Building Negotiation

The main objective for every buyer is have lowest cost for the project and supplier always try to maximize their profit while maintaining a healthy business relationship. The way to obtain this win win situation is achieved by both parties through Negotiation. Although there are various ESourcing Tools available for buyers nowadays but still One on One negotiation is best way to negotiate for any complex project.

There are no strict formulae for success in negotiation. You might get success using one methodology in one project and might have to change it again for the same supplier in different project. Still there are certain points which are used by buyers globally to build the negotiation and reach a position of strength in it.

1. Prepare, Prepare and Prepare Hard: This is the unwritten “Golden Rule” of Negotiation. More than half of the battle is won if you study each and every aspect of the project.
a) Understand the project and associated cost drivers: Before you can start negotiating buyer should know the project completely and should assess the associated cost drivers.
b) Understand your negotiation weakness and strengths. Buyers’ strength could be the business volume he will be awarding to the supplier while weakness could be very strict timeline or highly critical design which is specialty of certain suppliers only.
c) Alternate plan. You need to have different plans of negotiation ready with you before you begin. If you have one plan only and supplier came up with brilliant defense you will lose the negotiation. Always have Plan B, Plan C ready before you begin negotiation.
d) Know your supplier. Find all the information about the supplier. Visit its website, Look at its financial details, Look at his technological expertise, its Capacity, its client list, the process and procedure in place. Try to find anything and everything you know about it. This all will help in great deal during negotiation.

2. Get data internally from the organization: Data is always key for every negotiation. Most buyers look outward to find data about the suppliers and about various cost drivers but fails to gather huge amount of data available to them internally through various departments.
a) Engineering and Stake Holder: Talking to the people who are the brain of the project is best way to prepare for a negotiation. It gives a great insight about the design, cost drivers and scope of the project. It is being said that maximum savings can be negotiated if sourcing is involved right from the design stage with engineering. You can choose your bid list based on the expertise required to build the design. The latter purchasing enters the project greater is the probability that it will do only a paper job. Having a collaborative relationship with the supplier during design stage and finalization the detail scope of project gives a company greater chance to achieve success in negotiation.
b) Production: Engineering design the product, Purchasing buy it but manufacturing uses it. Ask any regular supplier the importance of a manufacturing person at the client. This data is very helpful when you have two long term competitive suppliers fighting for the business.
c) Quality: This department is always pain for any purchasing group but if you are negotiating with your existing supplier they can provide you excellent data like ppm, reloading and stoppages.
d) Logistics: A supplier is as good as his last shipment. In the world of just in time and lean manufacturing timing is the key which each supplier understands. The crucial data of timely arrival that a buyer can get from here can be used at any point during negotiation.

3. Understand the bigger picture – Total Value Approach: Negotiation is not purely data but is also based on how well you have understood the total value of the project. To understand the concept take an example of buying a machine. You source the project based on lowest quote of the machine from different supplier. However you didn’t make any agreement for the servicing of the machine or the spare parts cost. In scheduled 5 years work life of the machine the supplier will laugh all the way to the bank. Identify these hidden costs or indirect costs in the project. Suppliers usually play during negotiation to get best overall cost while buyers keep their focus on short term goal of immediate price savings. The idea is understand the total value in the project and set your goals accordingly in the negotiation table.

4. Make your learning process Incremental: Most of the time buyers are dealing with same suppliers. Talking to them on daily, weekly or monthly basis and negotiating with them on small and big projects. Understand suppliers way of working. If a buyer always negotiate hard suppliers tend to come with their first quote on higher side and gradually decrease their bid to the price they want while giving the impression that they have moved a lot. Learn from past negotiations. Learn from the rules of engagement followed by the supplier during previous negotiations. Try to be creative in your negotiation tactics. Try to build your negotiation based on your past experience with the supplier.

5. Make a relationship and harness from it: Dealing with same set of supplier’s day in day out helps in making a relationship with the supplier, harness this relationship during negotiation. Leverage using additional products and service offered by the supplier. Offer them long term contracts. Make them part of the product development cycle. Make them equal business partner. A supplier always wants more business and when he smells the coffee he brings the cookies himself.