The CEO,
As you are aware, I am discussing with Chip Manufacturer Company (CMC) about the following issue. Please find my action plan detailed below for the same.
Current Issue
Preparing for Negotiation
I prepared for this negotiation by initially identifying the goals. In the present scenario, my goals are to 1) not ruin the long-term relationship with CMC and 2) not take losses in the present transaction. To proceed further in the negotiations, I have to determine if CMC is also interested in a long-term relation or not. I try to find shared interests and I will try to identify things that are more valuable to CMC than to ABC so that I can trade them for things that are valuable to ABC but not so valuable to CMC. In the present case, I did preliminary research and found that CMC had similar problems with at least one other company and that CMC is very embarrassed about the fact. However, due to some issues, CMC is facing some short-term funds crunch and somewhat desperate for immediate cash. Therefore, I can assume that CMC is interested in immediate part payment at least as ABC normally pays only after the entire lot is accepted. I can tell him that ABC Company is ready to pay 50 percent of the payment immediately, as the quality department has already accepted some of CMC’s stock. The trade that I expect from CMC is that it accepts the rejects quickly and provides ABC the replacements immediately. Other options I could weigh-in are about providing a one-time waiver of any penalties against CMC in return for more favorable terms.
I researched the alternatives that ABC has, in case CMC is not in a position to supply ABC Company the replacements or in case CMC contends with ABC Company’s assessment that the chips are defective. Since ABC Company purchases chips from two different suppliers, I would have to increase the order quantities for the alternative supplier gradually. However, ABC Company might have some issues in order fulfillment in the short-term and might lose revenues. I researched and found that ABC Company purchases about a quarter of the total supplies that CMC produces. While we are not the sole customers for CMC, it will be difficult for CMC to find alternative buyers immediately (Lewicki & Hiam, 2006).
Since both parties are interdependent, I will be looking at the dual concerns model for conflict management more closely for guidance. Out of the five modes available for conflict resolution according to this model, I believe that the problem-solving approach is the best suited for this scenario. In this approach, the actors show high concern for each other’s outcomes and ensure that both achieve their outcomes (Lewicki, Barry, & Saunders, 2007). Considering that the relationship involves continuity of interaction as it is a long-term professional relation, the present transaction is not a make or break transaction. I will have to ensure that I do not use a no holds barred approach, but rather a cordial approach. I am aware that contracts are not comprehensive, so trust and good will are very important in the case of situations where there is a long-term relationship at stake and the transactions are not episodic. Due to this perspective, the resolution of the issue becomes easier.
Since I had found CMC to be a reasonable earlier, I expect that CMC would accept the rejects and due to the relatively less number of alternatives available, would be willing to resupply them. To ensure that this is a win-win situation for both of us, I am expecting that ABC Company might have to make the payment for the 75 percent of the stock that it had already accepted (which does not incur ABC Company any additional cost) and waive charges (which might incur ABC Company some additional cost).
I see that the consequences of winning are the two companies would have a better relationship going forward. Losing the negotiation would be detrimental for both the companies. ABC Company might have to resort to taking a legal action thereby ending the association. ABC Company will lose a reliable supplier with whom it had a long-term relationship. We will be reliant in a single supplier who might not be able to fulfill all our needs in the short term. ABC Company will have to look for and shortlist another supplier and again strive to build relation with the new supplier. The consequences for CMC would be devastating as it will lose a buyer for about a quarter of its product and since this is a mature market, finding a new buyer will be difficult for CMC. Other buyers might not be similarly considerate, as they would not have the relationship.
In the present scenario, the power is with ABC Company as it has less to lose and has better alternatives whereas CMC has fewer alternatives and much more to lose. However, if CMC takes too much time to resupply the defective chips, then ABC Company would lose too. Considering all the above facts, I will be proposing the following solution.
Solution
Project Manager,
Purchasing Department
References
Greenhalgh, L. (1986). SMR forum: managing conflict. Sloan Management Review (1986-1998), 27(4), 45.
Lewicki, R. J., & Hiam, A. (2006). Mastering business negotiation: a working guide to making deals and resolving conflict. New Yor, NY: Jossey-Bass.
Lewicki, R. J., Barry, B., & Saunders, S. M. (2007). Essentials of negotiation (4th ed.). New York, NY: The McGraw-Hill Companies, Inc.
Watkins, M. (2002). Breakthrough business negotiation: a toolbox for managers. New York, NY: Jossey-Bass.
