CH-220PE-121-13toGS,Negotiations,CONFIDENTIAL,13 0,CH-220PE-121-13toGS,13 1,Source: McKinsey team analysis,Knowledge of supplier economics Essential if discussion moves to “cost-plus” pricing Capacity utilization High enough to be financially viable Low enough to still “need” business,Knowledge of supply markets Research suppliers other major customers In some cases, be aware of suppliers suppliers Identify alternative suppliers for contingencies,Knowledge of TCO Know how to trade off different aspects of negotiation, what is and is not a deal-breaker Have data on supplier past TCO performance to verify their commitments,Control of environment Host negotiations for “home field advantage” Have decision-maker play lead negotiator Back-to-back negotiations promote consistency heighten competition through “passing in the hallway”,THE TEAM SHOULD BE FULLY PREPARED TO ENGAGE IN A SUCCESSFUL NEGOTIATION AFTER COMPLETING ALL PREVIOUS STAGES OF THE SOURCING PROCESS,CH-220PE-121-13toGS,13 2,NEGOTIATION PROCESS DETAIL,Negotiation,Generate ideas,Exchange propositions,Analysis,Select team members Finalize short list of vendors and appoint negotiation leader Define team negotiation mechanisms when meeting vendors Identify site requirements and issues Develop and finalize RFP when required Request vendors/initiate RFI and RFP,Highlight potential problems/ concerns with vendors Determine the negotiation strategy Develop initial list of negotiation variables Agree on the objectives and desired outcomes of the negotiation Analyze supplier/ market,Agree on step-by-step negotiation approach Thoroughly analyze vendors quote Determine counterquote Define and agree on quantitative selection criteria (see negotiation strategy),Clarify vendors proposals Develop negotiation in line with Objectives Strategy Tactics/ ploys Team mechanisms Suggest/ force counter proposals if required Request new proposal if highly dissatisfied,Thoroughly analyze proposals using the selection criteria Brainstorm and agree on final negotiation steps Interact with vendors if further negotiation required Agree on best proposition(s) for final supplier(s) selection Syndicate outcome with key stakeholders,Reach agreement with selected suppler(s) Explain reasons to nonselected suppliers(s) Define contractual next steps,Develop and exchange contracts Manage transition,Activities,EACH PHASE OF THE NEGOTIATION PROCESS REQUIRES THOUGHTFUL PLANNING AND ANALYSIS,CH-220PE-121-13toGS,13 3,THE PRENEGOTIATION PHASE,STRATEGY IS SET DURING THE PRENEGOTIATION PHASE,Activities,Select team members and leader Brief new members on Recommendations TCO Strategy RFP preparation Finalize short list of vendors selected for negotiation Identify region requirements (e.g., year ending 99 and year end 00) and objectives Identify site-specific issues Existing contractual relationships Perceptions/issues with short-listed suppliers local performance Logistics Local management practices Begin supplier/market research Initiate RFI/RFP with short list of suppliers,Determine the negotiation strategy based on Approved recommendations Outcome of the RFP Commodity Review strategic relationship/status with supplier Develop initial list of negotiation variables with initial cuts at prioritization and commercial objects Harmonize objectives across sites Agree on the objective(s) and desired outcome(s) of the negotiation Finish supplier/market research Use RFI/RFP results to supplement understanding Define the negotiation timetable,CH-220PE-121-13toGS,13 4,NEGOTIATION TEAM COMPOSITION,THE CORE TEAM SHOULD LEAD THE EFFORTS, WHILE SUPPORTING MEMBERS PROVIDE SPECIALIZED EXPERTISE,Core team,Support members,Department managers,Sourcing team part-time members,Regional operations/finance/ IT managers,Supply management representative,Sourcing team leader,Commodity expert,CH-220PE-121-13toGS,13 5,EXTENSIVE PREPARATION WILL SIGNIFICANTLY IMPROVE THE CHANCES FOR A SUCCESSFUL NEGOTIATION,Understand all TCO levers, i.e., identify potential leverage points and alternatives “Know thy supplier” understand their economics, returns, capacity utilization, etc. better than they do “Know thy supply markets” define all options available to the company and estimate potential cost for each Identify untapped privileged assets within the company, e.g., expected business growth not yet reflected in contracts Craft a strategy; develop a negotiation psychology that will yield the most advantageous position for the company Execute the strategy and develop contingency plans,CH-220PE-121-13toGS,13 6,OVERALL SCORING ACROSS ALL TCO SECTIONS OF THE RFP WILL PROVIDE INSIGHTS INTO “TARGETS” FOR EACH VENDOR,RFP Analysis - Summary,Evaluator,Section,Number,Name,Weighting,1,Supplier Diversity,John/Sally,5%,2.0,2.6,3.3,2,Vendor Information,10%,3.2,5.7,7.8,3,Hardware Information,15%,10.2,9.8,10.0,4,Global Supply Chain,15%,9.2,9.8,10.5,5,Value Added Services,15%,8.7,11.1,10.3,6,