The Procurement Glossary » Negotiation

Negotiation

Sourcing & RFx

Definition

The discussion between buyer and supplier to agree price, terms and conditions before a contract or order is placed.

Explanation

Effective negotiation is prepared, not improvised: the buyer knows the market, the should-cost, its walk-away point and the levers beyond price (volume, term length, payment terms, service levels). The goal is a durable agreement, not a one-sided win that the supplier later claws back.

Example

By committing to a two-year volume, the buyer negotiates a 7% price cut plus 45-day payment terms.

Related terms

• Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
• BATNA — The Best Alternative To a Negotiated Agreement — a party's strongest fallback if the current negotiation fails.
• Framework Agreement — An umbrella agreement setting pre-negotiated prices and terms with one or more suppliers, from which individual orders are placed as needed.
• Total Cost of Ownership (TCO) — The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.

Frequently Asked Questions

What is Negotiation?

The discussion between buyer and supplier to agree price, terms and conditions before a contract or order is placed. Effective negotiation is prepared, not improvised: the buyer knows the market, the should-cost, its walk-away point and the levers beyond price (volume, term length, payment terms, service levels). The goal is a durable agreement, not a one-sided win that the supplier later claws back.

Can you give an example of Negotiation?

By committing to a two-year volume, the buyer negotiates a 7% price cut plus 45-day payment terms.

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