Effective Negotiation Strategies in Purchasing
What does “negotiation” actually mean? Bargaining is as old as humanity itself, and even from an early age on, we bargain — with our parents about bedtimes, pocket money, or certain freedoms. Later, we negotiate with employers about salaries and work arrangements as well as with clients about terms and prices. We speak of court settlements, price negotiations or collective bargaining. However, the ultimate goal is always the same - to reach an agreement. Negotiations are the order of the day in purchasing, so let's take a closer look at some aspects of strategy.
Shutterstock.com | Andrii Yalanskyi
One of the critical factors in an effective negotiation strategy is the starting position. Are we dealing with a bottleneck supplier and only a few alternatives? How high is the risk for us in obtaining the products, i.e. the keyword “customized solutions”? Are we sitting across from a strategic supplier who has a leading position in the market or someone with special know-how? Is it a non-critical supplier whom we can quickly replace? The first step to an effective strategy is to know your negotiating partner and to know how and where we are in relation to him or her.
Digression: C-parts management
Purchase volume also plays a role and should be defined. At this point, let's digress a little into C-parts management to illustrate how important the supplier is to a strategy. If you are considering making catalogs or implementing C-parts management, I recommend starting with subjects where the suppliers are non-critical. These could be office supplies or occupational safety items, for example. By doing so, you create a starting position with a leveraged supplier. Consequently, there are many alternative suppliers who are available without much effort and with whom you do not necessarily have to talk about complex materials. In this case, the starting position is completely different than when you are dealing with a bottleneck supplier. In this respect, your negotiation strategy is also another.
Bottleneck supplier, strategic supplier, non-critical supplier, leverage supplier
When Purchasing is looking to apply a strategy, then there are several options depending on the starting position and suppliers. There may be a cooperative solution being pursued, a compromise solution, an inconclusive negotiation, or the achievement of maximum goals. However, this is difficult when negotiating with a strategic supplier. This is where I clearly recommend the cooperative solution as a negotiation strategy. In other words, we find ourselves here in the Harvard concept, which describes a win-win situation in negotiation. The idea is not to unleash the price-squeezer of the past, but to find cooperative, new solutions, to be open, to negotiate in a less tougher way, and to create the appropriate room for negotiation. With a non-critical supplier, by contrast, it is sometimes permissible to impose the maximum targets.
Feedback is important for future negotiations
There are numerous ways to negotiate. In the end, it's important to find a genuine approach that leaves both parties feeling comfortable. Another recommendation of mine is take a colleague with you into the negotiation. The sales people in the company can give us valuable feedback as well as another buyer or someone from another department, such as engineering or production.
There are an incredible number of other strategies and tactics in negotiations. If you'd like to exchange views on this subject with me, write to me at LinkedIn or schedule a personal appointment.
For more on this and other issues for sustainable purchasing strategies, listen to my podcast.