Despite the growing number of procurement functions embracing tactics such as SRM, traditional supplier negotiations still have an important role to play.
Anyone not working in procurement would be forgiven for thinking the majority of work carried out is based on SRM and innovative collaborations. It is rare to read an article or attend a conference without hearing about procurement’s new strategic focus, or how the function has evolved from simply cutting costs and is now driving business decisions.
Whereas each of the topics referenced above are relevant, there seems to be a lack of acknowledgement of the value of more traditional procurement tactics. I have myself written about how the skillset needed by those working in the function has evolved. Procurement’s strategic position has led to a need for people able to take a strategic view of the functions objectives. People able to focus not just on cost cutting, but on delivering long-term value to the business as a whole.
And I stand by that. However, traditional negotiation tactics remain pivotal to the function’s role. In this piece I will consider a few tactics which can be employed to get the most out of your negotiations.
A knack for negotiating?
An obvious first point: make sure the right person is negotiating. What makes for a good negotiator? Well there are a few characteristics which are difficult to argue against: ability to manage stress, good communication skills, knowledge of the industry/ goods and a knack for exploiting strengths and weaknesses. Credibility is another element which is often mentioned.
There is some debate surrounding whether a good negotiator should be likable, or the complete opposite. Personally, I think likeable characters make better negotiators, but this very much depends on the situation.
In some cases the terms of a deal are effectively set before a negotiation even takes place. The very best negotiators are able to leverage their knowledge to make sure they are already in the driving seat before the actual negotiation happens.
A game of chess
Of course it’s not just about the right person. You also need to make sure you’re using the right tactics. As I mentioned before, preparation is typically the key in any deadlock, however, there are a few other tools which can give you an upper hand.
Avoid language that paints you as indecisive and unsure. Assertive negotiators are clear and direct in their communication. They do not give the other party room to manoeuvre when it comes to crucial points. This should be reflected in your language.
Know what the other party wants and how they operate. Knowledge is the single greatest weapon you can yield in a negotiation and it is important to be able to second guess your opponent. Know what their cost drivers are, what their profit margins look like and how they are incentivised. Has a new supplier begun taking over parts of their market share? Make that work to your advantage.
Remember that there is no long-term benefit in creating unsustainable agreements. If you bully a supplier into accepting terms that will not allow them to turn a profit, they may well begin to cut corners. The horsemeat scandal is still fresh in the minds of many working in the food supply chain. When it comes to negotiations think beyond pricing and short term wins.
Finally, do not stick to a single tactic. Are you negotiating your fifth annual deal with a supplier? Use a variety of tactics to give you the upper hand and not let them get comfortable.
Still a valuable tool
The truth is that although negotiation is increasingly being forgotten as a means of delivering value, it remains a vital skill for any procurement professional. The argument that in the days of e-procurement negotiation is no longer as important as it once was, rings false. The majority of e-Auctions, for example, require a significant amount of negotiation to be undertaken prior to the event if they are to be successful.
Those who argue negotiation tactics can be counter-productive have a point, although it is worth acknowledging out that there is a huge difference between bullying suppliers and getting a fair price. Strategic negotiation remains a key element in procurement’s tool box. Applied to the right situation and in conjunction with more modern tactics such as SRM, it can deliver incredible value.
Do not make the mistake of thinking procurement has evolved beyond negotiation. Negotiation tactics have simply evolved alongside procurement.