Let's Negotiate...
For me, the negotiations part of an RFx process has always been the most interesting and critical aspect of the Sourcing process. A well-orchestrated negotiation approach can bring about great value to an organization, while a confused and haphazard approach can bring pain for both, the buyer, as well as the supplier. In this blog, I have tried to capture some key points to be kept in mind for a fruitful negotiation, based on my experiences with a few sourcing organizations
· Identify and prioritize the key negotiation objectives for a category: The sourcing process may have multiples stakeholders, each with their own set of objectives. One stakeholder could be looking for the best net cost whereas another could be looking for better supply chain efficiencies. It is best if the negotiation team does an internal survey, comes up with a consensus and publishes an Objectives Document.
· Have a well defined negotiation team: It is very important to define clear roles in the negotiation team to ensure that a single consistent message goes out to the suppliers. People outside of the negotiation team need to know and be trained, to handle “informal” questions from suppliers looking to gain additional information on the side.
· Know your leverage with the suppliers: An organization with which I worked in the past, used to negotiate with and “select” a supplier for one set of objectives, and then try to negotiate with the same selected supplier for another set of objectives. Suppliers quickly realized that the buyer was more or less locked on to them post the first negotiation, and drove a high bargain for the second negotiation. The idea should be to negotiate everything with the supplier at the point where the buyer has the highest leverage.
· Have well defined walk away points: It is absolutely necessary for an organization to be aware of the walk away points in a negotiating process. This helps keep the process disciplined and the suppliers honest.
· Know your negotiation tactics: Different suppliers and categories may warrant different set of negotiation tactics. For example, sometimes it is best to share information and communicate frequently with the supplier while at other times suppliers may respond better to the “silent” treatment, where it is best to maintain low communication with the suppliers. The negotiating team should be well aware and trained enough to identify the best negotiation tactic to be used in different scenarios.
A well choreographed negotiation not only results in a good deal for the buyer organization, it also instills confidence in the suppliers towards the buyer’s sourcing process. This is great from a long term supplier relationship perspective as well.
Comments
Sameer , Negotiation is a science and an art ( now a technology as well )..Only good homework can make this a better science .One needs to get to the depths of the cost components that built up to the supplier price at granular level , good intelligence on the processes that build the product, the market intelligence and options, the supplier financials, company leverage and overall work on the personal connect . How many of the buyers look at the overall supplier relationship aspects and the total cost of ownership in contracting decisions. Negotiation should not be considered a annual ritual .
Another fact is that negotiation strategy is a function of market complexity to resource criticality and is category specific to your organization.
Posted by: Pradeep T Y | August 21, 2009 11:17 AM
Thanks for your comments Pradeep. I agree with you that the negotiation strategy and the negotiation process itself is a function of market complexity and category specific. To take it even further; the entire Sourcing strategy needs to take in account the nuances associated with a category. Sourcing a "commodity" category should be different from a "non-commodity" category.
Posted by: Sameer Prashar | August 25, 2009 2:30 AM