Pass the CIPS CIPS Level 4 Diploma in Procurement and Supply L4M5 Questions and answers with CertsForce

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:

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Line 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 the planning and preparation stage of negotiation, it is essential to build a strong foundation by understanding various factors that influence the negotiation outcome. According to CIPS resources, critical aspects of preparation include:

Understanding the other party (A): This helps in anticipating their needs, objectives, and potential negotiation styles, leading to more strategic discussions.

Defining the constituents (B): This involves identifying all stakeholders or parties impacted by the negotiation, ensuring their interests are considered when planning the negotiation strategy.

Analyzing the bargaining power (F): Understanding the relative power each party brings to the negotiation helps in setting realistic goals and predicting possible negotiation dynamics.

These elements are foundational in ensuring a well-rounded approach and enabling both parties to enter negotiations with clarity and strategy, enhancing the potential for a positive outcome.

Buyer power gives customers/consumers (buyers) the ability to squeeze industry margins by pressuring firms (the suppliers) to reduce prices or increase the quality of services or products offered.

There are four major factors to consider when determining the bargaining power of buyers:

1. Number of buyers relative to suppliers: If the number of buyers is small relative to that of suppliers, the buyer’s power will be stronger.

2. Dependence of a buyer’s purchase on a particular supplier: If a buyer is able to get similar products/services from other suppliers, buyers depend less on a particular supplier. Therefore, the power of the buyer would be greater.

3. Switching costs: If there are not many alternative suppliers available, the cost of switching is high. Therefore, buyer power would be low.

4. Backward Integration: If the buyer is able to integrate or merge suppliers, the buyer has greater bargaining power over the existing suppliers.

When is Bargaining Power of Buyers High/Strong?

There are fewer buyers relative to that of suppliers

The switching costs of the buyer are low

If the buyer is able to backward integrate

The buyer purchases product in bulk (high volume)

The buyer is able to get similar product/services from other suppliers

The buyer purchases the majority of the seller’s products

Several substitutes are available on the market

Product is not differentiated

In the context of aninternal IT project, the relevant stakeholders would be thosedirectly involved in decision-making and implementation.Senior managementoversees funding and strategic fit, whilesoftware developersensure technical support. The general public and pharmaceutical suppliers are external and not primary stakeholders in this scenario.

“Stakeholder identification must focus on individuals or groups directly involved or affected by the procurement. This includes internal sponsors, end-users, and technical staff responsible for delivery.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.5 - Internal and External Stakeholders)

MIL criteria indicate 3 limits that negotiator should establish:

M - Must achieve: minimum target/maximum you can concede on this point; the mandatory requirement or fall back position

I - Intend to achieve: realistic target you are aiming for on this point

L – Like to achieve: stretch target to achieve on this point.

PPCA is purchase cost analysis

TIMWOOD indicates 7 types of waste in Lean principles

The RAQSCI model is a mnemonic summary of a business model used to define and structure business requirements

Lina’s question seeksdetailed informationabout the supplier’s actions and is aimed at uncovering the root cause or assurance measures. This makes it aprobing question, designed to delve deeper into specifics. Probing is a key technique in negotiations for uncovering critical insights, particularly duringissue resolution or when seeking complianceon performance terms.

Elasticity refers to the responsiveness of quantity demanded or quantity supplied to a change in price or another factor:

The price of a product can be described as being elastic if a small change in price leads to a big change in demand.

The price of a product can be described as being inelastic if a big change in price leads to a small change in demand.

The formulae of elasticity of demand is known as the following:

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Reflecting on performance should become a natural final step in the negotiation process.

'Celebrating publicly about the deal': Public gloating, even in success or failure, if it gets back to the supplier via the press or social media, will likely damage the relationship

'Tempting TOP to reopen the negotiation': whether TOP agrees to reopen the negotiation, procurement should reflect on their achievement and what can be improved.

'Asking TOP for another concession': TOP can agree or reject this concession. Eventually, reflecting should be the final step. Procurement can learn a lot from reflection on performance.

LO 3, AC 3.4

Using logic involves applying numerical data and factual evidence to support arguments in a negotiation. Logical reasoning appeals to objective analysis rather than emotional or coercive tactics and is effective in convincing the other party through structured, fact-based arguments, aligning with CIPS's guidance on logical negotiation techniques.