Ain’t apples to apples

Each trading day at the local bourse is never the same. This is perhaps the “special spice” fund managers confront daily when dealing with equities, especially when profiles of buyers and sellers are unknown. Demand and supply situations change by the second from pre-open to run-off, and investors need to carefully weigh their list of external and internal considerations prior to executing the best buy or sell call. Wall Street’s weakness has exerted influence on sentiments lately, and information flow has become vital to provide investors the confidence they need before positioning. Even recommendations to either buy or sell a publicly listed company vary between brokerage houses, depending on gathered data while sifting numerical facts that could influence share price performance. Some have, in fact, transgressed to “mature” calls, correlating the holding period that would be most fitting before recommending a stock, and weightings per sector categories’ prospects and challenges.

Similar challenges are also encountered by buyers and sellers in e-Marketplaces. Approaches toward appropriate pricing are carefully examined, based on outlined requirements conveyed during the pre-bidding round. This significance is underscored when supplier partners need to effect upward adjustments in prices, driven mostly by factors outside their control (e.g., volatile crude costs, electricity pricing, tariff changes, foreign exchange, and raw material destination, among others). Proper benchmarking can also be made, especially when comparisons need to be realistically plotted based on prevailing market scenarios. To cite an example, purchase order prices in the third quarter of 2007 may no longer hold this February, and purchasers need to revalidate if this trend is supported through up-to-date catalogues posted in an exchange.

So, can negotiations be “perfected” en route to e-Marketplaces?

Let’s define “perfect.” “Perfect” could mean hitting desired level of savings based on a trading partner’s budget, or it could also mean achieving higher-than-expected proceeds when disposing an item. By “perfect,” purchasers might give higher regard to other “intangible” variables based on their internal supplier scorecard, giving emphasis on after-sales service/end-user satisfaction, up-to-date delivery, well-defined administrative procedures or even extended credit terms. Simply put, the initial step to perfection entails defining clear-cut priorities and objectives to properly guide participants as to how the awarding process will be handled.

Next, one must carefully assess prevailing market conditions during the time of the negotiation. Snippets of bulleted economic/political/industry “situationers” are hardly visible during the requisition processing. These data become very useful, as decisions may have been effected when certain macro variables are strong (e.g., interest rates are at all-time lows, fears of US recession, etc.). Most, if not all, adopt a common practice where negotiated prices are compared versus historical purchase orders to save time. Others are forced to negotiate quickly, especially when processing “rush” requests. When this happens, negotiations are limited to a buying party’s existing trader partners, owing to the time element required for the accreditation round. The “smarter” ones, meanwhile, are able to appreciate “cost avoidance,” especially when expectations are up and prices might move higher within a defined horizon. They manage to plan activities ahead and are more able to provide wider options to process requisitions.

e-Marketplaces assist in filling the gap by facilitating negotiations that streamline the administrative route. Since clerical functions (e.g., relaying item specification, terms and conditions, etc.) are outsourced via electronic means. Pre-selected participants before the actual negotiation are given ample time to review and weigh their ability in servicing and properly financing their client’s needs. Over and above obtaining an important risk management partner, time management is likewise highlighted, as buyers gain flexibility to better understand the intricacies involved that alter demand-supply situations on pricing.

Allegations of “irregularities,” especially for large-ticket negotiations, are best avoided when objectives, resources and process flow are carefully mapped. Conditions prevailing for various situations during the negotiation process cannot be altered. In the end, what can only be justified is how the best business call was made in the light of prevailing circumstances.

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