Negotiating plays a large role in the procurement professional’s career, as negotiating agreeable contract terms with suppliers is one of the foundations of good supply chain management.
In part one of this series, we briefly introduced you to negotiating in procurement and looked at the setting of objectives before entering into negotiations with suppliers.
Now we are moving on to developing a strategy for supplier negotiations, so that you can improve the results of the negotiation and the relationship with the supplier.
Getting To Know The Supplier
The first thing you need to consider when creating your negotiation strategy is the supplier you are dealing with. Each supplier is different and should be approached with a fresh view. Researching and understanding the supplier will then give you valuable information to then judge your position in the negotiation. The more your potential supplier is in need of your contract, the more bargaining power you have.
However, other factors such as the need for a long term relationship with the supplier should be taken into account. A good will compromise will often mean you don’t get the cheapest price or optimum terms in the short term, but you keep a strong working relationship which has it’s own benefits in the long term.
Developing The Strategic Plan
As mentioned in our first article, the setting of objectives prior to entering negotiations is vital. These objectives should form the basis of your strategic plan of action for negotiations.
The plan should consider what your priorities are; what objectives you are able to shift on and which ones are set in stone. What is the minimum/maximum you will accept for each objective; at what point do you walk away from the deal?
Consider what varying offers the supplier is likely to make based on your knowledge of them. What of these offers would you be willing to accept, if any? And how can you counter these offers? For example, would you be happy to pay full price if the delivery was faster, or accept a slower turnaround for a significant cost reduction?
Think about your own argument’s strengths and weaknesses as well as those of the supplier’s argument. How can you use these to your advantage in the negotiation?
Tips For Improved Negotiations
- Always start negotiations by stating which parts of the contract terms you are happy with and which points you want to discuss; and ask the supplier representative to do the same.
- Have key information such as discounts offered to hand; you may need to recall them at some point.
- Don’t imply that you are willing to compromise or you’re prepared to give in on anything straight away.
- Familiarise yourself with common negotiation tactics that may be used by the supplier. Be wary of using tactics yourself as they could weaken your position; try to approach honestly and be confident enough in your own argument.
- Don’t accept the first offer, always counter it with a different offer and allow them to come back with a revised figure.
- The lowest price doesn’t always equal the best deal. Consider what corners are being cut to allow such a low price to be offered.
- If some features are offered that you don’t need, as for these to be removed in order to reduce the price.
It is always important to consider how the deal benefits both sides. Don’t put too much pressure on a supplier as this could result in a breakdown of relationship and the need for the supplier to cut costs elsewhere, such as in quality or customer service. It’s also important to make sure you don’t get pressured into agreeing to a deal that doesn’t suit your original objectives.
If you would like to learn more about the theory of negotiation and how to apply it to practical negotiation situations, take a look at the CIPS Diploma in Procurement and Supply. The course is accredited by the Chartered Institute of Purchasing and Supply (CIPS) and would benefit anyone looking for a move into junior and middle management procurement roles or those supervising the procurement function. Many employers offer part or full funding for the course as part of on-the-job training. If you would like to find out more about the procurement and supply chain management courses offered, please call (0)1865 515 255 or email firstname.lastname@example.org.