Earning Supplier Partnerships through Principled Negotiations

1. APICS Western Mass PMA Western New England Earning Supplier Partnershipsthrough Principled Negotiations Top Management Night Bob Stahl January 19, 2010 The Yankee Peddler Inn Holyoke, Mass.

2. Agenda • What’s changing? • Segmenting suppliers • Traditional • Strategic Partners • Principled Negotiation • How to get started

3. Warehouse Customer/ Consumer Supplier Plant/Factory Sister Plant/ Partner Value Adding Supply Chain

4. The Mission To be the Best in Class • Quality • Cost • Service • Response • Reliability • Variety Trade-offs are a Slippery Slope of Non-Competitiveness Getting to AND . . . Diminishing OR

5. Warehouse Customer/ Consumer Supplier Plant/Factory Sister Plant/ Partner People Value Adding Supply Chain

6. What’s Changing? • Blurring ‘boundaries’ • Globalization • Internet& e-Business Tools • Geographically Spread Resources • De-Massification (Mass Customization) • Deconstruction of Economy of Scale • Demand Driven (vs Supply Driven) • Partnerships & Supply Chain Mgt.

7. Solution One Size does not fit all: • Traditional • Positioned Negotiation - Chester Karrass • Strategic Partnerships • Principled Negotiation - Roger Fisher Segmentation

8. Impacts Product Performance • Little Interchangeability (Lead Time) • Some Proprietary Competitive Issues • Low Volume • Characteristics: Interchangeable, Performance Impact low,Acquisition Cost low. • Key to Sourcing: Simplifying doing business - low cost. • Concerns: Investing too much time; paying too much; need automatic way to see pricing is competitive. • Relationship: Opportunity focused; little penalty for changing suppliers. • Techniques: On-line catalog; vendor managed inventory; auto replenishment. (Financial Impact) (Strategic Impact) Product/Service Relationship Matrix F.L. Thorne Interchangeable (2) Critical (4) X Partnerships • Critical to Success • High Cost / Volume • Distinguishing Factor (Core Comp.) • Clearly Proprietary Issues • Vital to Existence / Survival • Much Time / Attention Commodity (1) Performance (3) Cost/ Volume • Similar to Commodity, but • Significant Cost / Volume • Greater Time / Effort Justified • Inventory Management an Issue Product Performance Impact

9. Caution . . . “ [e-business] can drive our tactical moves at light speed. But it cannot replace the strategic relationship building that still depends on extensive personal contact and a meeting of minds.” “Whenever you try to replace that, you are making a costly mistake.” John M. Paterson -- IBM VP & Chief Procurement Officer

10. e-Business Tools • Web Communications (e-Mail, Catalogues, Search Engines, Web Pages, etc.) • On line $$$ Transfers • B2B Communications (1st & 3rd Party) • Private & Public exchanges • Transparent (& trustful) communications (& data), that facilitate relationships • e-Commerce (Auctions, Reverse Auctions, etc.)

11. Supplier Partnerships “I hardly mean to challenge the overall efficacy of the American system. But Americans’adversarial attitude toward anything is causing us untold harm in the changing commercial sphere. Our enterprises are at war. Outside the firm we go at it with suppliers . . . Inducing rival vendors to engage in bloody price wars, with quality [and response] often suffering.” “But now, the most innovative firms are preaching heresy:Supplier Partnerships Tom Peters

12. PositionedNegotiations A process whereby two organizations (or people) with a common interest enter a process with a pre-establishedposition about their interest and the desired outcome; they participate in a ‘give & take’ exchange searching to influence the other party so that they can obtain a greater gain. Chester L. Karrass

13. PrincipledNegotiations A method to decide issues on their merits rather than through a haggling process focused on what each side says it will and won’t do. It suggests that you look for mutual gains wherever possible, and that where your interests conflict, you should insist that the result be based on some fair standards independent of the will of either side. Roger Fisher

14. TheMethodMutual Problem Solvers Three components: • Separate the People from the Problem • Focus on Interests, Not Positions • Positions oppose, Interests do not ! • Generate a Variety of Solutions before Deciding

15. People vs Problem • Substance vs Relationship • Explicitly (separately) deal with emotions, perceptions, & communication problems • Sincere people can disagree on substance, without destroying the relationship ‘Learn to disagree without being disagreeable’Sam Raeburn 1949

16. Interest vs Positions • Position is a decision among alternatives • Let ‘other side’ generate alternatives • Positions oppose, interest do not (necessarily) • Positions narrow focus to one side • Story of the ‘orange’ The power of two!

17. Problem What’s Wrong? Solution What might be done? In Theory In the real world Generating Solutions Step #2 Analysis Step #3 Approaches Step #1 Problem Step #4 Actions Roger Fisher

18. The Method • Separate the People from the Problem • Focus on Interests, Not Positions • Generate a Variety of Solutions before Deciding • Insist on Using Objective External Standards (Benchmark) • Know Each Other’s BATNA’s

19. External Standard • Use as a starting point - benchmark • Fair procedure - one cut, other chooses • Independent of the will of either side

20. BATNABest Alternative To a Negotiated Agreement • Known to each other • Can be a benchmark • Not a ‘bottom line’ - a starting point • Is not used for ‘leverage’ • Achievable without any negotiation • If exercised, relationship continues

21. Negotiations

22. Negotiations

23. Learnings . . . • Segment Suppliers • Substance vs Relationship • Principled Negotiations must be part of any Partnership • Earn a Partnership; you don’t announce it • Don’t e-liminate your Relationship

24. How to Get Started • After reading Getting to Yes . . . • Map all suppliers on matrix • Start where you are • Establish an interest • Start Small . . . Build on Success • Gain Momentum • Don’t get caught up in the hype • Don’t e-liminate Relationships

25. Making Change “In human affairs, the willed future always prevails over the logical future.” “Change happens one step at a time, by thinking globally [big], but acting locally [small].” Rene Dubos-1982 A Celebration of Life An essay

26. Thanks for Listening RStahlSr@aol.com 508/226-0477 www.RAStahlCompany.com www.TFWallace.com