Most people view negotiation as a contest in which one party becomes the winner, while the other becomes the loser. But that is just a misconception that does not apply to the world of procurement
. Negotiation is a process of compromise that seeks to manage the needs of different parties. If you think about your most recent purchases, it’s easy to agree that price was everything and the relationship was insincere. In the procurement and supply chain world, negotiation is not just about the price, since more is at stake here. Other variables that should be prioritized include the time of arrival, quality standards, strong customer support, among others that help manage and improve the overall performance of the supplier. Although underutilized, negotiation is a critical business skill that not only influences the results of transactions but also supplier relationships and overall success. Excellent relations with suppliers are important for the successful supply chain management. They greatly improve the performance of the supplier in terms of quality and timely delivery and communication. However, supplier relationships should not replace ongoing negotiations. With trustworthy suppliers, negotiation can be an agreeable experience that ensures both sides meet their objectives. Here is a breakdown of the five steps to consider for successful supplier negotiations;
1. Know your mission and key drivers for your business
It is important to understand your own business so as to develop a strategy for negotiation. Without a strong knowledge of the business issues that drive your business, successful negotiations will be impossible. Some of the useful questions that you can ask yourself are;
- What are your company’s essential business objectives?
- What markets do you offer services to?
- Who are your clients/customers?
- What are the requirements of your customers?
- What are your company’s operational goals?
As opposed to cost, timely deliveries may be of more concern for a company that is trying to build market shares. For a proper business alignment, low cost should not solely be the basis of negotiation. Since suppliers will come up with a negotiation strategy to exploit your weak areas, you need to understand your business more than they do to counteract their potential advantage.
2. Know their mission and their key drivers
To develop successful strategies for negotiation, it is important to understand the business issues that drive your suppliers. Compiling intelligence on them will help you to understand their pressures. This can also be beneficial in determining market constraints, pricing trends, and other vital issues that the supplier may not readily share.