The Role of Rhetoric in Supplier Negotiation: A Rebuttal

- July 10, 2014 6:32 AM
Categories: Commentary | Tags: ,

I usually don’t find myself so vehemently disagreeing with an essay than I did with an article published in Inside Supply Management (subscription required) from spring, titled “Creating Negotiating Excellence.” The author, a procurement practitioner at a financial services firm, makes the case for creating negotiating centers of excellence (not a bad idea on face value, mind you). But the argument she makes in favor of it speaks to a view of supply chain that I think misses the point in terms of what can make good negotiations truly great.

The author writes that “effective negotiation is a commodity-neutral, step-by-step process that is designed to maximize results in a balanced outcome that allows the supplier to be successful while protecting the interests of the supply management organization and its company … Solid knowledge about a particular commodity or service is, of course, beneficial, but a good negotiator does not have to be a commodity expert to deliver excellent results.”

Repeat that please? Good negotiation, at least in my book, is founded on information discovery and knowledge – deep knowledge. The more you know about a supplier’s cost structure and the overall markets in which a supplier is competing, the more likely you are able to begin to explore non-unit-price factors and arrive at truly optimal supply outcomes inclusive of total cost elements – logistics, inventory carrying costs, service levels, quality expectations, payment terms, etc.

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Moreover, the best negotiations that I’ve studied first-hand are a process of information discovery rather than rhetorical skills. In fact, I’ll take that statement one step further – truly optimal negotiations happen when a supplier can make a pricing and total cost decision based on knowing that the buyer knows even more than they do about the market. This holds true in discrete manufacturing supply chains. And for indirect and services procurement as well.

To suggest that “effective negotiation is a commodity-neutral, step-by-step process that is designed to maximize results in a balanced outcome” is hogwash. Now yes, a negotiation center of excellence (COE) may have its place – for example, in making use of sourcing optimization technology or for managing tail spend where real dollars are still on the table.

But please, go get a job as an extra on a Priceline advertisement if you think rhetoric still has an important role in persuading suppliers to ratchet down their price and that a centralized effort aimed at negotiation is a smart long-term investment. Let suppliers react to the market – and the fact that they know that you know more than them – not stereotypical purchasing nastiness and stonewalling of old.

Comments

  • Charles Dominick, SPSM, SPSM2, SPSM3:

    Nice rebuttal, Jason. I, too, disagree with the statement ““effective negotiation is a commodity-neutral, step-by-step process that is designed to maximize results in a balanced outcome that allows the supplier to be successful while protecting the interests of the supply management organization and its company” on multiple levels.

    First, using a “commodity-neutral” negotiator (i.e., someone who doesn’t know a damn thing about what they are buying) does two things: makes it easy for the supplier to skirt around probing questions and avoid disclosing information that could lead to mutual cost take-out (or classic price reduction), and sends a message that the buying organization is focused more on a transactional relationship than a collaborative one. That last point bears a lot of similarity to the feel that buyers create in their supply bases when they use reverse auctions inappropriately.

    Second, allowing “the supplier to be successful” while merely “protecting the interests” of the buying organization sounds like backward priorities. Procurement professionals should strive to make their own organizations “successful” while “protecting” the sustainability of the supplier relationship.

    Kudos for starting a good – and hopefully continuing – discussion that will better help people look at the pros and cons of the approach that the article recommends.

  • Greg Anderson:

    Amen, Jason. Smart strategic sourcing requires skilled people who utilize a commodity-specific process to collect the appropriate information and build a fact base that supports an effective negotiation. “Excellent results” are seldom delivered if the negotiator lacks the expertise to understand the commodity and make the right trade-offs (e.g. higher price for a shorter lead time or guaranteed capacity) during the negotiations.

  • Jason Busch:

    Awesome observations and comments, Charles and Greg. I think anyone who has been around sourcing long enough knows that good negotiation skills and tools are like the first stage of maturity. Needed, but not enough!

  • Paul Gurr @ Provalido:

    I certainly agree Jason, although I have to admit when previously working as a consultant I often earnestly argued that it’s all about the process and was frustrated at client requests for deep category expertise. The “stages of maturity” comment is key here. It’s perfectly possible to deliver great-looking results (and deliver a decent ROI to a client) without deep category expertise, but only where the basic skills / tools were not present previously, so the results are only great in comparison to a poor baseline. To truly achieve optimum results, category experience and knowledge is essential. This is a challenge for consultancies, as although it’s possible to capture and retain category knowledge to a certain extent, it’s the individuals with that deep knowledge that become valuable rather than the consultancy itself.

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