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Negotiations in Procurement

You can motivate suppliers to offer their best price by starting the relationship as a conversation, not a competition (den Butter and Linse)

Information about Negotiations in Procurement

Procurement plays an important role in the supply chain. As a business process it has transformed from a simple buying function to overseeing an integrated set of management functions (den Butter and Linse, 2008). Consequently, the level of importance and dimension of negotiating have changed over the years: its scope has changed from predominantly price-oriented to focusing on economical, sustainable, relational and reputation aspects (Zartman, 2008).

In procurement, negotiations have often been viewed as a less preferable alternative to auctions: the latter generally enables the achievement of better prices and economists have claimed that auctions are effective means of increasing value (Harvard Law School, 2011). In addition, it is very difficult to document procurement’s specific contributions to organisational objectives resulting from negotiations: it is hard to identify cost-savings or performance improvement (e.g. improved working capital or reduced financing costs) achieved though negotiations (den Butter and Linse, 2008). At the same time while auctions reversed the supplier-buyer relationship, allowing suppliers compete for customers' business, it became evident that for buyers there was no promise of quality and service. This highlighted the need for a more more meaningful relationship for the two parties which can be fulfilled by negotiations (Subramaniam, 2009).

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