WMBA 6501 Week 3 Integrative or Distributive Choice Example

The Price Is Fixed-Pie, the Rest Is Not: Choosing an Integrative Approach to a Fastener Distributor's Annual Bolt Supply Renewal, and What That Choice Costs the Next Time the Two Firms Meet

Student Name

Walden University

WMBA 6501: Conflict Management and Negotiation

Instructor Name

Month Day, Year

The Price Is Fixed-Pie, the Rest Is Not: Choosing an Integrative Approach to a Fastener Distributor's Annual Bolt Supply Renewal, and What That Choice Costs the Next Time the Two Firms Meet

The Negotiation

Each autumn Linden Fastener Supply, the made-up bolt and anchor distributor at the center of this course, renews its annual supply agreement with Calumet Bolt Works, a composite domestic manufacturer of structural bolts that supplies about a third of Linden's bolt volume. This year Calumet has opened with a 6 percent price increase, citing steel wire rod costs. Linden's purchasing manager must decide how to approach the talks. The case lists five issues: price per thousand pieces, lead time from order to shipment, a minimum annual volume, the pattern of monthly orders and payment terms.

Is the Value Fixed?

Walton and McKersie (1965) distinguished distributive bargaining, in which parties split a fixed sum and every dollar one side wins comes out of the other's pocket, from integrative bargaining, in which parties look for agreements that create more total value. The case can be read either way, and the right reading depends on the issues, not on the parties' moods.

Price, taken alone, is distributive. Every dollar Calumet adds per thousand pieces is a dollar Linden pays. If price were the only issue, the negotiation would be a contest over where between the two sides' limits the number lands.

The other four issues are not fixed-pie, because the two firms value them differently. Lead time matters more to Linden than to Calumet: Linden's customers on vendor-managed inventory programs need quick replenishment, while Calumet can shorten lead time for one customer at modest cost by holding a small finished-goods buffer. The monthly order pattern matters more to Calumet: its heading and threading lines run most efficiently when orders arrive evenly, while Linden's orders swing with its customers' production schedules, and Linden could smooth them by holding a little more stock. Payment terms matter more to Calumet, which finances wire rod purchases at a higher rate than Linden pays on its line of credit. The minimum annual volume matters to both, but in compatible ways: Calumet wants volume certainty, and Linden is already committed to buying most of that volume.

When parties value issues differently, trading across them creates value. Thompson (2020) describes this as logrolling: each side concedes on the issues it values less in exchange for gains on the issues it values more, so that both end up better off than a split down the middle on each issue would leave them.

The Choice: An Integrative Approach

Linden should approach the renewal integratively. Concretely, it should offer Calumet three things it values: a committed annual volume about 5 percent above last year's purchases, monthly releases within a band of 15 percent of the average, and payment in 20 days instead of 45. In return it should seek two things it values: a lead time of two weeks instead of four on its top twenty part numbers, and a price increase limited to 3 percent.

The logic is visible in the numbers the case provides. Smoothing monthly orders would cost Linden about $28,000 a year in additional inventory carrying, but Calumet estimates that even orders reduce its changeover and overtime costs by roughly $60,000 a year. Paying in 20 days instead of 45 costs Linden about $14,000 a year in interest on its line, while Calumet's own financing saving is somewhat larger. Shorter lead times would let Linden cut safety stock on its top twenty part numbers by about $90,000, a carrying cost saving of about $18,000 a year, and would reduce stockouts at its plant customers, which the previous week's case showed can be costly. Each of these trades creates more value for the side that receives it than it costs the side that gives it.

A purely distributive approach would focus both sides on the 6 percent figure and leave these gains unclaimed. Fisher et al. (2011) argued that negotiators find better agreements by exploring interests behind positions, and here the interests, even production, fast replenishment, cheap financing, are easy to state once someone asks.

Opening the Conversation

Choosing an integrative approach does not mean announcing it. Linden's purchasing manager should open by acknowledging the wire rod increase as real, then ask Calumet's negotiator which parts of the agreement cost Calumet the most to deliver. That question invites Calumet to name its interest in even production before any number is discussed. Linden can then put all five issues on the table together, rather than letting price be settled first, because a price agreed in isolation removes the currency the other trades would use. Thompson (2020) notes that negotiators who settle issues one at a time tend to miss the trades that make both sides better off. A written summary of what each side said it values, sent after the first meeting, keeps the package view alive between sessions.

What the Choice Costs Next Time

An integrative agreement is not free. It has three costs that will show up at next year's renewal.

First, the commitments bind. Linden will have promised smoother orders, and if its customers' schedules swing sharply next year, it will carry more stock or break the band. Calumet will have planned its lines around Linden's even releases and will be less willing to absorb a surge.

Second, information shared this year cannot be unshared. To build the trades, Linden will have told Calumet how much it values short lead times and how much safety stock it carries. Next year, a Calumet negotiator who wanted to bargain hard on lead time would know exactly how much it is worth to Linden.

Third, expectations of reciprocity rise. Having accepted a smaller increase in exchange for payment and volume concessions, Calumet will expect similar flexibility from Linden next year, even if Linden's position has changed.

These costs are worth accepting. The alternative, a distributive fight over 6 percent, would probably settle near 4 or 5 percent, leave lead times unchanged and teach both sides to bargain harder next time, which is its own cost to a relationship that supplies a third of Linden's bolts. The integrative agreement is the better choice provided Linden enters next year's talks knowing what it disclosed and what it promised.

References

Fisher, R., Ury, W., & Patton, B. (2011). Getting to yes: Negotiating agreement without giving in (3rd ed.). Penguin Books.

Thompson, L. L. (2020). The mind and heart of the negotiator (7th ed.). Pearson.

Walton, R. E., & McKersie, R. B. (1965). A behavioral theory of labor negotiations: An analysis of a social interaction system. McGraw-Hill.