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.