalties* e.g oil used in machinery* Salaries* Also known as overheads

Name and draw the kraljic matrix

1. Leverage: cost/price management, multiple suppliers, supply abundant2. Non-critical: Functional efficiency, local suppliers, supply abundant3. Strategic: long term availability, established global suppliers, supply scarce4. Bottleneck: cost management and secure supply, global suppliers, supply scarce

List the market-driven pricing approaches

Price volume 2. Penetration pricing 3. Market skimming 4. Contribution pricing 5. Promo pricing 6. Price discrimination 7. Competition pricing

What is mark up?

profit/cost

What is margin?

profit/selling price

What is contribution?

revenue - variable costs

What is break even point?

fixed costs / (selling prices - variable costs) It is the point where the qty covers cost to make neither a profit or a loss

What are the types of cost based pricing?

  1. full cost
  2. cost plus or mark up
  3. marginal
  4. rate of return
  5. contribution

Why are cost based pricing approaches limitied?

  1. ignore competition and other influences on pricing
  2. inflexible
  3. no incentive for supplier to reduce or manage costs
  4. supplier may ignore potential profits

What are the factors in a buyers decison on price?

  1. buyers bargaining power
  2. number of suppliers/substitues in the market
  3. type of purchase
  4. price paid by competitors
  5. total benefits offered
  6. what buyer can afford
  7. What is reasonable
  8. What is fair

What is the difference between price and cost?

Price is what the seller chargers.



Cost is what the buyer pays for to aquire and utilise the goods.

What is 'Cost behaviour'

The way in which the costs of an output are affected by flucuations in the level of activity. Either volume of production of level of sales.

What is the High-Low method?

When costs are a mix of fixed and variable you need to determine the fixed element. Use the high-low method to do this.



Based on looking at the total cost when activity is at a high level and compare to when it was at a low level.

Describe the main approaches to costing

  1. Marginal costing: uses only variable costs to derive a unit costs
  2. Absorption costing: attempts to calculate the total cost of producing item. Porportion of fixed costs is added into unit costs plus a mark up for profit

What are the reasons for wanting profit?

  1. business has covered its costs
  2. encourages mantaining ownership
  3. reinvestment to develop the business

What is the margin of safety?

the differnece between the planned sales level and the breakeven point. The margin of safety is often expressed as a % of the planned sales

What are the range of matters to be negotiated and agreed in relation to price?

  1. type of pricing arrangement
  2. the price or fee schedules
  3. what is to be reimbursed
  4. Contract price adjustment
  5. available discounts
  6. terms of payment

What are the three types of pricing agreements in contracts

  1. Fixed price: agreed in advance, may include CPS, supplier bears all risk
  2. Incentivised contracts: such as bonus payments
  3. Cost plus: buyer reimburses for costs incurred performing the contract pluis a profit percentage

Why are fixed price agreements advantageous for the buyer?

  1. financial risk
  2. cashlow management
  3. supplier motivation
  4. simplicity

What are some sources of macro economic data to support negotiations?

  1. forecasts, reports, statistics surveys
  2. published analysis
  3. published by financial institutions
  4. published by commodity markets
  5. economic indicies
  6. websites information
  7. online databases and reports

Describe the two key micro economic concepts?

1. Market mechanism: the relationship between supply and demand and how price effects both



2. Market structure: the degree of competition in the market and the different types of markets

What is purchasing research and what are the basic aspects when entering a negotiation?

the systematic study of all relevant factors that affect purchasing goods and services. In relation to a sourcing exercise three basic aspects inclide:


1. Demand analysis


2. vendor analysis


3. supply market analysis

What are the sourcs of information or micro economic factors?

  • communication with suppliers
  • own database
  • marketing communications
  • onlin market exchanges
  • advisory services
  • trade fairs
  • informal networking

Relating to the Market Mechanism, that are the factors influencing demand?

  • price of subtitutes
  • price of complementary goods
  • disposable income
  • consumer preferences and attitudes

Relating to the Market Mechanism, that are the factors influencing supply?

  • production costs
  • technology
  • number of suppliers in the market
  • expectations of economic health

What is equilibrium price?

Where the supplier wants to sell at the same price the consumer wants to buy

What is the price elasticity of demand?

The sensitivity of demand to changes in price



The more elastic the more demand will increase when you lower price and demand will decrease if you raise price.



Measured as %change in qty demanded / %change in price



if elasticity is > than 1 change in price will lead to a significant change in revenue



if elasticity is < than 1 changes in price will have less effect on demand

What are the four basic market structures?

  1. Perfect competition
  2. Monopoly
  3. Monopolistic competition
  4. oligopoly

What are the market conditions for perfect competition?

  • there are many buyers and sellers
  • the goods being marketed are identical
  • perfect information about the market is available to all parties
  • no economic friction
  • no barriers to entry or exit
  • perfect mobility

What are the market conditions for monopoly?

  • only one supplier for the goods exists
  • there are barriers to entry
  • no close substitues

What are the market conditions for monopolistic competition?

  • there are many suppliers
  • goods are different
  • there are barriers to entry

What is an oligopoly and what are the market conditions for it?

A small number of large producers dominate the market.



  • there is little price competition
  • competition takes non-price forms
  • prices are set by non-competitive means to maintain price stability and avoid price wars

What are the porters five forces?

1. Potential new entrants


2. substitute products


3. buyer power


4. supplier power


5. competition/rivalry

How does macro-economic factors affect procurement?

  1. economic activity/wealth of a nations/disposable income
  2. Business cycles/strength of economy/willing to invest
  3. employement and umemployment levels
  4. taxaxtion
  5. exchange rate
  6. interest rate

What are the four main phases of a business cycle?

  1. depression
  2. recovery
  3. boom
  4. recession

What are the five key questions in preparing for a negotiation?

  1. what do we want?
  2. how valuable is each want to us?
  3. why do we want what we want?
  4. what is our entry point?
  5. what is our exit point?

What is the bargaining mix?

the total pachage of isses on the agenda for a negotiation.



A large mix can mean a lengthly negotiation however also allowes more possible groupings for trade-offs between issues

What are SMART objectives?

  1. Specific
  2. Measureable
  3. Acceptable
  4. Realistic
  5. Tentative

What is the difference between 'positions' and 'interests' in integrative bargaining?

Positions are the parties 'stances' e.g. opening bid, target point.



Interests are underlying needs, values, wants and concers of why they want what they want

What do parties in conflict base the strategies on according to Lewicki et al?

1. Interests: what they need


2. Rights: who has legitimacy or fairness


3. Power: who can excercise most influence

What are the different interests are work in a negotiation according to Lewicki et al?

  • Substantive
  • process
  • relationships
  • interests in pricicple

What are the elements involved in the defintion of presenting issues?

  • define the problem that is mutually acceptable
  • state the problem toward practicality
  • state the problem as a goal and identify obsticles to obtaining that goal
  • seperate the problem from th esearch for soluitons
  • seek to understand the problem referencing interests of both parties

This a number of protocol issues in negotiations?

  1. what agenda should be followed
  2. where will the negotiation be held
  3. how long will it take
  4. who willl be involved
  5. what might be done if it fails
  6. how to keep track of what is agreed
  7. how do we know if we have a good agreement

What are the six main resources required to support a negotiation?

  1. Personnel
  2. Finance
  3. Time
  4. Information
  5. Space and facilities
  6. ICT

What are the advantages of conducting a negotiation on 'home ground'?

  1. familiarity with surroundings
  2. accessibiltiy to resources
  3. immediate presenceof support networks

What are the advantages of using teams in negotiations?

  • improve performance and decisons
  • faciltitate coordination
  • facilitate communication
  • motivate individuals

What are the reasons for using teams?

  1. wider contribution of skills
  2. informationshoring and discussion
  3. shared responsibiltiy
  4. back up eachother
  5. take different roles in negotiation for tactics

What are the disadvantages of teams?

  1. group decisons take longer
  2. have to give attention to team dynamics
  3. variety of views can create a poor bagaining postion
  4. intra-team competition

What factors distinguish a telephone negotiation from face to face?

  1. 75% of information is from non-verbal cues
  2. face-to-face encourages ofcused attention
  3. Telephone limits shared use of supporting documentation e.g. sample products
  4. arguements tend to fail on telephone
  5. pressure to conclude before hanging up
  6. technical problems