Answer to Question #205089 in Microeconomics for Mungadi Phumudzo

Question

Wet coals have also been identified as one of the issues causing load shedding in the

country. Eskom have not been happy with the current supplier for some time. Discuss how

should Eskom go about a negotiation process with a prospective new supplier. (30)

Answer 1

Solution:

The negotiation process should not just be about price, but about managing and enhancing overall supplier performance. Eskom needs to have a broader approach with the prospective new supplier around their performance, including measurable criteria such as accurate and timely deliveries, strong and reliable customer support, high quality, cost management, reduced supply chain risk, and great and efficient communication.

Eskom should start with maintaining robust and proper communications with the new prospective supplier to attain great leverage in future negotiations, including being attentive and responsive to issues.

Eskom should also carry out a vigorous background check on the new prospective supplier, including getting references for the same before any agreement is made to ensure that they meet the required standards and that their performance is of high quality and appreciated by everyone. In addition, the company should research the actual costs the new prospective supplier incurs when making their products. This will allow them to have a leeway when negotiating on price matters.

Eskom should also speak with other suppliers and know the lingo to have an intensive and better understanding of their new prospective supplier so that they can be able to provide consumers with effective and sufficient services.

Eskom should also get quotes from multiple suppliers and let them know that they will be selecting the supplier with the best quote, which will create competitive pricing and allow the company to get a good deal out of the negotiation process.

Eskom should uncover or detect areas of mutual or collective gain and take advantage during the negotiation process with the new prospective supplier. In case the new prospective supplier is not keen on price negotiation, Eskom can turn their focus to other key areas of agreement such as the down payment amount, purchasing in bulk discount, the length, and scope of warranty that might yield even greater benefits for both parties.