Commercial Negotiation (L4M5)


Module purpose
On completion of this module learners will be able to identify approaches to successfully achieving negotiated commercial agreements with external organisations.

Module aim(s)
The creation of formalised agreements is a critical part of the success of any organisation. Those involved in procurement and supply activity will therefore be able to effectively negotiate with stakeholders and/or suppliers and to understand the methods associated with preparing for and carrying out commercial negotiations. This module is designed for those who are faced with negotiations. It enables the learner to analyse approaches to the negotiation of agreements made with external parties, how to prepare for them and what techniques are available to ensure successful outcomes

Next steps
Joining a CIPS qualification programme means you will join the largest Institute in the world for those working in procurement and supply. You can join as a member online today. Once you've become a CIPS member you can book your examinations online.

    Learning outcomes

    1.0  Understand key approaches in the negotiation of commercial agreements with external organisations

    1.1  Analyse the application of commercial negotiations inthe work of procurement and supply

    • Definitions of commercial negotiation
    • Negotiation in relation to the stages of the sourcing process
    • Sources of conflict that can arise in the work of procurement and supply
    • Team management and the influence of stakeholders in negotiations

    1.2  Differentiate between the types of approaches that can be pursued in commercial negotiations

    • Collaborative win-win integrative approaches to negotiations
    • Distributive win-lose, distributive approaches to negotiation
    • Pragmatic and principled styles of negotiation
    • Setting targets and creating a best alternative to a negotiated agreement (BATNA)

    1.3  Explain how the balance of power in commercial negotiations can affect outcomes

    • The importance of power in commercial negotiations
    • Sources of personal power
    • Organisational power: comparing the relative power of purchasers and suppliers
    • How suppliers gather information on purchasers
    • How purchasers can improve leverage with suppliers

    1.4  Identify the different types of relationships that impact on commercial negotiations

    • The relationship spectrum
    • Building relationships based on reputation, and trust
    • Repairing a relationship

    2.0  Know how to prepare for negotiations with external organisations

    2.1  Describe the types of costs and prices in commercial negotiations

    • Types of costs: direct and indirect, variable and fixed
    • Break-even analysis: cost volume profit formulae
    • Costing methods such as absorption, marginal or variable and activity based costing
    • Volumes, margins and mark ups and their impact onpricing
    • Negotiating prices

    2.2  Contrast the economic factors that impact on commercial negotiations

    • The impact of microeconomics and market types on commercial negotiations
    • Macroeconomics and its influence on commercial negotiations
    • Sources of information on micro and macro economics

    2.3  Analyse criteria that can be used in a commercial negotiation
    Criteria such as:

    • Setting objectives and defining the variables for a commercial negotiation
    • The bargaining mix
    • Positions and interests
    • Openings and presenting issues

    2.4  Identify the resources required for a negotiation

    • Choice of location
    • Involving appropriate colleagues
    • Use of telephone, teleconferencing or web based meetings
    • Room layout and surroundings

    3.0  Understand how commercial negotiations should be undertaken

    3.1  Identify the stages of a commercial negotiation

    • Defining the stages of a negotiation such as: -preparation, opening, testing, proposing, bargaining, agreement and closure
    • How behaviours should change during the different stages of a negotiation

    3.2 Appraise the key methods that can influence the achievement of desired outcomes

    • The use of persuasion methods
    • The use of tactics to influence the other party

    3.3 Compare the key communication skills that help achieve desired outcomes

    • Types of questions
    • Effective listening
    • Push and pull behaviours
    • Nonverbal communication
    • The influence of culture in commercial negotiations
    • The use of emotional intelligence in commercial negotiation

    3.4 Analyse how to assess the process and outcomes of negotiations to inform future practice

    • Reflecting on performance
    • Opportunities for improvement and development
    • Protecting relationships after the negotiation

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