The role of negotiation skill in purchasing and contract management

Description

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

This research is on the role of negotiation skill in purchasing and contract management. It is natural for any company that engages in buying and selling to use negotiation techniques in its buying strategies. Negotiation is an important aspect of purchasing and supply. Negotiation in purchasing is the process, which provide a legitimate and ethical means for the buyer and the seller through give and take, or eliminate unjustified or unnecessary increment n cost.

Negotiation is a fact of life. Everyone negotiates something every day. Negotiation is a method by which people settle differences. Negotiation is one of the instruments employed by the buyer organization in order to reach a fair and reasonable price through sound discussion. Negotiation forms a substantial part of most purchasing officer or agent’s needs to be able to analyze and interpret information and be aware of danger involved in any wrong decisions by the parties involved.

It is also important to recognize that the main task of the purchasing manager in fulfilling and carrying out his operation of maintaining suppliers is negotiation. The purchasing manager is a specialist in satisfying the needs of the company by seeking suitable sources of supply and negotiating to secure the best terms and services possible. Negotiation involves two or more parties with the aim of reaching an agreement of their term dissemination. Whenever it is required or reconciles two or more differing opinions in order to initiate the action or continue in mutually agreed condition. It is very vital that all buying and selling transactions leave both parties satisfied and hence acceptance on any of the parties.

It should not be construed as a means of stripping the trend or a fair profit or an opportunity for extracting unreasonable concession. In reliability the most successful negotiations are those which produce result to satisfy both side and which to provide the framework long-term mutually beneficial relationship. In my own understanding Negotiation is nothing but an act and science for arriving at common understanding through bargaining on the essential of contract in purchasing context.

Negotiation technique varies from one company to another depending on the type and policy of that company. In most companies and organizations today materials are consideration as vital tools to the success operations.

The purchasing of materials take a lion share of the financial budget in a trading period almost 75% of the Nigerian bottling company, Ikeja total expenditure goes on material procurement. This makes prompt negotiation a function of purchasing. This project work is a case study of the Nigerian bottling company. I have chosen the company for two reasons.

First, it is a manifesting company and they have acquired a lot of knowledge about purchasing function secondly, so that I can critically examine how they carryout local and international negotiation practices in the company and its effect on profitability.

1.2       STATEMENT OF PROBLEM

Negotiation is very important between buyers and sellers. This is because it improves buyer-seller relation.

Unfortunately, negotiation is not effectively employed in some organizations

1. What are the roles of negotiations skills in purchasing management?
2. b) What are the causes of lack of skilled negotiation personnel?
3. c) How to promote negotiation skills among the purchasing personnel?
4. d) Why is time pressure a problem faced in the course of negotiation?
5. e) What are the unpredictable behaviors of the buyer which the supplier cannot satisfy, that later result into problem between both parties?

 1.3      OBJECTIVE OF THE STUDY

            The aims of this research work are to:

(i).       Examine the roles of negotiation skills in purchasing and contract management of an organization.

(ii).      Identify factors critical to successful bargaining.

(iii).    Determine how to obtain a fair and reasonable price.

(iv).     See how relevant negotiation network is to the buyer and the supplier as a whole.

(v).      Determine how to promote the skills of negotiation into the purchasing personnel?

(vi).     Examine the causes of lack of skilled negotiation personnel

1.4       RESEARCH QUESTIONS

The following questions will help in solving the research problems:

1. What are the roles of negotiations skills in purchasing management?
2. b) What are the causes of lack of skilled negotiation personnel?
3. c) How to promote negotiation skills among the purchasing personnel?
4. d) Why is time pressure a problem faced in the course of negotiation?
5. e) What are the unpredictable behaviors of the buyer which the supplier cannot satisfy, that later result into problem between both parties?

1.5       SIGNIFICANCE OF THE STUDY

This study will serve as an indicator to know the roles of negotiation skills in purchasing and contract management. This study is significant in its attempt in bringing out the causes of lack of skilled negotiation personnel in today’s organization using the Nigeria bottling company as a case study.

1.6       SCOPE OF THE STUDY

It is designed to study the Nigerian bottling company and its environments on the impact of negotiation skills in purchasing and contract management.

1.7       DEFINITIONS OF TERMS.

Negotiation: This is the process of planning receiving and analyzing used by the buyer and the seller to reach an acceptable compromise in an aspect of business transaction such as price delivery, specification, terms of payment etc. also it is the act of attiring at a common understanding between the buyer and the seller through bargaining on essential of the contract:

Purchasing:- This term is also here as the process of buying in the market. But in a broader sense, it is a professional term used when buying goods and services by an industries, commerce and co-operation by a professional buyer

Haggling:- Since negotiation is sometime mistaken to means the same thing as haggling it is good at this juncture to point out that haggling means arguing about price.

Expediting:- it is also referred as follow up.

Supply: This is the process of obtaining by legal means materials supplies, services and equipment required in the operation of organization.

Specification: This is the process of defining an item in terms of it brand or trade name chemical analysis sample standard, performance or any other relevant characteristic suitable in all aspect for the purpose for which it is intended.

Bargaining: Is an agreement to discussion in order to arrive at a compromise.

Competitive Bidding: Is calling for bids and evaluating the bids to arrive at the best price