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Category: Procurement and Sourcing

Supply Chain News: Three Negotiation Tips to Drive Improved Procurement Performances

 

Learning More about People than Product Categories will Drive Success, Negotiations Expert Says

Jan. 13, 2020
SCDigest Editorial Staff

Negotiating skills are clearly one of the most important success factors for procurement professions, even as it is well understood procurement excellence involves much more that beating up suppliers for lower prices.

Still, acquiring better negotiating skills is a good thing - and some rather simple principles can drive much better results.

Supply Chain Digest Says...

Potgieter says that if buyers learn more about people than they do about a given category, product, service or solution set they will be unusually successful.

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So says Jan Potgieter, managing director of Imperium Global Negotiation Solutions, writing on the SupplyManagement.com web site from CIPS, basically the British equivalent of the Institute for Supply Management (ISM) in the US.

"Significant value frequently escapes from the supply chain because procurement professionals view negotiation as an event rather than a process," Potgieter says.

Modern day functional discrimination in the workplace has brought with it an incorrect understanding of what it means to negotiate, he argues.

"Simply put, to negotiate is to do business. It is not just what happens when you're finally getting down to the specific terms and conditions of a potential agreement," Potgieter adds.

He says that negotiations start the moment a buyer first makes contact with internal stakeholders or vendors. He then offers three negotiations strategies that procurement managers can profit from, as summarized below:

1. Decide who should make the first offer: Convention dictates that the seller usually makes the first offer. But Potgieter says supply managers shouldn't just default to calling for proposals where vendors will list propose prices.

"There are at least two instances where it will make a lot of sense for you to make the first offer in terms of setting out a 'target price' or budget," Potgieter says.

When it is clear that the vendor believes that they have more power than the buyer does it can really aid the buyers cause to anchor their expectations around their own budget aspirations. This will ensure that suppliers don't unnecessarily inflate their pricing or restrict the level of their discounting.

If the power balance is not completely clear or if there is parity in power it can be smart to put out the first offer in the shape of a target price or budget so as to anchor the supplier's expectations around the buyer's aspirations rather than theirs.

2. Don't default to a single negotiation strategy:
Too often professional buyers default to a competitive negotiation strategy, Potgieter says.

"Just because you are the customer doesn't mean that you can or should demand the best deal through using competitive approaches," he posits, adding that "Vendors, like all humans, are more likely to extend their best offers and deals to those whom they like, and those they feel cooperate with them."


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And remember vendors soon wise up to competitive approaches and hedge their bets accordingly.

3. Remember that negotiation is a people game: At the end of the day, negotiation is a people game, Potgieter says.

"Concessions are made by people; opportunities are created by people," he notes. "Problems are created and solved by people. Great deals are signed off by people."

The import of that, Potgieter says, is that if buyers learn more about people than they do about a given category, product, service or solution set they will be unusually successful.

And that is some very different procurement advice indeed.

What do you think of these negotiation tips? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

Tom Miralia

President and CEO, Distribution Technology
Posted on: Jan, 29 2020
My experience aligns extremely well with what Potgieter is asserting!

When it comes to contracting for warehouse logistics services, I can show that procument driven RFP's generally fall far short of a 'best practice' given they way they are managed.

We have methods and strategies we offer our prospects that are far more effective more often, and yet so often they are ignored due to the fact that procurement has its own set methods which stand in the way?

I understand that in many cases larger firms utilize procument staff to ensure corporate ethics and consistancy, to serve as a resource in support of operations leadership, and yes, to apply 'pressure' through 'competitive approaches'.  The shortcoming in the approach I believe is that the scorecard for the procurement manager typically lacks balance, and then the operating team is left to deal with a supplier working to recover from a 'bruising' negotiation process that's often sows latent defects in the relationship that have to be 'fixed on the backend'!  Is this on target?

A better way is to 'walk together'- like setting a budget range up front as mentioned, and sharing work scope and contract terms early in the conversation (once its apparent a supplier is qualified as a prospective solution provider).  Solid strategies exist to arrive at the supplier's 'best price' right up front as part of the process, and do it efficiently and gracefully in an atmosphere of mutual trust- you know, a 'win-win' relationship that is more likely to prove more sustainable and just, as if not more, cost effective!

Or it can be done like a commoditized process similar to everyone else's, and suppliers will play a game like everyone else too, hedging pricing and risks as also mentioned above which seems a truly lackluster practice?  Is it ok to be satisfied to be like everyone else?  I for one am committed to something better, if permitted.

Procurement teams that have cracked this code, those can that promote 'walking together' (with suppliers that have the culture for it)  through an RFP will acomplish higher levels of effectiveness on behalf of their organizations.  It's just a better way.

Makes sense?

 
 

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