Joint Optimality in Buyer‐Supplier Negotiations

Joint Optimality in Buyer-Supplier Negotiations The relationship between supplier and customer in the United States is gradually changing from adversarial to cooperative. The potential benefits of collaborative negotiation typically have been developed only in highly specialized or unique operating situations. This article demonstrates the general superiority of cooperative negotiation, from the standpoint of overall cost reduction. It develops a generalized model and discusses some possible pitfalls in its implementation. INTRODUCTION In the context of a business relationship, negotiation is the process of reviewing, planning, and analyzing used by two parties to reach acceptable agreements or compromises.[1] One of the most common types of negotiation experienced by purchasing personnel is requirements contract negotiation. Requirements contract negotiation is the art and science of arriving at a common understanding through bargaining on the essentials of a contract, such as delivery, specifications, prices, terms, and so on.[2] Clearly, such negotiations are an important segment of the purchasing function. By its very nature, requirements contract negotiation entails the exchange of substantial quantities of information, sometimes confidential, between the buyer and supplier. In this type of contract negotiation, traditional wisdom has recommended that the buyer and the supplier assume the posture of adversaries (or quasi-adversaries) when dealing with the exchange of sensitive or confidential information, such as cost data. Like all adversarial relationships, such a posture mandates secrecy. As stated by Karrass: With respect to information and backup data, buyers and sellers are on opposing sides. In my opinion, the less the seller tells the buyer, the better off he is. With respect to cost data, what is good for one is generally bad for the other.[3] Information about proposals, costs, budgets, competition, technical matters, and motives must be concealed.[4] Such thinking permeated the negotiation process of the 1970s. Negotiations were performed on a win-lose basis and were viewed by both parties as a battleground. Recently the traditional posture taken by buyer and seller in contract negotiation, that of adversaries, is being replaced by a much different stance--one in which the two firms position themselves as partners.[5] Much of the impetus for this evolution can be found in the growing competitive pressure placed on domestic manufacturers by foreign, particularly Japanese, competitors.[6] Buyers are coming to realize that apart from a joint interest in averting losses, there almost always exists the possibility of mutual benefit.[7] There do not have to be winners and losers. A mutual definition of a situation can serve as a rationale for a buyer and a supplier to modify their positions, and eventually to accept an agreement that maximizes joint benefit, rather than maximizing either party's individual gain.[8] Such change has been in the works for several years. As early as 1983, Dun's Business Month observed that a quiet revolution was taking place in American industry.[9] Across a broad spectrum, buying firms seem to be discarding their traditional adversarial negotiating relationship with suppliers in favor of one built on mutual gain. Adoption of this new mode of operation demands a measure of dedication.[10] Mutual Benefit Through Joint Concessions Most instances of cooperative negotiations between buyers and sellers reported in the press can be characterized in one of two ways: (1) concessions made by the seller to accommodate the buyer's needs, especially with regard to the scheduling of delivery; or (2) assistance, in some cases amounting to intervention, provided by the purchaser to the vendor, for the purpose of improving the quality, cost, or speed of delivery of the goods or services in question. …