Grand Hotels - Key Items to Negotiate - Case Study Example

Grand Hotels Contents Background of the situation 3 Meeting Plan 3 Objectives 3 Key Items to Negotiate 3 Key risks and opportunities 4 Negotiation Team and respective roles 6 Background of the situation Grand Hotels is facing an acute crisis situation. The new hotel from Grand is scheduled to launch within 13 weeks employing six hundred people. The major communication strategic followed in the hotel is through instant and organized point-to-point voice and data communications. For this, a major instrument required is personal handy phones or PHPs through which the hotel staff members are constantly connected. Grand purchases its PHPs from its regular supplier Four Star. However, a sudden strike in the Four Star’s factory has stopped the production leading to crisis of PHPs on time. Also, the supplier is nearly bankrupt. The company needs to find out a supplier that can provide the required number of PHPs on time and without any quality issues. Meeting Plan Objectives The major objective of the meeting is to find out the suitability and capability of the supplier in terms of timely delivery, quality and affordability as well as negotiating with the suppliers in terms of pricing so as to get the optimal value from the negotiation. The bigger objective of the meeting is to evaluate the benefits and risks of long-term relationship with the supplier. Key Items to Negotiate Grand is one of the well known hotels in the city. The hotel is famous for its luxury, quality and service. The brand has also been maintaining its service stature for a long time and has expanded many regions across Europe. Its latest expansion has been in Prague through a luxury convention and tourist hotel with 5000 rooms. Southwest Communications, on the other hand, is a major communications equipment supplier. As the supplier has good reputation is the market, the overall service charges and prices are higher compared to average suppliers (Haberberg and Rieple, 2008). The key Items to negotiate have been identified as follows; 1. Price: Price negotiation will occur as the two parties have not yet settled on a final price for deliveries (Queensland Government, 2014). Both parties have been trying to persuade on the basis of their brand name and reputation. 2. Technical specifications: Technical specifications will include the product features, similarity or differences with the previous handy phones, compatibility, battery power, durability and resistance (Moreira, 2009). 3. Performance standards in the local market: The overall performance standards of the supplier can be another negotiating factor among the two parties. For this, Grand will be pre-researching the supplier’s history, client lists, issues and complaints faced and other critical information that might help during negotiation (Zachariassen, 2008). 4. Possible regulatory issues: Possible regulatory issues that might affect or influence the negotiation process may be surcharges or extra charges from the new suppliers which is a norm in the industries, market regulations and other contracts established by the supplier party. Regulatory issues can also come into factor in avoidable situation such as damage during transport, damage during production or delivery of faulty products (Talluri, Vickery & Narayanan, 2008; Chang & Lin, 2008). 5. Delivery commitments: Delivery commitments are another important negotiating factor in this situation. The various delivery commitments can include timings of the delivery and pattern of delivery such as in batches or at once (Drejer, 2002). Delivery commitments can also occur in terms of spare part deliveries. Key risks and opportunities Price will be the foremost item of negotiation. As grand was in a contact with Four Stars, the prices of the PHPs were lower compared than the standard. The contract with Four Stars included 300 PHPs (voice only) for 165 dollars a unit as against 185 dollars per unit. Similarly, a discount of 25 dollars per unit was made for data and voice PHPs at 185 dollars a unit. One of the major issues behind keeping the contract intact with Four Squares, even after the numerous quality problems faced by the Grand Hotel, was the price. The discount was very attractive and recently Four Stars also stretched its guarantee period from standard one year to three years, saving money in terms of repairs and other technical issues. Therefore, buying the products at a negotiable price will be the key objective of the process (Andersson & Servais, 2010; Ferrell and Hartline, 2010). For the current contract, Southwest Communications are charging 20 percent higher list price compared to the standard market price. It is also known as the list price of Four Stars was lower than the market price (David, 2011). The objective of the price negotiation will be to settle at 30 percent increase from the original contract with Four Stars. Adding to this, the negotiation will also include a contract wherein the suppliers will agree to match the production process with industry standards. In order to avoid any risks of delay or other crisis situation, Grand will also make a contract with the supplier wherein any delay in delivery might result in deduction from supplier payments (Janda & Seshadri, 2001). The quality of the products may vary due to different technical specifications manufactured by the supplier and can be another important negotiating factor. Grand will try to make contract wherein the supplier needs to provide exact technical specifications as the original contact, if otherwise the supplier present better technical specifications within same or marginally increased price range (Humphreys, Shiu & Chan, 2001). A major opportunity in this negotiation is the higher quality products supplied by Southwest Communications. One of the key risks can be in terms of surcharges. The supplier has an upper hand in this negotiation as it is a common custom in this industry where surcharge is added for rush or emergency orders. These surcharges are calculated on the basis of size order and time frame of the delivery. As a result, it is also expected that the supplier will demand an extra surcharge apart from the 20 percent rise in price list (Janda & Seshadri, 2001; Carey & Lawson, 2011). Another risk, which can occur, is that the negotiation can go bad and Grand might lose Southwest Communications. This might occur due to several factors such as disagreement between the seller and buyer, bad or unacceptable behavior by members during the negotiation process or simple disagreement by the supplier. In this situation, it is essential to have a contingency plan (Doran, Thomas & Caldwell, 2005). For this, the purchase manager can chose two best suppliers meeting the requirements instead of choosing one. In order to increase the success rate of the negotiation meeting, the supplier will be research in terms of their past history, any commitment failures or delivery failures. These important facts will help Grand hotel in establishing strict contracts wherein the hotel can cancel the supplies in case of any sudden delays and qualitative issues. Another strategy for a successful negotiation meeting will be practicing the best arguments and strong points before hands. This will increase the overall confidence of the negotiating members and will enhance the outcome of the meeting. Negotiation Team and respective roles The negotiation team for the current process will consist of the Procurement Director, purchase manager, lawyers handling the contract. Procurement Director: The role of the procurement director is to oversee the suppliers as well as long term strategies and contractual agreement. In the current negotiation, the procurement direct will brand its company’s reputation and image in order to gain an upper hand over the suppliers. Also, the role of the director will be to make sure that the negotiation process occurs smoothly and in favor of the hotel. The purchase manager: The purchase manager will be the person negotiating in terms of price, quality, guidelines, policies and other issues. The role of purchase manager will be important as the purchase manager will be developing relationship with the supplier. As the purchase manager will negotiate the overall price and other factors and will make sure that the supplier-buyer deal is optimal (Ogdenn & McCorriston, 2007). Lawyer: The in-house lawyer will help in dealing with the contractual agreements and risks and benefits of both sides when changing certain terms of agreements. In addition, presence of lawyer will help in rapid closure of the deal. Negotiation Meeting Outline Title of the meeting: Supplier agreement and purchase order Objective: To negotiate and finalize supplier for personal handy phones (PHPs) for the newly launched Grand Hotel in Prague. Date: Location: Grand Hotel Administration Office Time: Meeting Type: Official supplier meeting Meeting Preparation 1. Documents Required: Negotiation contract, previous contract with Four Square. 2. Pre-research: Supplier background, History, Client list of the supplier, Issues and problems and any conflicts with parties. Discussion Discussion of the negotiation points of both parties and final contract preparation Documents and Handouts shared These include the minutes of the meeting, a copy of new contract to the main officials from both parties and the details of the purchase order to the supplier and a copy to the contracting company. References Andersson, S. & Servais, P. (2010). Combining industrial buyer and seller strategies for international supply and marketing management. European Business Review, 22(1), 64 – 81. Carey, S. & Lawson, B. (2011). Governance and social capital formation in buyer-supplier relationships. Journal of Manufacturing Technology Management, 22(2), 152 – 170. Chang, H. & Lin, C. (2008). Inter-firm influence strategies and their impact on developing buyer-supplier relationships. International Journal of Commerce and Management, 18(1), 10 – 30. David, F., 2011. Strategic management: Cases and concepts (13th ed.). Florence, South Carolina: Pearson. 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