Being a smart negotiator is a critical skill for Procurement and Supply Management professionals. Most people think of the ability to negotiate as a highly specialized skill that only a few possess. Nothing can be further from the truth – good negotiators become one by being smart and preparing hard.
Right from when we’re young, we have all been negotiating with varying degrees of success. As kids, we negotiated with our parents for more play time. At college, we’ve negotiated and convinced our friends to go for a movie that we liked to see. We negotiate with our bosses for vacation and pay raises. We negotiate with the auto-rickshaw driver to get to our destination at a lower rate. And more pertinently, in our jobs as Supply Managers, we negotiate with suppliers every day!
Let us never negotiate out of fear. But let us never fear to negotiate – John F. Kennedy
But how do we become skilled negotiators?
Preparation is Key:
Over 50% of the success of a negotiation is down to being ready and prepared to discuss anything that’s thrown at you. The amount of time you devote for preparation depends on the criticality of what’s being negotiated, but the process remains the same. Before a meeting, you have to:
- Understand all aspects of the category that is being negotiated. Spend, key suppliers, their performance etc.Find out more about the supplier’s company – read their earnings statements, press releases and find out if there’s anything out of the ordinary.
- Speak to other functions like Engineering, Sales and Finance to get their inputs on the category so that you have a well-rounded idea of the product/service.
- Try and pre-meditate the various points you expect the supplier to raise and prepare a counter for each.
- Set limits for each criterion that is being negotiated. For example, the highest cost increase that you will accept is 5%; the maximum lead time you will allow is 3 days and so on.
- Prepare alternate options if you are unable to make progress on price
Sound preparation will help you stay in control of the negotiation process from the moment your supplier walks in through the door.
Negotiation doesn’t have to focus only on cost:
Always approach a negotiation with the intention of maximizing value to your organization. For example, if the supplier is not willing to budge on price, you can try negotiating on lengthening payment terms; or increasing the number of deliveries per week; or adopt for eco-friendly returnable packaging so you save on packaging costs. Understand the difference between cost savings (which is great) and cost avoidance; quantify it correctly with the help of finance and convince your boss how you were able to make the most of a tough negotiation.
Nothing can derail a negotiation better than an unreasonable demand first up. It is important that we stay within the limits of reason. For example, if we know that the price of steel in the market has increased by over 20% in the past year, demanding a 5% cost reduction in a machined part made of steel is absurd. Even if that is what is expected from the management, once we make an unreasonable demand, the supplier automatically assumes an adversarial position. You will be able to succeed if you are more inclined to work with the supplier and identify alternate ways to maximize value if lowering costs is not an option. Never put your suppliers into a corner with a take-it-or-leave-it offer. That will serve only to undermine relationships and influence future negotiations.
Speak Less, Observe More:
Once you’ve stated what you want to say clearly and in unambiguous terms, there is no point talking excessively. Be succinct and talk only if you have to. Rather than rambling on, you will be surprised to find how much you can learn about a supplier by simply observing his body language and tone.
Eliminate ‘You’ from the process:
In order to succeed, you have to separate the individual from the process. This is because an individual can bring additional complexities to the problem. It is important that the negotiation process stays devoid of any individual emotion (which can’t be predicted) – pre-conceived notions, ego, fear and anger. Staying truthful to the task at hand and eliminating your personal characteristics will ensure that a meeting will lead to predictable outcomes.
Save the best for the middle:
If multiple items with varying levels of complexity are being negotiated, scheduling becomes important. Starting off with the most complex item first up will lead to a lack of progress and frustration. Pushing it out to the last can sometimes lead to unsuccessful ending and wipe away all the progress that was made prior to that. A good way to approach scheduling is to start off with a few easy items. Get the trust of your supplier and build a good vibe – throw in a complex item every now and then. By and large, make sure the talks are progressing. The most important item that is being negotiated should always be in the middle of the schedule.
Never walk away from a meeting without summarizing the results of a negotiation. Having two parties, each with a different objective in mind can sometime distort perspectives. Always summarize the terms agreed upon during a negotiation and clarify if you are unclear. End the meeting on a good note and state the importance of a good long-term relationship.