Generally the supplier is put to a positive situation as compared to the buyer. So the buyer should try to develop all such tactics through which the maximum co-operation of the seller can be obtained. Co-operation begets co-operation. To get the maximum co-operation from the supplier, the buyer should try to co-operate with him in all respects e.g. if all other things are equal or if the change in the supplier is marginally and temporarily beneficial, the supplier shou9ld not e changed. The environment of contented relations, permits the supplier into reduce some of his operating costs and he willingly passes over some part of such benefits over to the buyer.
To develop sound and sustained relationship: The sound relationship between the buyer and seller can be developed through the frequency of transactions and the behavior during the fulfillment of specific transactions. Such relations can be developed through courteous behavior and recognizing the adversities of the party and if possible, adjust to it accordingly e.g. to help in meeting the financial crisis of the supplier by making prompt payments or advance payments, rescheduling of orders due to ,some accident at supplier’s plant etc. A good supplier will definitely recognize the importance of such considerate buyers and will try to help them in all respects such as giving priorities of suppliers in case of shortages, special concessional price offer, advance intimation about the forthcoming supply position, the information about the offing technological changes and its impact on the buyers’ production etc. The negotiation involves the two way communication and it is not once and for all but it should be more or less of a permanent nature. Whether one buys from the previous seller or not, the relations should be established on a sustained basis.
Need for the Negotiation: Negotiation is a costly affair, It may involve a short lived telephone talk to a series of discussion sessions consuming substantial time. Due to this the negotiations should be confined to the needy occasions only. Negotiation would not be desirable under following types of purchase:
1) Minor purchases
2) Purchase of low, ,very non-recurring items
3) Sporadic purchase of a fairly high value item
4) Branded items which are stocked by the supplier and are sold at the catalogue prices.
5) When supplier’s proposals are considered satisfactory by the buyers
Negotiations would become necessary under following conditions:
1) Where situation is not conducive to competitive bidding such as lack of explicit clarity in the minds of buyers and sellers regarding specifications, existence of less number of sellers, urgency of the need etc
2) The variables other than price such as quality, time of delivery, mode of delivery, incidence of transportation costs etc are required to be agreed upon.
3) Where the buyer desires to contract for the used capacity of the seller rather than for the products manufactured by him.
4) Where the business risk involved in the deal cannot be determined accurately, negotiation should be preferred. Under such situation, generally, sellers charge high prices for the purchase of compensating against such business risk. When such risks do not materialize, the buyer stands loser under the deal. Mutual negotiation eliminates or minimizes such incidences on the buyer.
5) When the deal is for capital equipment and its tooling and set up costs represent a large percentage of total costs, negotiation would be desirable for the beneficial deal.
6) When a long period of time is required to produce the items purchased or services performed, negotiations would become inevitable e.g. deal for the turnkey projects, civil construction of some chemical plants etc. Under such deals it becomes highly necessary for the adjustment of prices according to the changing environment
7) W4hen frequent production interruption, occurs due to the changing conditions, a series of negotiations would become necessary e.g. change required in the contractual obligation caused by technological developments
8) When seller is required to sub-contract a part of the deal and agreement of the buyer is necessary for such sub-contracting work, negotiation is the only means for setting the deal.
9) Where seller the exclusive supplier of the materials, it becomes necessary to negotiate on prices and other terms for the purposes of preventing any unreasonable dictation by the seller.
10) Negotiation is necessary under jobbing contracts wherein individual needs ar6e required to be settled.
11) It is desirable to negotiate for the items which are subject to price fixation under the law. Under such situation advantages can be tapped under the technique of “Concealed price cut” e.g. where two items, one being subject to price control are purchased from the same supplier the benefits can be adjusted in non controlled items without distorting the price regulations.