As a procurement professional, negotiation would be our daily practice, or probably you can say pain of the ass.
What do you consider negotiation? It's just a single-way request? Given we are procurement people, customers on behalf of our companies, suppliers need to agree or support all requests from us without any condition? Absolutely not.
Actually I also wish it's just like that simple stuff.
However, let's recall the most important objective of PROCUREMENT, which is building "Strategic Supply Partnership". Agree? If this is the case, requesting in a way of rude manners might not be a good idea. Before going to negotiate with suppliers, we need to clearly define "Negotiation".
As you can see, negotiation is a strategic discussion to resolve issues in a way that both parties can be acceptable or agree on the same page.
To be more specific, I personally consider negotiation as a process of "Give-and-Take", which eventually comes to a conclusion to resolve issues, argument, or disagreement. A decent negotiation could be moving forward in the following ways:
Plan Phase: Identify the purpose, target, and outcome.
Before going to negotiate with suppliers, we need to identify the purposes or goals of the negotiation. For example, we are seeking for cost reduction? We are expediting the delivery? We are trying to improve suppliers' quality performance? We are requesting better terms and conditions?
As a leading negotiator on behalf of the company, we need to realize a concept of "Total Cost of Ownership", which means compromise could be frequently happening all the time. In this case, any specific request might also bring conflict of interest for other stakeholders or other cross functional teams. Thus, it's also important to make all relevant stakeholders on the same page to figure out what's our major target and what we can compromise. It's always not easy to manage internal conflict of interest, but before negotiation, I'm afraid this might be the most crucial topic to have an internal alignment.
Let me share one example below:
In 2021, global component shortage happened most likely everywhere. Procurement definitely was requested to negotiate with suppliers to expedite the delivery quite often, right? Here is the problem. Suppliers used to tell you, "If you really need to pull in, then you need to pay the expedite fee, because everybody is waiting for the output and supply." Then what's your response about this feedback? You shout, you blame, or you complain? Do you really think it's helpful by negative manners to resolve this kind of issues?
Given global shortage was inevitable at that time, everybody is facing the same problem. Here is the key, the reality, and the difficulty. In this case, as a procurement professional, you need to think about what exactly you need: You need to defend your cost? You need to get parts for on-time production?
Can we wait based on the current delivery schedule?
If we cannot wait due to production stop which brings more loss, what can we do?
If we need to pay the expedite fee requested by your account manager, it's still negotiable?
You need to work with your sales contact to have the consensus and then your sales contact will be on the same boat with you and also help you to do internal coordination to get issues resolved based on mutual agreement by both parties.
Understanding of the targets or goals is the key when you are planning a negotiation with your suppliers. Always.
Therefore, in this case, obviously a procurement person should not stick to cost anymore as on-time production will be more important.
Prepare: Gather background information, Analyze the possible scenario, and Simulate the possible outcome
In this phase, given we have already identified our targets or goals, then we need to gather background information, such as market intelligence, demand-supply situation, potential road blocks, or even key decision makers within the other party's organization, etc.
The more preparation you have in place, the more possibility you can make it.
Usually you need a key to close the negotiation, which means you need to find a way to understand what is your opponent's need or what's your opponent's weakness? This depends on your preparation.
Certainly it will be a variety of scenario combination or similar with a complicate matrix, but let's say this is the true value of a procurement professional. We can analyze the complicated questions, issues, and problems and work out the best solution for our company, right?
Let me share one example again below:
When you need to negotiate with your suppliers for a better price offering, what will you do? Just call your sales contact coming and give them your target prices just like shopping in the market?
there are several kinds of approaches:
You can check the latest market intelligence information to justify your request.
You can do cross reference with other potential suppliers for benchmark.
You can do cost breakdown to understand if you overpay something.
You even can do pooling demand to increase purchasing volume for discount.
We always can work out strategy to dominate the negotiation, but it definitely depends on your preparation, understanding, and analysis about the market, demand-supply situation, strength and weakness, and even the strategic partnership.
Take Actions: Decide your tactics, manner, style
We have goals identified, we have all information in place, and then we need to go for real negotiation. What kind of manner shall we take? Low profile or high profile? This also depends on if you understand who you are negotiating with.
Sometimes you negotiate with a Sales Manager, sometimes you negotiate with a Sales Director or VP, or even sometimes you need to negotiate with a CEO. When we deal with different people, we need to use different approaches. Or, it also depends on the bargaining power. If you are dealing with a supplier of single source, obviously you need to be humble or rational; if you are dealing with a small supplier or new supplier, you probably can be high profile or tough with politeness.
No matter what approach you use, don't forget your goals in the beginning. Simultaneously you also need to be very smart and sensitive about the real situation and responsive for the challenge from your negotiation opponents. Try to dominate the pace of the negotiation. The most important thing is to negotiate without breaking the partnership.
Remember that we negotiate for resolving issues and problems, not bringing new issues and problems. However, it's not always happy ending every time for our negotiation. Sometimes maybe we do our best but still cannot figure out an acceptable solution for both parties, but as long as we still need to work with our suppliers, that means we still need to maintain the business partnership. Don't break it up and try to minimize the loss or compromise this time. When you close a deal, no matter it's good or bad, remember to keep your supervisor and stakeholders posted and make every internal members on the same page. At last, keep in mind about the lesson-learnt. When you have more and more negotiation experience, you will do better from time to time.
