Negotiating skills are clearly one of the most important success factors for procurement professions, even as it is well understood procurement excellence involves much more that beating up suppliers for lower prices.
Still, acquiring better negotiating skills is a good thing – and some rather simple principles can drive much better results.
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So says Jan Potgieter, managing director of Imperium Global Negotiation Solutions, writing on the SupplyManagement.com web site from CIPS, basically the British equivalent of the Insitute for Supply Management (ISM) in the US.
“Significant value frequently escapes from the supply chain because procurement professionals view negotiation as an event rather than a process,” Potgieter says.
Modern day functional discrimination in the workplace has brought with it an incorrect understanding of what it means to negotiate, he argues.
“Simply put, to negotiate is to do business. It is not just what happens when you’re finally getting down to the specific terms and conditions of a potential agreement,” Potgieter adds.
He says that negotiations start the moment a buyer first makes contact with internal stakeholders or vendors. He then offers three negotiations strategies that procurement managers can profit from, as summarized below:
1. Decide who should make the first Potgieter offer: Convention dictates that the seller usually makes the first offer. But Potgieter says supply managers shouldn’t just default to calling for proposals where vendors will list propose prices.
“There are at least two instances where it will make a lot of sense for you to make the first offer in terms of setting out a ‘target price’ or budget,” Potgieter says.
When it is clear that the vendor believes that they have more power than the buyer does it can really aid the buyers cause to anchor their expectations around their own budget aspirations. This will ensure that suppliers don’t unnecessarily inflate their pricing or restrict the level of their discounting.
If the power balance is not completely clear or if there is parity in power it can be smart to put out the first offer in the shape of a target price or budget so as to anchor the supplier’s expectations around the buyer’s aspirations rather than theirs.
2. Don’t default to a single negotiation strategy: Too often professional buyers default to a competitive negotiation strategy, Potgieter says.
“Just because you are the customer doesn’t mean that you can or should demand the best deal through using competitive approaches,” he posits, adding that “Vendors, like all humans, are more likely to extend their best offers and deals to those whom they like, and those they feel cooperate with them.”
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And remember vendors soon wise up to competitive approaches and hedge their bets accordingly.
3. Remember that negotiation is a people game: At the end of the day, negotiation is a people game, Potgieter says.
“Concessions are made by people; opportunities are created by people,” he notes. “Problems are created and solved by people. Great deals are signed off by people.”
The import of that, Potgieter says, is that if buyers learn more about people than they do about a given category, product, service or solution set they will be unusually successful.
And that is some very different procurement advice indeed.
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