XI. Supplier’s Viewpoint – Preferences

The screen shot below shows the initial negotiating ranges chosen by Supplier for each selected negotiation variable. For example, the negotiating range defined by Supplier for Profit was from a loss of $200,000 to a gain of $800,000. A loss, of course would not be acceptable, but the range was defined to include a loss in order to accommodate the initial proposal from Buyer.



Preference analysis resulted in a relative importance rating being assigned to the negotiating range for each included variable. The relative importance assigned to Profit was deliberately fixed at 100 satisfaction units so that one unit would represent approximately $1000 of Profit.  In so doing, the importance of the other variables are determined in relation Profit. For example, with the given ranges, Order Lead Time, was worth only 0.29 satisfaction units on this scale and was the least important included variable.

These relative importances may not stay constant during the course of the negotiation but vary as the players learn more information and are able to do a better analysis. Later in the negotiation process, with the help of their facilitators, Supplier may use a methodology called Even Swaps to fine-tune their preferences. The importances shown here are the ones that existed at the end of the negotiation. Note that, since each party set their own scale and not all variables had the same negotiating range, the relative importances cannot be directly compared between parties.

Notice that no importance is assigned to the variables in black lettering. This is because the satisfaction from these variables is totally captured by the performance variables that are included in preference analysis.

By default, Smartsettle displays the more preferred end of the negotiating range on the right hand side. This can be seen readily by the simple linear satisfaction graph for Profit.


The satisfaction graph defined by Buyer for Return on Sales was non-linear, taking a sharp bend from 6 to 10%. The shape of this graph depends on Supplier’s perception of the opportunities for selling the same product to other Buyers. There is little opportunity above 10% return on sales and a lot of opportunity below 6% return on sales.



In the case of Price Index Interval, both ends of the negotiating range are undesirable compared to the most preferred outcome for Supplier, which is shown here at 3 months. Being very risk averse about potential losses if the interval between price adjustments is too long, Supplier would like prices to be adjusted frequently, but not so frequently that the process becomes inconvenient.



The satisfaction graph for Order Lead-Time is also non-linear. A longer lead-time is important to Supplier, although it doesn’t make much difference more than about five days.



The satisfaction graph for Payment Terms shows a sharp kink at 120 days. It turns out that company policy does not allow an agreement to specify payment terms longer than 120 days and it would be very inconvenient to change that. The curve for payment terms less than 120 days is flat since the effect on satisfaction for any value within that range is already captured by the formula for Profit.



Most critical to a negotiation, is how much satisfaction each player expects to achieve. When parties seem not to be making quick progress toward a solution, a Smartsettle Facilitator might suggest that they do a confidential walkaway analysis. Parties may also seek advice   from professional counsel at this time. In this simulation, players were told at the beginning that the values defined by the Prior Contract would be   acceptable, but no package less satisfactory than that. Following is how the Prior Contract looked in Supplier’s view, compared to the negotiating range.