From the October 2019 print edition
Every day, supply chain professionals from various industries and backgrounds apply their skills, knowledge and expertise to the complex art of negotiating. While negotiation strategies continue to evolve and mature, at its core, negotiation remains relatively simple in nature. The main controls that regulate the negotiating process function collectively like mechanical levers. These levers encompass all aspects of the negotiation including the eventual outcome.
Imagine you walk into a negotiation room and instead of people you find several mechanical levers on the wall. Each lever is labelled with central pillars such as cost, quality, delivery, service, as well as others relevant to the particular good or service you are procuring. Some labels will be easy to read and identify while others will be hidden in the shadows. These levers are the foundation on which a successful negotiation is built. It is up to you, as the buyer, to identify and understand all levers present.
Still in the negotiation room, you survey the positions of the levers and seize the opportunity to gain the upper hand. Racing over to the wall you pull down the cost lever as hard as you can. To your surprise it moves and instantly the price becomes cheaper. Well, that was painless, wasn’t it? Unfortunately, no. At the same time cost was adjusted, the quality and delivery levers also moved down. Reacting, you race over to correct the two levers simultaneously, but they won’t budge. Abandoning quality, you try delivery on its own and it starts to rise but the service lever on the other end of wall drops. Exhausted, you step back to reassess. It appears that the levers are connected somehow but you’re unable to see behind the wall.
By utilizing the following key strategies, where appropriate, you will be able to effectively and efficiently navigate through all phases of the negotiation lever process.
1. Gather relevant information
Ensure that the proper environmental scans and market analysis are completed ahead of time. This will aid in framing what is reasonable, in terms of outcomes, to all potential stakeholders.
2. Manage internal expectations
It is unlikely that everyone within the stakeholder group will understand how negotiation levers operate. Work with them to create a deeper understanding of the levers and keep them informed throughout the process.
3. Build trust
If reciprocal trust can be built or increased, a door may open to see behind the wall of levers. It is here you will see firsthand the interconnectedness of each lever and understand where adjustments can be made to produce the desired result.
The levers will be set to a specific position from the start. Usually, this is done by the supplier but can be done by you, the buyer, if expectations—whether through a competitive process or not—are laid out from the start. You will be able to enter the negotiation room with a visualization of where the levers should already be set to.
5. Uncover intangible and low resistance levers
It is important to remember that some levers are intangible features such as the account rep assigned to your company. A seasoned account representative versus a new customer service agent could play a huge factor in the overall delivery of the good or service. Additionally, some levers can be adjusted with little or no effect on others. One example of this might be extending payment terms.
6. Avoid minimizing
Do not overlook or discount certain levers on the basis that they are not important to you or your company at the time. These levers will often play a significant role in accomplishing the desired outcome.
Put yourself in the supplier’s shoes. Suppliers need to make a profit in order to stay in business. You need to have a vested interest in their business and work towards a mutually beneficial relationship. If not, the likelihood of decreased performance will go up as the supplier tries to recuperate costs and keep their bottom line intact.
Levers should be continually monitored through key performance indicators, service level agreements, and proactive contract management.
Although procuring a good or service at the lowest cost, highest quality, fastest delivery and white-glove service sounds great, this combination rarely exists. If somehow it is initially obtained what follows in the days, weeks, months and years ahead are regular, often uncommunicated, price adjustments, quality issues tied to inferior materials, late deliveries and decreased service levels. By understanding the levers pertaining to each particular negotiation, and utilizing the approach methodology described above, a sustainable long-lasting result can be achieved.