Question
Select a category of spend from your organization. Develop and discuss
a plan using the knowledge gained from this programme which could
form the basis of a formal commercial negotiation. Your assignment
should include an explanation of the key facts, data and approaches that
you will use in the negotiation.
Remember, the negotiation does not have to be just about price. Other
considerations could include quality, deliver schedules, timing and
amendments/variations etc.
Solution
Executive Summary
In this integrative report of Corporate Award Program, a formal commercial negotiation has been established for XXX organisation in Oman oil and gas sector. This is by highlighting key facts, data and approaches applicable in the negotiation process. The category of spend selected is the rubber linings service with distinct tools, techniques, theories and concepts being used for evaluating and proposing an appropriate negotiation plan. The rationale of selecting rubber linings are critical for protection against corrosion, erosion damage for maintaining internal service of internal surfaces. Also, in the current COVID-19 pandemic, owing to the reduced business activities and demand for oil and gas products, mall machines operations have substantially reduced. Hence, the demand for rubber linings in XXX organisation has significantly increased. For success in negotiation, XXX engage professionals, appropriate terms and conditions, detailed preparations and streamlining their procurement and supply chain management strategy. Appropriate forecasting and planning to consume and guarantee provision of products for meeting the clients needs.
From this report analysis, the findings indicate that XXX adopt sever phases of negotiations in line with CIPS guidelines. These are preparation, opening, testing, proposing, bargaining, agreement and closure. Similarly, from the analysis of martket environment using STEEPLE, Porter’s 5 forces and SWOT analysis, there are strengths and areas of leverage for achieving successful negotiation strategies. For stakeholders analysis and supplier preferencing matrix findings indicate the necessity for promoting negotiation strategies. Further, in line with the roles and benefits of P&SM, 5 Rights of Procurement and 3P’s triple bottom line, relevance of acquisition of appropriate skills and competencies such as communication, engagement, teamwork, accountable and managing all conflicts is instrumental. These practices harness success of the negotiation framework and mitigating possible bottlenecks often achieved through an embrace of BATNA technique.
Finally, in line with the obtained findings, the possible recommendations include;
- To restructure the XXX negotiation approach with classification of buyers functions for solving evident roles duplication and improving the procurement cycle
- Implement a successful outsourcing strategy to ensure an increase in value addition for products and costs savings
- Develop accurate and appropriate specifications to be included for entire stakeholders of XXX organisation contract development. This is critical to promote success of their procurement process
- Promoting suppliers selection strategy through an evaluation of SWOT profile for considering financial viability, supply risks evaluation and leverage on competitive advantages
Table of Contents
1.2 Background of XXX P&SM.. 7
1.3 XXX Categories of Spend. 8
1.3.1 Category of Spend Selected. 9
2.0 Evaluation of XXX Procurement Process 10
2.1 RACI Stakeholders Model in XXX Procurement Cycle. 12
3.0 Negotiation Plan for XXX Rubber linings services spend category. 17
3.1.1 Strengths Weaknesses Opportunities Threats (SWOT) Analysis 19
3.1.3 BATNA in Negotiation Preparations 21
3.1.4 Possible Negotiation Strategies 22
3.4.1 Application of the 4R’s Model 26
5.0 Conclusions and Recommendations. 29
Appendix 1: XXX Procurement Terms and Conditions. 35
Appendix 2: Creating the Right Environment 40
Appendix 3: Kraljic Analysis Matrix. 40
Appendix 4: Procurement Strategy Steps 41
Figure 1: Negotiation in procurement 6
Figure 2: XXX P&SM Structure. 8
Figure 3: XXX Categories of Spend Summary. 9
Figure 4: Procurement and Supply Cycle. 11
Figure 6: Stakeholder Types. 15
Figure 7: Mendelow Analysis in XXX Rubber linings services spend category. 16
Figure 8: Different Stages of Negotiation. 18
Figure 9: Summary of different negotiation phases 18
Figure 10: SWOT Analysis for XXX Organisation. 20
Figure 11: XXX Rubber Linings services BATNA Category. 22
Figure 12: Possible Negotiation Approaches in XXX Rubber Linings services. 23
Figure 13: 5 Rights of Procurement 25
Figure 14: 4R’s Model in XXX Rubber Linings Services category Procurement 27
Figure 15: Supplier Preferencing Matrix. 28
Table 1:Runner lining services spend area sub-categories 9
1.0 Introduction
In the modern highly competitive business environment, commercial contracts success rates are low. This is owing to increased flaws in areas of stakeholder management, pricing issues, delivery, quality and amendments/variations. As evidenced in CIPS (2021), success in negotiation is anchored on effectiveness in communication, stakeholders relations who include buyers, negotiators and advisors. An organisation ought to highlight all the stakeholders, issues of concern and defining variables. Further, as noted in CIPS (2020) the negotiation primarily involve an in-depth communication amongst the parties with the core objective and desired result being to achieve a mutual agreement. As shown in figure 1, for success in negotiation process, different aspects are put into account. These are managing costs, quality, conflicts management and address of arising issues. Further, for a successful negotiation strategy, it is defined with various parties satisfaction and improved performance to meet the set KPIs and SLA’s.
Figure 1: Negotiation in procurement
Source: CIPS (2020a)
1.1 Scope of Report
In this report, it include provision of a background which is applicable as a formal commercial negotiation plan for XXX organisation. The report analysis and selected approach are anchored on key facts, approaches and organisation data. A set of elements are important for evaluation inclusive of quality, terms and conditions (see appendix 1), delivery schedule, active communication and stakeholder relationship. To achieve this report scope, various tools and models including 5 Rights of procurement, Mendelow’s matrix, Kraljic matrix, 3P’s triple Bottom Line, BATNA and MIL have been applied. This is on top of the Supply & Demand Curve, STEEPLE, SWOT and Porter’s analysis for assessing market environment. At the end, appropriate recommendations have been established for harnessing the negotiation strategy.
1.2 Background of XXX P&SM
XXX is a leading organisation in exploration and production of oil and gas in Oman. The core business strategy of the organisation is delivery of most of Oman crude oil production and natural oil gas supply. The rationale of this is harnessing successful delivery, growth strategies and sustainable value creation in the entire industry and beyond the industry. The ownership of the organisation is categorised into the Government of Oman (60%), Royal Dutch Shell (34%), Total (4%) and PTTEP (2%). Further, the scope of operation of the organisation is approximately 90,000 km2 with approximately 250 production oil fields, 55 production gas fields, 8,000 active wells. Through a strategic inclusion and diversity, the organisation engages approximately 8,500 employees from 70 different nationalities with more than 70,000 direct and indirect suppliers. For coordination of their practices and optimum business practice, they integrate success and uniqueness in sourcing and procurement department. As evidenced in Dai- Global (2020) the organisation operations in procurement, sourcing and recruitment is through In-Country Value (ICV) approach. Through the adoption of this strategy, an organisation is able to maximise its procurement of the local goods and services hence improving the overall capacity and capability of local Omani citizens and organisations for sustainable commercial benefit of Omani Sultanate.
The XXX procurement department is structured into three distinct levels (see figure 2). These are the organisation procurement and supply management (P&SM) at the top of the structure, all affiliates and tendering portal, services, indirect products procurement and direct products procurement in their third levels. The identified levels operate in a collaborative manner for ensuring success in procurement process which is similarly informed by XXX terms and conditions (see appendix 1). The core values of the XXX P&SM include competencies of the employees in tendering, stakeholders management and technology use. This has particularly been significant in the current COVID-19 where the dynamics of procurement and supply have significantly changed.
Figure 2: XXX P&SM Structure
1.3 XXX Categories of Spend
XXX spend categories are categorised into three main areas. As shown in figure 3 summary, the various categories are grouped into the direct materials, indirect materials and services. Direct materials represent the organisation daily activities such as employees facilitation, COVID-19 safety measures, safety equipment and packaging materials. Conversely, indirect materials are the spare parts, fuel and services maintenance. Importantly, all these spend categories are impacted by various issues such as stakeholders relationships, policies and procedures, evident risks and incurred obstacles with the quality and efficiencies in products and services delivery for meeting the end-user’s preferences put into account.
Figure 3: XXX Categories of Spend Summary
1.3.1 Category of Spend Selected
As shown in figure 3, the different categories of spend selected influence on driving value of the entire procurement and supply management process. As noted in Lorentz et al. (2021), differentiating various categories facilitate narrowing down of the focus and to ensure all the categories have their prominence. My placement in XXX organisation include working in collaboration with the P&SM in facilitating sourcing and delivery of Rubber linings services. This is one of the dedicated design engineering practices in XXX identified as “Shell DEP 30.48.60.10-Gen”. This category of spend is critical since in 2020, XXX spent approximately $5 million in procurement of the rubber lining service. An evaluation of the XXX categories of spend is as evidenced in table 1 which include the subcategories of Runner lining services. This evidence on their significance and necessity for putting in place sufficient policies.
Table 1:Runner lining services spend area sub-categories
| XXX Category of spend | Sources | Example of the subcategories |
| Diagnostic technology | Local and international suppliers | Augmented reality, blockchain, quantum computing |
| S-O-S Fluid analysis | Local and international suppliers | In-house analysis, dealer sampling services, component wear tables |
| Field service | Local and international suppliers | Installation, maintenance, repair or hardware installation |
| Condition monitoring | Local and international suppliers | Vibration analysis and diagnostics, lubricant analysis, acoustic emission and infrared thermology |
| Machine inspection data | Local and international suppliers | Corrective, risk-based, preventive and condition-based maintenance |
2.0 Evaluation of XXX Procurement Process
A successful procurement strategy entail different phases which are set for guaranteeing quality and timely provision of the products and services in line with buyer specifications. As evidenced in CIPS (2021a) the procurement cycle is used in describing the different stages and evidencing a step-wise practice which influence efficiencies of the process. A core factor is embracing competencies in different areas by procurement tam and ensuring achievement of organisation objectives. The procurement cycle in figure 4 represent the best practice. For the initial phase for example, this ins definition of the organisational requirements and develop specifications. In this phase, the organisation ought to note on the needs and opportunities. This is identified in CIPS (2021b) identify the initial stage as being cross-functional stakeholders evaluation and to develop an in-depth and increased specifications levels. Part of this include an engagement of the various stakeholders at an early phase for aversion of any likely delay and bottleneck.
In development of specifications, the key consideration issues include checking for counterfeit skills and people, identification of quality demands, sustainability, effective stakeholder involvement, innovativeness and IT use.
Figure 4: Procurement and Supply Cycle
Source: CIPS (2021b
XXX refers to most of the factors in figure 4 as procurement and supply cycle. The different stages used by XXX promote the P&SM practices to define the overall business needs, market analysis, appropriate plan and strategy, documenting, tender issuance, improved performance and logistics. In XXX, for the core aspects in the procurement strategy represent their stakeholder input. This is implemented in their Runner lining services category of spend. In this case, CIPS (2019) evidence that the best practice include identifying the stakeholder type which is critical to position organisation negotiation processes and promoting the P&SM efficiencies. Additionally, for achieving a successful stakeholder analysis, an organisation active engagement with the appropriate people and enhancement of a sourcing plan.
2.1 RACI Stakeholders Model in XXX Procurement Cycle
A detailed procurement and supply process is defined through embracing accountability and competence people in the various phases of the cycle. RACI which represent Responsible, Accountable, Consult and Inform Factors. These are critical to identify competent personnel in recruitment and supply chain strategy to ensure the entire tasks are implemented. In line with Project Smart (2021), RACI model is used in ensuring stakeholders interests noted and prioritised in procurement and supply strategy (see figure 5);
Figure 5: RACI Matrix
Source: CIPS (2019)
For the XXX Rubber linings services category of spend procurement, different stakeholders types involvement are guided by the figure 5 RACI model which evidence on the relationship of the different individuals engaged in the procurement.
Responsible– This represent the stakeholders or individuals mandated in executing specific roles. For the Rubber linings services category of spend, the P&SM levels in the organisation are involved. From the top of the hierarchy to technical personnel, all the stakeholders are involved in ensuring successful procurement. A case example is the field service and S-O-S Fluid analysis demand for all stakeholders to come together and evaluate all requirements and the best source. In the RACI framework, the responsible factor also involve individuals working collaboratively for guarantee the process success. While quoting the New Zealand defence, Wemyss (2018) identified the RACI model as being appropriate to demonstrate the roles and scope of involvement of different people in the procurement.
Accountable– This is the decision-making practice and authority of approval or rejection of an activity. For the Rubber linings services category of spend for XXX organisation, the engaged stakeholders ought to note on the scope of accountability in execution of their practices. Procurement and supply chain manager account for active decision making. As evidenced in Davies et al. (2009) the inventory planner is used to ensure all the procurement phases are carried out in accordance to set requirements. For the Rubber linings services category of spend procurement process, the entire practices demand approval from the inventory planner and also P&SM manager. Apart from success of procurement cycle, accountability makes sure people owing up to the incurred issues. A case example is when there lack sufficient materials for maintenance of the equipment. In such scenario, the P&SM and Inventory planner would be responding to any issue that arise and noting on particular sections or people contributing to the issues.
Consulted– This factor identifies the stakeholders and people to be offered with a prompt feedback and input prior commencing their activities. As noted in NC State University (2021) the various stakeholders are viewed as an active participant. Various stakeholders are involved in XXX procurement and supply management strategy for ensuring success in procurement strategy. This note on the relevance of carrying out a stakeholder analysis for establishing the various stakeholders in the procurement and supply chain. A case example is the customers stakeholders who ought to be managed closely since they significantly influence the entire procurement. This is anchored on sourced feedback regarding the products quality and improvement areas. The various suppliers are supposed to be actively involved with quality and competency needed for guaranteeing sufficiency of information. A detailed stakeholder analysis using the Mendelow’s matrix has been developed in subsequent section.
Inform– In the RACI model, this is inclusive of various stakeholders and people notification on the procurement cycle decision and progress. Importantly, consultations are not formal and not necessarily contributing to appropriate decision-making (New Zealand Government Procurement, 2021). As illustrated in figure 6 in the next section, this category of stakeholders are monitoring. These include regulators of the machines maintenance, diagnostic materials and the field accessors. Informing this category of stakeholder makes sure that XXX is abiding to the set policies and quality regulations. In line with RACI model, negotiation strategies are supposed to prioritise on quality factors which are impacted by the need to approve and abide to the set regulations by the government. The importance of RACI model and its use is evident in today COVID-19 pandemic prevalence. The different regulators and stakeholders are involved in ensuring safe and quality products provision. Importantly, the various requirements have a direct influence on efficiencies, timely provision and successful product planning.
2.2 Stakeholders Analysis
As evidenced from the RACI Model, different stakeholders analysis is critical. As evidenced in CIPS (2021c) a stakeholder is an individual or an entity which affect service, product or project execution. For the activities adopted by an organisation (tactics, operations or strategic), their success is influenced by support from different stakeholders, committed and input. In general for XXX organisation, there are different categories of stakeholders who are classified into internal, connected and external (see figure 6);
Figure 6: Stakeholder Types
Based on the figure 6 stakeholders types, they are engaged in influencing the success of the supply chain and entire cycle inclusive of the consumers, customers, logistics and delivery and Oman government regulations. All the identified stakeholders are mandated with the entire process success. A different factor is the procurement and supply management process needed to address complexity evident from thoughts and global actions with innovativeness and expertise engaged in active collaboration and communication. This is influenced by the external factors as shown in appendix 2.
Specifically, for the Rubber linings services spend category, there are specific stakeholders as evidenced in figure 7. These stakeholders are grouped into monitoring, keep satisfied, manage closely, and keep informed. As part of procurement, corporate interests must be prioritised with the informed interests being planned and executed successfully. The different stakeholders categories are illustrated in figure 7;
| High |
| Low |
| High |
| Level of Interest |
| Level of Power |
| Low |
Figure 7: Mendelow Analysis in XXX Rubber linings services spend category
Low Interest, High- Power– The Oman government and regulators in the oil and gas sector have a low influence and power for their functions significantly facilitative. This is informed by use of existing resources and establishing appropriate environment relevant for XXX practices. In this case, they are not significantly involved in active negotiation or strategic sourcing plan practices. These represent the keep informed stakeholders who ought to receive up-to-date information on the Rubber linings services quality and providers.
High-power, Low-interest– This is identified as the keep satisfied stakeholders and include the board of management and directorship. They exert a very high power due to the influence they have on the entire organisation. Currently, due to the reduced demand for oil and gas products of XXX organisation, the budget has reduced for the Rubber linings services spend with an approval of the board for increased sourcing plan and service provision.
High-Power, High-Interest– This category is inclusive of the procurement team, Rubber lining services manufacturer, Customers/ end-users, Finance and legal department. The scope of interest are expected in enhancing a close management and inclusion of strategic sourcing plans.
Low-Power, High-Interest– For the Rubber linings services spend category, this is inclusive of the suppliers who are involved in the category of spend. They are interested in increasing their sales and revenues through establishment of the sustainable relations with the buyer/XXX. Also, the communities and society are interested with CSR activities by XXX with competitors ensuring the organisation does not hinder their success. Therefore, they are supposed to be informed on strategic sourcing approach.
3.0 Negotiation Plan for XXX Rubber linings services spend category
For success in the roles and benefits of P&SM, success in negotiation plan is critical. As noted in CIPS (2013) the negotiation strategy is applicable informed by the objective of achieving an appropriate outcome and agreement amongst the various involved parties. The P&SM professionals ensure they attain a win-win results. Despite of the prevalence of cases which are untenable. The challenges entail conflicts, cost issues and market changes which have an influence on negotiation strategies. For the XXX Rubber linings services spend category. The selected strategy for successful negotiation is as identified in CIPS (2020a) and summarised in figure 8;