Coffee Trade

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C. Round 5

1. Were your negotiations in this round successful? Why or why not?

Our negotiations were quite successful in this round with a total profit of $6,935.2. In business unit 1 where we acted as supplier, one of strategies we continued to adopt was building a mutually-beneficial relationship with customers, we had an integrative negotiation approach. With the previous rounds of interactions and experiences with different customers, we could identify some customers that were not keeping their promises. Therefore, we decided that we would not do business with them. It was a strategic change. By doing so, we could refocus on the valued customers and served them well. At the same, by spending more time with the customers we valued, we were able to finalize the contracts with more margins while bearing a certain amount of risks. It means that through sharing part of risks we were not selling Orange Bourbon at a loss any more, we were selling with profits. In the end, due to all these negotiation efforts, we ended up with a profit of $3,557.2 in business unit 1. We adopted the same strategy as in Round 4 for business unit 2 and we could get a healthy profit in business unit 2 as well.

2. What did you learn in this round?

One of the things we learned was that negotiation was not always a zero-sum game. By sharing some uncertain risks with other party, we were able to gain more because customers were willing to pay at a premium. We also learned that risk was not a bad thing. We gained more businesses - thanks to the uncertain risks. One customer came to us because their original suppliers did not want to bear risks. A third learning was that the collaboration with team members was critical to success. We need two kinds of beans to produce the blended beans and we needed people who purchased the two beans work together seamlessly.

Since we had a long-term contract for Maui, we could not negotiate the best deal as the supplier was not willing to bend on price. We learnt that we should have included a clause to break the long-term contract.

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II. Overall Lessons Learned

Describe your team’s overall takeaways – what you learned across Rounds 1-5 – from this simulation.

One of the key lessons learned was that having a good relationship with our clients pays off. We could make higher profits by making close relationships with our clients. Since the simulation was running for 5 consecutive runs, by having an established relationship and trust we would able to have a smoother and easier negotiations in the next rounds. Finding the ZOPA and calculating the price within the ZOPA we could find a price and written terms and conditions in the contract that both parties were happy.

The negotiation strategy was clearer when we did our calculations before approaching the other party. Having known and understood your reservation point and BATNA is critical before one enters any negotiation.

As good relationship with customers was important, having a good, long-term relationship with the supplier was also critical. Our team bought Kona from the same supplier for four rounds and because of that we could get good prices round after round. However, on the other hand our long-term contract with the Maui’s supplier did not work out that well as the supplier did not bend on the price. Therefore, although it is good to have strategic relationship with the suppliers to drive the costs down, it is essential that risks associated with these partnerships be assessed and mitigated at the same time. We also learnt that price is not the only important parameter in the supplier-buyer contract. Other aspects such as quality, delivery, supplier practices etc. are vital to a contract and contribute towards the total cost of ownership of the contract.

Additionally, as mentioned earlier, there was a learning curve and our team was a little bit slow in picking up the “tricks” in the game, therefore, our performance was much better in the later rounds than in the beginning. Overall, we felt very happy that our team’s performance was constantly becoming better and better in each round (see details in the graph).

The other aspect of this game was that even though the rounds were open till late in the night, our team completed most of the negotiations during the class time. There was some pressure to close the deal within the class time. This resembles a real-life scenario when professionals have other jobs to complete and there is only a limited time span that they can devote to negotiating a contract. Therefore, it is important to effectively utilize the time to make the negotiation strategies.

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