THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES Faculty of Business Administration (taught in foreign languages)

Negotiations Project
Best Negotiation Deals in Automotive Freight Transportation

Professor: Adina Filculescu

Realized By:

December 2013
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TABLE OF CONTENTS

1. Introduction - Description of the Industry 2. The Partners involved in the Negotiation 3. Stages of the Negotiation 4. Conclusions 5. References

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DESCRIPTION OF THE INDUSTRY

The automotive industry is made up by large companies and organizations which are involved in designing, manufacturing, transporting and selling of all kind of motor vehicles. It represents one of the most important economic sector in the U.S. that contributes to the American revenue. For many decades, The U.S. was the leader in the automobile production. Nowadays, even though the United States produced 8.7 million units in 2011, was completely overtaken by China who produced 18.4 million units, followed by Japan with 8.4 million units. Along the history, the automotive industry evolved to be dominated by three firms, General Motors, Ford and Chrysler. They were all based in Detroit, Michigan which for many years was the strategic point of the industry. In the whole process of designing and manufacturing the vehicles, parties are involved such as plants, companies, organizations, transportation companies that are being part of a complex supply chain management very tightly linked one another. The assembly plants are always in need of financing good and reliable trucking companies to help them with delivering the main parts from different manufacturing companies to their assembly factory in order to fulfill the last stage of the manufacturing process. Like in many industries, automotive manufacturers and their suppliers usually are looking to find the best transportation deal for it to cover even tight deadlines.

THE PARTNERS INVOLVED IN THE NEGOTIATION

In order to find the best transportation option, the shippers such as Ford or General Motors usually are being helped by freight brokers or logistic brokers. Freight brokers are federally regulated and bonded companies. They are involved in the supply chain and distribution process by providing the shipper with the most serious and reliable transportation companies, selected using specific criteria from a vast network. Basically, the freight brokers do not touch the freight. They are being engaged in helping the big manufacturers, find the best price with the best carrier for any load necessary to be transported. But not anybody can become a freight broker. To obtain a brokerage license, a company must purchase a surety bond in amount of $75,000 or a trust agreement with federal motor carrier safety administration. The main purpose of the bond is to protect shippers and carriers from fraud. One of the well-known freight brokers is Schneider, a logistic company which is involved in supply chain management of General Motors. Schneider Logistics has a brokerage experience of 10 years, being involved in partnership with over 6,000 carriers. Schneiders Selection process of trucking companies is based on specific criteria directly connected with the federal motor carrier regulations. In order to qualify with Schneider and to be able to sign a contract, a transportation company must prove that it has a good credit history in the field, in terms of the size of the fleet, the safety policies adopted, the drivers qualification, the professionalism of the people from logistic department and last but not least the good references from other three brokers.
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It takes time and a lot of work for a new and midsize company to get involved in the supply chain process of automotive industry because the requirements are very hard to fulfill. So this brings forth to our project, the intention of presenting a small company, Top One. Co., established in 2006 and located in West Bloomfield, Michigan. The company started its operation with ten trucks, having contracts with brokers like FEDEX, COYOTE LOGISTICS, and CH. ROBINSON and so on. The general manager became very interested in establishing a long term relationship with Schneider Logistics due to its posting online, on the freight websites, available weekly shipment which would ensure at least one year of contract and daily loads for at least five trucks. Before starting any negotiating, there is a preparation period when parties try to get familiar with the activity and level of performance of the other party. As far as Schneiders concerns, it is well known by all carriers of its good reputation. The integrity in respecting the terms of the contracts are being rated on the trucking websites as 100 percent reliability broker, the category TOP A Company. But Top One Co. cannot be put on the same level as the other high-end companies mainly because it only has a couple few years of activity. So in order to prove its integrity, the transportation company opened a dialog over the phone expressing its interest in signing a contract. It was contacted later on by the manager in charge with carrier settlement, requesting before entering into any further negotiating process, the companys license, insurances, and some references. Everything was checked thoroughly by the appointed managers of Schneider, more of an understanding meaning it was like a preapproval stage.

Top One Co. faxed all the documents requested and in a couple of days it had received a phone call from the settlement department of Schneider asking for a special meeting in order to discuss the terms and conditions of the agreement. At the moment of the first meeting, both parties were willing to open the dialogue as if they already passed its first stage of trust. Their mutual interest brought upon on good collaboration and cooperation as their basic style of negotiating. STAGES OF THE NEGOTIATION

Stage 1: Preparation

Before starting a negotiation, preparation in all three areas is mandatory: yourself, the other party and the industry. In our case this consists in identifying the potential interests and issues involved both for us and the other party. We wish to negotiate a contract with Schneider Transportation Management which in an intermediary between us, Top One and GM that produces auto parts. The contract is an agreement that will consist in us, transporting auto parts for GM. Some potential issues were identified: the desired number of transports per week are 5, the duration of the contract minimum 1 year, the price per mile 2 dollars. Our negotiation interests are set to be the following: the desired price and maintaining a long term relationship with Schneider Transportation. We assigned each issue to one of the four priority levels: the price is essential, the length of the contract is important, the frequency of the loads is desirable and the party who assumes the responsibility of late or no delivery is important. We should always start with a clear defined BATNA and in our case we established this to $2.15 per mile.

Even though the other party will withdraw from the negotiation we would have other alternatives like $2.05 and Top One Co. resistance point is $1.90, but the long term relationship with the other party is very important for us. If negotiation doesnt go as expected the carrier will consider the following alternative: accept a smaller rate with the condition of making a collaboration compromise which involves that Schneider Management will ensure us other transports from a destination we already reached in order to not to come back with an empty truck, but with a transport for another client. Also a research was done in order to find appropriate documentation that will help the negotiation to focus on facts. We gathered information from different sources and found out that Schneider Transportation Management is one of the industrys top brokers with an experience of 10 years. They have many payment programs that ensure you get paid and that the payment is accurate. They put a high accent on safety, security and professionalism of carriers they trust with your freight, and according to specialized transportation sites they are one of the most appreciated brokers. We established the four main issues that we build our negotiation on: The initial offer of Schneider was set to be $1.90, the target point $2.05, the resistance point $2.10 and the most ideal alternative outcome we could get without negotiating is $2.00. Also reframing the negotiation is taken into account if the negotiation goes into the wrong direction. With integrative reframing, the parties will try to redefine the problem in a win-win way. This will be done be redefining what each party wants so that everyone can have what they want at the same time, even with limited resources.

Stage 2: Opening session

For the stage of opening session, the 5ws were taken into account and we considered the following: Mr. John Murarita will speak for Schneiders party, Mrs. Mihaela Popescu will speak for Top One, Co, and the representative for GMs receiving department will be Ms. Anca Patrascu. The negotiation will take place in a neutral place, a rented conference room. The negotiation will take place on the 2nd of December 2013 at 2pm. As a final agreement only a written signed and dated contract is accepted. We make our initial offer which consists in a rate of $2.15 per mile, a number of 5 loads per week and a granted one year contract. Stage 3: Bargaining The number of parties and number of issues are 2 critical variables that shaped our negotiation. There were 4 main issues that conducted our negotiation: price, duration of contract, number of transports, liability and safety issues. The negotiating parties are the representative of Top One and the representative of Schneider Management Transportation. A representative of GM also attended the negotiation in order to provide accurate information about the specific auto parts that will be transported and to establish the most convenient schedule for both. Our bargaining range was set to be in the positive settlement zone. Tactic used was the integrative bargaining because both parties have common goals and wish to maintain a positive long term relationship, thus it resulted in a win-win situation. It has been created as much value as possible for both sides but also claimed as much value as possible

to meet our interests. Therefore it has been generated a variety of alternatives that provided mutual gain. Our focus was mainly on the substantive interests, and here we refer to the price, but also on relationship interests. It has been used an Interest-Based Bargaining, following a few steps in order to reach a favorable mutual agreement: the parties shared the information, focused on the issues, expressed their interest, and the most important both were committed to creating a long term relationship. Stage 4 Settlement The negotiation resulted in a settlement because both parties communicated well their interests and both offer a settlement that exceeded our BATNA. The carrier obtained a rate of $2.05 dollars per mile, 3 numbers of transports in the first week, and 5 weekly loads for the next period with a one year contract. Also, the company obtained a collaboration compromise, accepting a smaller rate, but this compromise ensures that it wont have any loses and it will have a granted transport from a destination back home. In case of delays due to different flaws, Top One took the responsibility for providing another transport and fees paid by the carrier depending on the delay time or otherwise the company will be liable of a claim up to $100,000 depending also on the consequences of the time delay on the manufacturing process. The final closing is represented by a written, signed and dated document.

CONCLUSIONS

We learned that during the negotiation process, both parties interests were satisfied in obtaining all the necessary needs. The negotiation was finalized with a one year contract which proves its trustworthiness towards each other, also build up good reputation for others to come. From the beginning the atmosphere was relaxed and involved a lot of communication, both parties being ready to disclose all their objectives and interest. Schneider Logistics reached its target point of $2.05 per mile and obtain from Top One Co. full liability and responsibility in case of delays or damage freight. We can conclude it has more bargaining power considering the fact that the broker had more experience in the field and a more well-established reputation. For a newcomer, Top One Co. obtained a very good rate, a good alternative even though it was not its BATNA and most of all getting that one year contract which will keep its activity in motion. Signing a contract with such an important broker, it was a big step in building up its name. What could have been gone wrong? Transportation Company would not be willing to compromise, just only based on its own interest. Not having any persuasion towards the broker in order to convince that its reliable enough to fulfill the terms of the contract. On the other hand, the manager of Schneider could have adopted an arrogant attitude, putting himself in a superior position and refusing to go below its initial offer. No one can guarantee a successful negotiation, but as long as parties rely on communication, open-minded, fairness, trust and real ethical values, the chances become real.
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REFERENCES

DeMarr, Beverly; De Janasz, Suzanne (2012). Negotiation and Dispute Resolution, Prentice Hall Textbook Carrell, R.M.; Heavrin, C. (2008). Negotiating Essentials. Theory, Skills and Practices, New Jersey: Pearson&Prentice Hall Textbook Thompson, L.L. (2005). The Mind and Heart of the Negotiator. Third Edition, International Edition, New Jersey: Pearson& Prentice Hall Roger Fisher, William L. Ury, Bruce Patton (Editor); (1991). Getting to Yes: Negotiating Agreement Without Giving In. [Charan_Devereaux,_Robert_Z._Lawrence,_Michael_D._case studies in us trade negotiations

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