As procurement professionals, we frequently come across a view that negotiation is the core of our job – at times it’s even the only thing we are asked to do! Our stakeholders (managers of finance, operations, engineering, marketing, and other departments for whom we buy) see us as expert negotiators. Just picture a typical situation: a fleet director agrees with the temporary labour agency the number of drivers needed to man the lorries, but it’s the procurement specialist that handles the money talks. All the Ops manager sees is a commercial discussion, sometimes posturing, and hopefully a handshake. But there is so much more to it than that!
In a post from a few years back, one of 4C Associates’ Partners has explained, negotiating is a key skill for most procurement professionals, and it is here to stay. In this article I want to give the reader a view of what are some of the key principles of a good procurement negotiation. It is, however, extremely important to note that a negotiation is usually the conclusion to a much broader procurement process. Commonly, a lot of less exciting activities take place before the face to face encounter.
Here is what I think a good procurement person should do when heading into a negotiation:
• Decide if a traditional, in-person negotiation is the best tool for the job. Often, when talking about ‘negotiation’ people refer to positional bargaining (which also has a much more discourteous name – haggling). Such win/lose, linear negotiation over a single dimension (e.g. price) is not a true negotiation. It is a market-power levelling exercise, best left to e-auctions, or other means of discovering the middle ground. Additionally, there has been substantial progress in procurement data analytics in the last few years. Buyers can now save a lot of time by discovering market prices before even talking to the supplier.
• Prepare, prepare, prepare. Preparation is paramount to a successful negotiation. Know your BATNA (Best Alternative to Negotiated Agreement – Fisher & Ury, ‘Getting to yes’). Assemble the team by bringing experts in the markets you buy from. Understand and map the power balance between you and the other party. By doing the homework, negotiations can be streamlined – create a brief about your and other parties’ positions and reasons behind them, then use it.
• Don’t compromise hastily. Compromise is the last approach a good negotiator should aim for. Finding a middle ground often results in a partial fulfilment of the desired objective and may cause resentment within either party. I am not advocating stonewalling but ask a lot of ‘what if’ questions to add more dimensions to the negotiation.
• Use “underhand” tactics sparingly (if at all). The good old flinch is best left to when you’re buying a car, not when negotiating multimillion outsourcing deals. Seasoned negotiators can see through your anchoring and will call you up on it, seriously affecting the power dynamics. Don’t try to play tricks, full stop.
• Be organised. It is easy to overlook this aspect of a discussion, especially if negotiations take place among very few, senior stakeholders. The more complex the negotiation, the more effort should be put in documenting the building blocks of a deal, listing the details and nuances, and then re-playing agreed items. The big picture needs to be constantly looked at. Finally, documenting the agreement should take place whilst in the room, not a day or two later when there is more scope for misunderstanding.
Management, political, economic, and psychological academics have spent millions of hours analysing every nuance of a negotiation process. Every business school’s curriculum covers at least some aspects of it. The theories and frameworks you may come across will lay out the model processes, strategies, styles, and tactics. What tends to define the successful negotiators is, however, the right combination of theoretical and hands-on practice. In most scenarios you come across when doing procurement, thinking of the above will greatly increase chances of achieving a favourable outcome.