Negotiations: Supplier Research, Objectives, and Concessions

Negotiations
TASK 1: ANSWER ALL QUESTIONS
Q1: What two (2) areas have you chosen to use as the basis for your negotiations?
1. Large or small bar equipment for the external bar
2. Outdoor heating systems
Satisfactory ☐ Unsatisfactory ☐
Q2: What information must you research before you make initial enquiries with potential
suppliers?
The initial maximum price is not only a line in the Procurement Notice, but also one of the
most important selection criteria that the customer is guided by when reviewing bids. If the
potential supplier exceeds the price specified in the application, such a proposal will not even
be considered.
Until recently, this question was not relevant for corporate customers - they could choose the
price randomly or be based on previous experience. Some corporations, in principle, did not
charge an initial purchase price. This was done to increase the transparency of the work of
companies with state participation.

The next item on the List was to ensure that state corporations and state-controlled companies
take decisions to reduce the cost of purchasing goods (work, services) per unit of output by at
least 10% per year. At the same time, the results of such a reduction are taken into account as a
key indicator to assess the performance of such organizations and their leaders. This includes :
Specification of the initial (maximum) price of contracts in the notice during the procurement
Specifying the initial (maximum) price of contracts in the documentation during the
procurement
Indication of the amount of security for the application for participation in the purchase
(usually - a percentage of the maximum price)
Indication of the size of the enforcement of the contract (contract)
Determination of the auction step
Establishing the initial (maximum) price of contracts when entering into contracts with a
single supplier
General principles for calculating the initial (maximum) contract price (contract)
The initial (maximum) price of the contract (contract) shall be indicated:
When conducting open bidding and quotation requests for quotations of prices: in notices on
placing an order, in the procurement documentation.
When conducting closed purchases: in invitations sent to potential procurement participants in
the procurement documentation.

The calculation of the estimated price of products must be carried out by the customer when
planning purchases. A more accurate calculation of the initial (maximum) price of the contract
(contract) should be made when preparing the technical requirements of the specifications and
technical specifications for the supply of goods, the performance of works, the provision of
services that are the subject of the contract, the preparation of the relevant procurement
documentation.
Methods for calculating the initial (maximum) contract price (contract)
Market (method of comparable market prices, market analysis method);
By peers;
Resource (estimated), design and estimate, basic index, cost;
By specific indicators using scaling (parametric method);
In practice, often used derivatives or mixed methods based on the above. The calculation of
the initial (maximum) contract price is recommended using several methods.

Methods for calculating the initial (maximum) contract price when purchasing goods
The most widely used market method is to determine the initial price of the contract, which
involves analysing market conditions for the presence of offers, demand or transactions for
specific products with certain parameters, which the customer is going to purchase.
For the purpose of calculation, information is collected and summarized in prices for a specific
model.
On the basis of the weighted average value found by calculating and applying various
adjustments for the terms of specific transactions, an approximate level of net product prices is
calculated, which is then adjusted to the terms of the proposed contract.
The method of determining the initial (maximum) price of a contract (agreement) by
counterparts is used when the subject of the contract (contract) to be purchased is not
represented on the market or it is impossible to find market data on its market prices, but there
are similar products with slight differences in functional and quality characteristics. At the
same time, essential and non-essential attributes of products are determined by the customer.
A market is being researched and analysed for the availability of offers, demand prices, prices
of actual transactions for similar or similar products, which are then applied to the prices of
purchased products by applying amendments.
Satisfactory ☐ Unsatisfactory ☐

Q3: Once you’ve contacted suppliers to negotiate with, research the people and the
organisation. Describe the results of your research and the cultural factors you’ll need to
consider during negotiations with the two different suppliers.
 Supplier 1
1. Large and small bar equipment for the external bar
The initial (maximum) price of the contract (contract) for the purchase of goods made to order,
the calculation It is built on the basis of prices for analogous products with subsequent
adjustment of the configuration in accordance with the requirements specified in the technical
specifications.
To obtain more accurate results, it is recommended, if possible, to use information about
several similar products received from different manufacturers or suppliers.
The resource (costly) method of determining the initial (maximum) price of a contract
(contract) is used, as a rule, when calculating prices in construction, when calculating prices
for complex equipment, and when calculating prices for complex works and services.
The price of the subject of purchase is compiled by recruiting and adding (calculating) the
prices of its components (works, goods, equipment, cost of machines and mechanisms) and
taking into account their volume (Holthusen, et al, 2016).
For a product, the costs of materials and spare parts, as well as the labor costs for its
production (assembly) are summed up