A purchasing manager is having a negotiation with a supplier to extend the duration of the contract. In order to persuade the supplier to cut the cost by 10%, she promises to shorten the payment period from45 days to 30 days for each delivery. The supplier's representative does not agree the offer and clearly states that his proposed price is already lower than the market price. The purchasing manager has used which type of power?
Answer(s): A
In the scenario, to exchange cost cutting, the purchasing manager promises to 'reward' supplier shorter payment period. This is an example of reward power, which results from one person's ability to compensate or reward another for compliance.The reward does not need to be money, but could be introduction to other buyers in the group, positive references, agreement to trial new product, quicker payment or indeed any other variable that the buyer knows is attractive and valued by the supplier.
According to Professor Gavin Kennedy, in which of the following forms of dispute resolution, both parties will voluntarily exchange their ideas and beliefs?
Answer(s): C
Professor Gavin Kennedy highlights that we need to distinguish negotiation from other forms of decision-making by focusing on what is unique about it (the voluntary exchange) and not shared by other techniques such as persuasion, gambling (e.g., coin tossing), command decision, instruction, litigation and coercion.
Sumitomo Rubber Industries (SRI) is a Japan-based tyre manufacturer. In order to increase production, SRI is sourcing rubber from Southeast Asian firms. Which of the following micro factors are most likely to shift the balance of power to supplier? Select TWO that apply
Answer(s): B,E
There are many factors that can influence the balance of power in a negotiation. These factors are classified into 3 levels:Macro level: STEEPLE framework: social, technological, economic, environment, political, legal and ethicalMicro level: Porter's five forces:DiagramDescription automatically generatedOne-to-one buyer-supplier dynamics.The question asks about the micro factors that increases supplier's bargaining power. Among 5 answers, only 2 are likely to increase buyer's power:There are no close substitutes for rubber: the buyer has to buy rubber, not any other material. Costs of changing suppliers are high: buyer entails a large barrier if they want to switch supplier.Other answers cannot be correct because:SRI sets up its own rubber plantation: Buyer secures its own supply SRI's purchase amount makes significant proportion of supplier revenue: Suppliers are reliant on buyer. If the buyer stops buying from them, they can face serious cash flow problems Rubber from different suppliers is virtually similar: undifferentiated product would shift the power balance towards buyer.
Which of the following are most likely to be sources of conflict that can emerge from the process of commercial negotiations? Select TWO that apply.
Answer(s): A,B
There are multiple sources of divergent positions that can arise in situations where money is exchange for goods and services. There are 2 different types of sources. Those that arise from the content or subject matter of the negotiation (what is being negotiated) and those that arise from the process of negotiation (how it is being negotiated).Sources of divergent positions - the process of negotiation:Table Description automatically generatedLine of best fits is the line that goes approximately through the middle of the data points with an equal number of data points above and below it. Line of best fits is a method of calculating medium value in statistics.Standard terms and conditions are basic terms and conditions of business governing transactions that do not have a definitive contract, usually designed to be included in form documents such as orders. While there may be conflicts regarding standard terms and conditions, they are about the content of negotiation, not the process.Type of purchase: when buying organisation makes an decision to purchase an item, a buyer is faced with three possible scenarios. The item to be bought could be a straight re-buy, a modified re-buy or a new purchase. Decision on type of purchase is purely an internal decision.
In airline industry, suppliers prefer to adopt dynamic pricing in order to constantly monitor and change their fares in response to market conditions. Dynamics pricing is based on which costing method?
Answer(s): D
Dynamic pricing is the practice of dynamically calculating the price of a product or service in order to incorporate real-time market conditions, input costs, and/or competitive perspectives. Dynamic pricing which is based on marginal costing, is used by airlines and many other organisations. Marginal cost is the cost of producing an additional unit of output. Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.
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