Leveraging ChatGPT for enhanced negotiation skills

Upskilling the Procurement Function

Large language models (LLMs) such as ChatGPT are revolutionizing the business landscape, playing a pivotal role in various functions including negotiations, which are fundamental to business operations. We specialize in training procurement teams to excel, among other disciplines, in negotiations by finding the optimal outcomes. To leverage this technology, we have tested ChatGPT’s capabilities as a simple negotiation advisor to assist procurement teams in their daily operations and explored three common negotiation scenarios.

Scenario 1: Addressing supplier price increases

You got a letter from a supplier declaring that due to high energy cost your supplier will raise prices by 15%. What would be your negotiation strategy Chat GPT?

“My negotiation strategy would depend on the specific circumstances and the relationship between my company and the supplier. However, some general steps that could be taken include:

1. Researching the market: Investigate the prices of similar products from other suppliers to determine if the proposed price increase is fair or if there are alternative suppliers who can offer a better price.
2. Identifying cost-saving measures: Work with the supplier to identify ways that they can reduce their costs, such as by increasing efficiency or finding cheaper raw materials.
3. Exploring options: Discuss with the supplier if they are open to alternative solutions such as longer payment terms, exclusive contracts or volume discounts.
4. Communicating clearly: Clearly communicate your company’s position and the reasoning behind it, and listen to the supplier’s perspective.
5. Seek Legal advice: If the supplier is not open to negotiation, seek legal advice if appropriate.

Ultimately, the goal is to reach a mutually beneficial agreement that allows your company to continue purchasing the necessary products while also allowing the supplier to maintain a reasonable profit margin.”

Thanks, ChatGPT. Let's dive deeper into your suggestion.

1. Exploring alternatives is key. Though aiming for 3–5 options is ideal, often only 1–2 fit our criteria. Terms like "fair" or "unfair" are subjective, so their use should reflect personal perspectives.
2. Excellent suggestion. Engaging the supplier in conversation to explore compensations for the price hike in different aspects is a strategic move.
3. A good strategy, but consider starting with open-ended questions to encourage more detailed discussions.
4. Swapping perspectives is a valuable strategy.
5. It hinges on the contract's details, such as force majeure clauses. Reviewing the contract before negotiations is crucial, and involving legal counsel might be necessary. While negotiators shouldn't defer to others when challenges arise, leveraging external authorities can sometimes be strategic.

That was very helpful. Let's proceed with this supplier as our sole option.

Scenario 2: Exclusive supplier negotiation strategies

Facing a 15% price increase from a crucial supplier with no alternatives, what's your negotiation strategy, Chat GPT?

“My negotiation strategy would be to:

1. Understand the supplier’s perspective: Understand the supplier’s position and reasoning for why they need to raise prices.
2. Evaluate the cost impact: Analyze the impact of the price increase on my company’s bottom line and determine how much of an increase my company can afford to absorb.
3. Seek Alternatives: Look for alternative solutions to the proposed price increase such as changing the product mix or finding ways to reduce consumption.
4. Communicate clearly: Clearly communicate my company’s position and the reasoning behind it, and listen to the supplier’s perspective.
5. Find a compromise: Work with the supplier to find a compromise that allows my company to continue purchasing the necessary products while also allowing the supplier to maintain a reasonable profit margin. For example, negotiate a phased-in price increase over a longer period of time, or negotiate to spread the increase over multiple products rather than applying it to all products.
6. Seek Legal advice: If the supplier is not open to negotiation, seek legal advice if appropriate.

With no alternatives and needing this supplier, prioritizing a compromise to maintain purchases while protecting our bottom line is key.”

This insight is spot on. Let's dive deeper:

1. Indeed, grasping the other party's perspective aids in uncovering core issues and crafting solutions.
2. True, not all companies can absorb costs, and passing them to consumers might be necessary. It's a delicate balance, but ultimately, it's up to the negotiator to determine the best course of action.
3. From my perspective, exploring options to decrease consumption, tailored to the product, is a viable strategy.
4. Agreed, as previously mentioned.
5. Indeed, that's an excellent response.
6. Once more, echoing previous points.

You might think your strategy aligns with Chat GPT's. Frequent negotiators know the tricks, but summarizing them quickly isn't easy without prior preparation. Chat GPT can thus be a valuable digital mentor, offering a fun way for new negotiators to learn and even simulate full negotiations.

Let’s have a look on the example…

Scenario 3: Interactive learning in a negotiation role-play

I'd like you to take on the roles of both negotiator and seller for a brief negotiation simulation. Here's the scenario: Your company sent mine a letter about a 6% price hike due to rising energy costs and inflation by March 2023. In response, we communicated that we hadn't planned for a price increase this year; instead, we're interested in discussing a 4% price reduction across all products. Let's negotiate this matter in an upcoming online meeting.

"Appreciate your feedback on the price increase. Rising costs impact us too, making price adjustments necessary to maintain quality. While a 4% cut across all products isn't viable, we suggest a middle ground: a 3% rise on select items and a 2% reduction on others, easing the strain on both sides. Let's aim for a win-win solution."

Well done, in my opinion. How would you respond?

The Path to advanced procurement skills

Human communication remains unpredictable (though "yet" might be apt here), but for simulation and learning, Chat GPT offers substantial support, particularly for novice negotiators or in bridging language gaps. It's intriguing to consider the dynamics when language models from different entities, such as OpenAI, Google, or Baidu, engage in a virtual negotiation.

Effective negotiators improve by reflecting on their mistakes and consistently honing their skills, with or without the assistance of tools like Chat GPT. Maybe one last question:

What are three common pitfalls that even skilled negotiators might encounter when utilizing ChatGPT? Good negotiators often fall into these traps, which can be avoided by being aware of them:

• Overreliance: Depending too much on automation can miss negotiation subtleties.
• Misinterpretation: ChatGPT might not capture all complexities of human negotiations.
• Privacy Concerns: Be cautious with sensitive data to maintain confidentiality.

Upskill your procurement function with AI

Are you ready to elevate your negotiation skills with or without the help of AI? Reach out to us for more information.