LP7: Good Practice Example, Essay Example

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Essay

In my opinion, suppliers approach the clean sheets negatively in a negotiation. This is because the supplier will be forced to talk openly about the cost drivers that influence the price of their particular commodity. This in turn exposes and later affects their profit margin as they have to negotiate based on these cost drivers. In essence, this takes away their ability to make profit per unit of production as they have to come to an agreement and almost always reduce their prices.

Clean sheets will not always drive the supplier’s margins lower. Most of the time they will but not always. This is because in some cases, a company’s size, prestige and quality will cause the supplier not to budge on their margins. For example, a company that has a large command of the market share would tend to stick to a standard price irrespective of the client. As a matter of fact, at times margins increase when certain underlying factors are accounted for. For example, in the case where tax caused inflation hits the market, the suppliers tend to adjust the price to accommodate the increase in costs.

Grace Puma emphasized that a factual and intellectual approach is essential to the use of the TCO method. This is because all the negotiations are based on factual data, i.e. cost drivers, in order to determine the real value of the commodity in question and agree on a reasonable margin profit.

United Airlines is applying this element as all their negotiations take place prior to the commencement of a competitive bid.

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