Negotiation: Time To Change Mindset and Approach? Part 2

Staples Essendant

We are pleased to bring you part 2 of this advisory post from Christo Zeller, Principal, at procurement consulting firm Efficio.

Picture the following scenario: a supplier has just left a negotiation session having just been told they are uncompetitive -- effectively their cost is too high or capability not high enough. How do you think this supplier is feeling? Discouraged, demotivated, uninformed? Sound familiar? Here is where the scenario becomes unfamiliar. The supplier is feeling anything but that! They feel motivated, encouraged and informed! So what caused this unfamiliar reaction? Something different happened in this negotiation.

Yesterday we looked at two areas we think need to change in traditional negotiation tactics -- Planning and Cross-Functional Strategic Sourcing. Today, we look at the remaining four:

Characters

The traditional view of a negotiation was one that involved large characters. Whilst there will always be room for the larger characters, reliance on them is becoming less and less. Leading negotiations are about putting the focus on facts and feedback and effectively making these the strong characters in the room. It is surprising how many successful negotiations have been delivered by personalities not traditionally classified as “strong negotiators”. The detailed preparation which goes in upfront removes the need to rely on “off-the-cuff” characters.

Granular fact-based feedback

This is the best way to tell a supplier their total cost is too high, the service level is not adequate and how can they improve. Leading negotiations are all about granular fact-based feedback which allows the supplier to take the information on board and see how they can take action. Just as facts are used to get the exec / senior management to change and buy into certain recommendations, the same can be done to get a supplier to change.

The most impactful feedback is when it involves a view of the supplier’s relative competitiveness. This is when suppliers are provided with a highly relevant competitor market analysis at a point in time. It is amazing how different a supplier’s view of the market can be from how they actually compare relative to their competition in a live proposal process.

Naturally the feedback given to suppliers will depend on how competitive the process is (by RFP) or not. With an RFP process there is an abundance of relative ‘competitiveness’ information that can be provided. With a non-competitive process the feedback would be “should cost” information / service levels, benchmark information, total cost / service analyses and son on.

It goes without saying that strict confidentiality must be maintained when presenting supplier feedback. This can easily be achieved by anonymising the names, grouping top suppliers into a best-in-class range, and providing a percentage range of how much suppliers are off the-best-in-class bids.

The right tools

In order to keep the negotiation fact-based, use a formal feedback presentation. This presentation contains all the messages that need to be delivered to the supplier. It allows the negotiation team to remain on track and keep the content fact-based. It also gives representatives of the supplier team the ability to take the information away, share it with colleagues who may not have been able to attend, and not lose any messages in translation.

 Time to problem solve

When considering how much time to dedicate to the process it is worth considering the high impact that the process of buying goods and services can have on the cost base, or the revenue potential of the company. Why would we want to compromise the impact by not allowing suppliers the right amount of time to respond to a negotiation? When suppliers are provided with a large amount of feedback they will naturally take more time to address it all adequately. It’s not as simple as a supplier just shaving off margins, they may need to respond by looking at ways of improvement in their own supply chain which requires slightly more time. Getting them to commit to something quickly and under pressure, without thinking through the consequences, may give a good headline reduction in costs, but this is likely to be unsustainable over the longer term.

So what results are possible?

It would not be exaggeration to say that by ignoring a fact-based feedback negotiation approach you could probably be leaving greater than 30% of potential savings on the table. Time to change negotiation mindset and approach?

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