Negotiation is undoubtedly one of the most important skills for business leaders and procurement is no exception - allowing professionals to establish favourable contract terms and build long-term relationships with suppliers. Nonetheless, the core techniques and considerations that underpin negotiation are often overlooked, resulting in low-quality negotiations that don’t secure the best deals from vendors. This article aims to support procurement professionals and business leaders to master core negotiation skills.
One of the biggest mistakes that business leaders make is believing that negotiation is adversarial rather than collaborative. Whilst pushing for a better price may seemingly benefit your organisation in the short term, such negotiations may ultimately lead to corners being cut, poor performance and a breakdown in inter-party relationships.
It’s important to remember that if you’ve reached the negotiation phase with a supplier, both yourself and the supplier believe that there are benefits to be gained from working together. As such, remembering that it’s the inter-party relationship from which you will both benefit can put you on the right track when commencing negotiations.
Remembering the supplier’s needs and priorities will help you to negotiate fair and mutually agreeable terms from which a long-term relationship can grow.
Before entering negotiations, it’s essential to understand your organisation’s position and your main priorities within a proposed contract. Ultimately, this will help to ensure that you are not left vulnerable or unhappy with any terms that are agreed.
At this stage, understanding your position includes factors such as cash flow and liquidity – for example, could you offer payments upfront to secure a discount? If the answer is no, then it may be more advantageous to agree to a contract without a discount on the basis that it has more generous payment terms.
‘Knowledge is power’ may be a cliché, but it certainly applies to negotiations – especially when it comes to securing your own priorities.
As previously iterated, negotiations should seek to reach a mutually agreeable position; as such, understanding what the supplier’s position and priorities can help you to navigate negotiations skilfully, including what to offer in return for your own requests.
Of course, such information is not easily available – you’ll have to work hard to procure it. Key information points include:
· supplier website – what does it say about the missions and strategy?
· LinkedIn – how many employees do they have?
· Companies House – how established are they?
· the proposal – what terms have they asked for?
By understanding this information, you have greater leverage to enter negotiations with.
Simple but true – building rapport and treating prospective suppliers with respect can go a long way. Whilst we don’t advocate excessive sycophancy, simple courtesies such as taking the time for small talk and thanking vendors can help lay the foundations for a positive working relationship, as well as working to your advantage during negotiations.
Remember that the more a supplier wants to work with you, the more likely they are to be lenient when setting contract terms.
Most experienced business leaders and procurement professionals will agree that the procurement process is time consuming, and often the value of supplier-client contracts can be found in the long-term (as opposed to the short term). As such, all negotiations should aim to bring about contracts that last.
Part of this means knowing when to stand your ground and say no if you are unhappy with a particular proposition. Whilst you may be able to overlook an unfavourable term in the short-term, in time, this can often lead to resentment and poor inter-party relations – which may ultimately lead to a contract breakdown and the need to procure a new supplier.
Generally, we find that poor decisions are typically made when organisations are under time pressure to secure a supplier, or, during lengthy negotiations. As such, we always advise that clients don’t rush to agree to terms and instead respond to proposals after careful considerations. Further to this, while there may be some implications from elongating the process, these should be weighed up against the prospect of a less favourable deal with this prospective vendor.
Crafting a well-structured agreement means transparency on pricing, comprehensive risk analysis and management, and a clear understanding of the requirements from both sides. Only if both parties understand the contract can you be sure that they will achieve their desired outcomes.
We use a partnered approach to engage with stakeholders and ensure that everyone understands the risks and benefits of their contractual decisions. We can facilitate the management of your contractual agreements, ensure you know and can deliver on your obligations, and provide negotiation services for businesses without in-house negotiation skills.
Successful contractual relationships require skilful negotiation. With over a decade of experience in contract negotiation for multinationals, SMEs and PublicSector Organisations, we can develop a win-win solution for your business, however big or small it may be.
Get in touch with our team for more information at firstname.lastname@example.org