The Significance of Negotiations in Procurement

Procurement incorporates negotiation, bidding, transfer of payment and the product quality verification(Huang et al., 2011).The researchers devised two ways of multi-stage acquisition where one stressed on auction price development while the other one accentuated on price negotiation.However, both models emphasized on incentives’ quality while gauging the satisfaction of clients.

The research came up with a number of findings.The modeling approach used by the researchers showed that the findings indicated that the optimum bonus were determined by  the incentives used.Additionally, two exceptional configurations which optimize the evaluation by the investigators were found.There was an illustration for the simulation of the maximum effort of the providers to offer quality products and determine the bonus structure in auction techniques.

A process of decision making was selected based on the collection of the finest techniques of procurement auction and prime bonus.There was also the consideration of the organization of the supply chain management as an issue from the social planner’s outlook by the researchers. The practices which utilize the auction price development by the completion of the sale of the procurement together with post-auction bonus leads to a lower supply chain surplus than negotiation methods. Negotiations always create an opportunity for Pareto improvement.

The  Projected Procurement Technique

The efficiency of the projected procurement method was determined mainly by the customers’ capability to offer ample inducements to the suppliers to furnish them with the details on what was  required to acquire the products.

The products’ quality in the auction and ability to meet customer demands is also paramount. The observations by the  scholars on the current activities in the marketplace indicate that new clients would cash out more to acquire top-notch quality products (Huang et al., 2011). Equally, customers would engage in negotiations for lower prices or other benefits if they feel that the prices do not match the products’ value or the goods and services fail to fulfill their demands.

In modeling, the researchers pondered on the impatience possibility between the suppliers and buyers in price negotiations in e-procurement. Customers may negotiate for quality and the price of products for a number of times as conditions vary from one customer to the other. Therefore, e-procurement practices may involve different prices for  similar goods and services (Lee & Phang, 2015)

The Effects of Intermediaries in  E-Procurement

The researchers in the modeling analysis excluded electronic market intermediaries. An electronic exchange dealer would act as an intermediary by offering products  to both the customers and suppliers and thus support value for a third-party and hence uphold neutrality in e-procurement. According to the intermediation theory, an intermediary exists when a broker creates value which exceeds the one created by the original parties; the buyers and sellers(Lee & Phang, 2015). Moreover, intermediaries are significant if they help in rationality and have a positive effect on the e-procurement results.

In a nutshell, the experts studied a problem in e-procurement methods’ selection in organizations as part of supply chain management.The review of many studies indicates that there is no universal or standard approach in designing a multi-faceted e-procurement tool.Negotiations between the buyers and sellers are prevalent in today’s world, and a number of methods have been advanced which deal with the topic.The analysis also shows that the simplification of the optimization procedure in a new way helps in the selection of the suitable tool and finding the sensible incentive for a supplier.

The significance of negotiations in the procurement of products

A negotiation in procurement involves the discussion by parties involved in a transaction with the aim of arriving at an acceptable agreement by all the participants.Negotiation skills are vital to procurement professionals (O’brien, 2016).Negotiations are essential in procurement for some reasons;

i. Through talks, a procurement professional may challenge the buyer’s requirement which helps to ensure the commercial soundness and optimum value for products (Chong, Staropoli, & Yvrande-Billon, 2014).

ii. Negotiations are important in cases where many and different clauses regarding sales exist, and the customer feels that the mentioned price is unreasoningly high.

iii. Negotiations are useful in open and flexible specification cases to settle on the total package, value for money and better benefits which ensures that no side is exploited in a deal.

iv. Conflicts between buyers and suppliers can be solved through negotiations since procurement transactions are vulnerable to disagreements on issues such as price and items included in the total package.Sellers aim to maximize profits while minimizing costs in a deal. On the other hand, the buyers seek to capitalize on the value of their money.These realities are sources of potential disagreement between the parties. However, negotiations would help them to agree.

v. Moreover, the supplier offer may be improved through post tender negotiations. A buyer may solicit for better profits through negotiating with a supplier.In this case, both parties have to agree before the application of enhanced terms.

References

Chong, E., Staropoli, C., & Yvrande-Billon, A. (2014). Auction versus Negotiation in Public Procurement: Looking for Empirical Evidence. The Manufacturing Markets, Legal, Political and Economic Dynamics, Cambridge University Press, 120-142.

Huang, H., Kauffman, R. J., Xu, H., & Zhou, L. (2011). Mechanism design for e-procurement auctions; On the efficacy of post-auction negotiation and quality effort incentives. Retrieved from Electronic Commerce Research and Applications: http://blog.ub.ac.id/iralailatulmaghfiroh/files/2012/04/Mechanism-design-for-e-procurement-auctions-On-the-efficacy-of-post-auction.pdf

Lee, S., & Phang, C.W.D. (2015). Leveraging social media for electronic commerce in Asia: Research areas and opportunities. Electronic Commerce Research and Applications, 145-149.

O’brien, J. (2016). Negotiation for Procurement Professionals: A Proven Approach that Puts the Buyer in Control. Kogan Page Publishers.