Negotiation has traditionally been seen as the “raison d’être” for procurement professionals. While the profession adds value in a variety of ways, the ability to negotiate well remains a core skill – love it or loath it!
Preparation is everything when it comes to negotiating a favourable outcome. There are a number of ways of describing the process. Here is a straight forward one:
Research to find out as much about the suppler as possible. What was past performance like? What realistic alternatives are there in the market? What’s the financial health of the supplier? etc. Based on your research, establish your Best Alternative To a Negotiated Agreement (BATNA). This helps you avoid entering into unfavourable deals. Without having established a BATNA beforehand it’s easy to get caught up in the mindset that an agreement HAS TO be reached when you are sitting at the negotiating table. Your BATNA will tell you when to walk away.
Another aspect of planning is to establish “must haves” vs what you may be willing to trade. This type of planning is often summarised by the acronym MIL. It means “Must have – Intend to have – would Like to have”. If you are part of a negotiating team, decide up front which role each of you will play and stick to it!
During the execution phase it’s important to listen actively to the other party. Try to understand where they are coming from, their reasoning, pressures, etc. What might their BATNA be? Are there inconsistencies in their reasoning or pricing model? What are the areas that need further exploration to create a win-win outcome?
When it comes to negotiation styles, people tend to gravitate towards their favourite one. The most effective approach is to practice all of them so you can effortlessly switch from one to another depending on the situation. These are the key styles:
- Logic. You build up a watertight case for why what you want is fair and reasonable. Backed up with numbers and analysis, of course! But we all have different “logics”, so when you are using this style get YOUR logic on the table first.
- Emotion. This doesn’t (necessarily) mean breaking down in tears! It’s more about that shocked look on your face when the supplier mentions the price increase. Or about you saying things like, “We just can’t afford that”. No supporting “logic”. In fact, logic doesn’t work as a counter argument here. If you can’t afford it you can’t afford it, no matter how justified the supplier thinks the increase is.
- Bargaining. This is simple give and take on each sub-item you negotiate. You win some, you lose some.
- Compromise. Nobody wins here. Everyone walks away unhappy. But they are equally unhappy, so it may seem “fair”. Splitting the difference 50/50 is an example of this. This is really a “last resort style”.
Most negotiations do not comprise of “one event”. They normally take place over a number of e-mail exchanges, telephone conversations and in-person meetings. It is, therefore, easy to lose track of everything that was agreed along the way. Keeping a log throughout the negotiation process will solve that problem. Record promises made and the legal effect you want the corresponding clause to have. The vendor can then confirm these promises before final contract draft. If your legal department is to work on contract draft, the log will also be immensely useful to them and speed up the entire process.
Once you have completed the negotiation, take some time to note what went well and what could have been done better. If you continually learn and improve you are already winning.
To learn more about supplier negotiations, contact our Managing Director, Armand Brevig, today.
