Expert's Corner: Finding room for ‘fair’ in negotiations

February 2013

By: Nicola Raycraft, CSCMP

The art of negotiation, considered more of an inherent skill than a true art or even a science, has had a certain connotation associated with it: tough or hard line strategies where one side was considered the victor and the other the clear loser. The word “fair” wasn’t mentioned very often, when talking about process or outcome.

Fair negotiation is ethical, moral and reflects the culture of an organization; it does not mean negotiators should use all the tactics at their disposal to build an agreement. What’s changed to allow for fair and equitable negotiations? The simple answer is everything.

In the early days of the industrial revolution, purchasing agents or sole proprietors negotiated for commodities largely based on supply and demand. Today firms rely on their supply base for more than just widely-traded commodities and the need for a long-term relationships and shared success supports a more fair and equitable approach to negotiation.

If the business climate has changed it should be worth noting that procurement itself has evolved as a strategic tool of the current business entity. But has it really?

Mutual gains bargaining (MGB) on its own is not enough to satisfy most negotiation checklists. Can we reach a fair agreement without being unethical or deceptive? If we only look to MGB we certainly can but is it best agreement possible? Open and honest declaration of a company’s interests and budgeted target prices can lead to quick resolution of a firm’s problems but does it set the stage for long-term competitiveness? That depends on the desired outcome from the negotiation.

If the goal is to preserve an existing relationship and conduct oneself in a manner which emulates the culture of the organization, purchasers may wish to use as little deception as possible while being ethical in any and all disclosures made. This is an important clarification in what “fair” means. In collective bargaining, the use of deception and concealment is expected, but there is an unwritten understanding about what falls within the guidelines and what is immoral or unethical.

The key elements to finding a fair and equitable approach to all purchase agreements can be summed up in the use of a number of integrated tactics:

Understand your objectives – what would a good agreement include? What are the expectations for the other party? What are the best alternatives to a negotiated agreement (BATNA)?

Understand the limits – what can actually be negotiated and what is non-negotiable and upfront identification of these in the Request for Proposal/Quote (RFP/RFQ)

Understand the needs of the other side – do your homework on any size agreement; you can’t get what you want if it is a non-negotiable item for the other side.

Understand who the decision makers are – make sure you are dealing with the right parties who can make the decision.

Understand when you walk away from the deal – know your options before you begin.

Fair negotiations have a place in today’s business climate, and in procurement and supply chain there is a need to maintain both working relationships and business integrity. A firm which protects its brand positioning and mirrors the ethical values of the society it serves will operate more easily in the marketplace than one that is perceived as unethical or immoral. Purchasing professionals negotiating fair purchase agreements can assist in establishing that reputation by portraying their organization in a favourable light and reflecting the organization’s positive cultural attributes within the marketplace.

Nicola Raycraft, MBA, CSCMP, is the Manager of Strategic Sourcing at Medbuy Corp. After 15 years in procurement roles across industries including automotive, heavy equipment manufacturing, distribution, food manufacturing, and packaging manufacturing, she now works in public purchasing.

Nicola has made an outstanding contribution to the advancement of the Purchasing Management Association of Canada’s (PMAC) education programs, serving as a program instructor and final exam marker as well as participating in program review and content development. She currently sits on the Instructor Support committee with the PMAC National office, and is a director on the Ontario Institute of PMAC’s (OIPMAC) board of directors.

Her MBA thesis was recognized by the Canadian Purchasing Research Foundation with its 2010 Best Paper Award. Nicola was also honoured with PMAC’s Outstanding Achievement award in 2011.