This five-step process will help to build the foundation critical negotiations with critical suppliers of all types.
- Understand your mission and business drivers
It is essential to understand the fundamentals of your own business so you can develop a negotiation strategy that complements the overall strategy. What are the essential business objectives of your company? What markets do you serve, who are your customers, what are their requirements and what are the operational goals of your business? Without a strong understanding of the business issues that makes your organization tick, you will never be able to successfully negotiate at any level.
A company that is quickly trying to build market share may be less focused on cost and more concerned with rapid deliveries. A negotiation based purely on low cost would not offer the proper business alignment. Suppliers will do their best to understand your business and craft a negotiation strategy to exploit your areas of weakness. It is your obligation to know more about your own business than they do to offset their potential advantage.
- Understand their mission and business drivers
Understanding what business issues drive your suppliers will allow you to develop successful situational negotiation strategies. It is easy to compile intelligence on your suppliers so you can understand their pressures. This process can also be a good way to determine pricing trends, market constraints, regulatory issues or other important issues that the supplier may not quickly share.
- Be authentic to build credibility and trust
Negotiation can be an emotional exercise, with the pressure of the bottom line creating an environment of conflict and mistrust both inside and outside of the company. Those emotions are not limited to the usual buyer and supplier dust-ups, but internal judgments and misconceptions as well, as the importance of the supply chain gain greater company recognition. Avoid posturing, bluffing, lies or deceit. These are tactics of a bygone era. Be yourself, adhere to your personal and organizational values and proudly represent your company. Trust is an underappreciated business and personal attribute. Gain it and keep it.
- Work towards a positive outcome for all parties
Win-win negotiations are a bit of a misnomer. It does not mean each party gets exactly what they want, or there is one giant compromise in the “let’s split the difference” model. In a win-win negotiation, both parties can compromise so each side captures some level of value. Win-win negotiations in a relationship-based environment take on a long-term approach with a balance of success for both sides over time. One-off negotiations, perhaps for a piece of capital equipment, may lend itself to less of a relationship-based win-win model, replaced with a more traditional style of negotiation. Experienced buyers can negotiate over range of business situations.
- Create a plan for evaluation and assessment
Negotiations are not singular events, but continuous efforts that need ground rules and communication frameworks. Leave little to chance and revisit performance often. Identify issues early to avoid conflict later. Establish key performance indicators in the contract that will form a basis for discussion.
Focus on cost, delivery performance, quality levels and a kaleidoscope of customer support initiatives. The indicators provide a great framework for regular contract reviews. But note in a relationship-based environment, the buyer has key performance indicators as well, including adherence to payment to terms, consistent forecasting and a resolution format for operational issues.
Most negotiations occur over and over again. We tend to deal with the same suppliers for a long time. It is important to recognize and give proper weight to the context in which a negotiation is taking place. If it is within an on-going relationship, the significance of that relationship must be considered as you craft your negotiation strategies.
- Build your Rapport
In business, building rapport plays a prime role. Excellent rapport manifests excellent communication helps negotiate better. By being communicative; attentive, responsive, and approachable, professionals can build rapport with suppliers and gain a competitive advantage over decision making.
- Reach out for More
When you are looking to buy a service/product, reach out to more than one supplier. Ask each one of them to give you their best price while informing them about the other suppliers you have contacted. This way, each supplier will know that they have to provide you with their best to be able to win a contract with your organization.
- Know their Customers
Depending on your bandwidth, figure out your supplier’s existing or past list of customers. Reach out to those customers for their feedback. If the customer is happy with your supplier, you will know how best to amend your offer. If the customer isn’t pleased, and you are determined to work with the supplier, you can be at an advantage on the negotiation table.
- Cost to Supplier
On the negotiation table, be in the know of the actual cost of the product/service you are trying to buy. By figuring out the cost incurred to make the product, you have a much better idea of how less you can expect from the seller.
- Build on the Offer Price
Inquire the supplier for the best price for a large quantity. Once you get the price, you can then go for the exact amount you need with an offer that is neither hurts you nor the seller. In this attempt, be reasonable to offer a sensible price that doesn’t trigger a loss to the seller.
- Flex your Finance
When you come to the negotiation table, come with a cash reserve. The higher advance you can afford, the more command you can have over the whole negotiation. It will flaunt your financial strength and sustainability on which the supplier can bank for a long time. Ensure you clear about the payment terms beforehand and make more than half of the total price as a deposit.
- Mental Math
In most buyer-supplier negotiations, a supplier is willing to work with the buyer who wants it the least (kind of mental game). Be like Tom in Huckleberry Finn; show your unwillingness on the face and keep willingness to the heart. A general disinterest will intrigue your supplier to consider your offer and be your supplier-of-choice.
- Find your Sweet Spot
Have you a record of working with great suppliers, have you stories where your suppliers have praised you for your timely payment? You can include such anecdotes in your negotiation to position yourself as a buyer of choice. A supplier would love to consider a long term business deal even if it is asking for a significant cut in price.
- Be Empathetic
Do proper research on your supplier’s business goals, which will help you draw on your common interests and build empathy. Supplier may refuse the price you offer, but an empathetic approach may help you negotiate with the down payment, after-sales service, or product warranty period, etc.
- A Friend Indeed
As talks advance and you are to finalize a deal, do not forget your requirement is not one time. So, be mindful about sustaining the relationship. To add value and enrich your supplier’s work experience with you, offer strategic advice that will help them control cost and increase efficiency. Remember, if they can procure better, you get a better deal.
- Brag your Credibility
The best way to win a supplier is to think like a supplier. Try their shoes and understand that they have the product to sell but need credibility to earn a long-term business deal. Likewise, as a buyer present your credibility, that’ll build trust and competitive rates.