Negotiation by Force – will it work for the public sector?

How successful have organisations been when they apply the 'compulsory' price reduction approach to supplier negotiation?

I ask  because of two recent conversations; firstly, a friend was telling me of a retailer who, not long ago, just applied a 5% 'discount' to all their invoices, arbitrarily and unilaterally.

And secondly; the government is talking about getting big price reductions from current IT suppliers.Now of course there is potential for negotiation around usage, specification, changes in terms and conditions; but the impression I get is that some think this will be a simple 'demand' for the supplier to reduce prices (as in the case of the retailer).

I had personal experience of this 10 years ago as CPO of NatWest when we were fighting for our lives against the rampaging be-kilted hordes from RBS and BoS.  Why couldn't we just ask / tell our suppliers we needed a 'contribution' to our improved profit forecast, asked the CEO? Having talked to a few key suppliers, I gave him the answer.

1. NatWest had made £1.5 billion profit and a 20% return on assets the year before (despite that, we were perceived to be 'failing' by the City!) My suppliers in general thought that was probably quite enough - and considerably more than they were making.

2. Although we were a very big customer, our largest suppliers were firms such as IBM, Unisys, Manpower and Ford.  We were important - but not vital - to them.

3. A couple of suppliers actually told me they would be quite happy if we got bought.  'We don't particularly love you and in fact we have a better relationship with RBS!'

So... a retailer may get away with it with suppliers who are in a very dependent position (I doubt whether L'Oreal or P&G would have accepted such a demand form even a majopr retailer).  A small supplier may feel there is no alternative but to grin and bear it - and probably cut the quality or find other ways of recovering margin when they can.

How well placed is the UK Government to do something similar?  I'll leave that for discussion perhaps.  But I know that if I was going to go into that sort of negotiation, I would want to have a very clear idea of what I do if the supplier just says 'no'. What is my BATNA?   And in the case of a pan-government approach, I don't know what the answer is to that question.

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