If you’re a proactive organization, chances are that you’ve been trying to re-source your way out of this downturn by taking advantage of recent cost reductions in commodity categories across the board. This means that, if you haven’t started already, you’ll soon be entering into final-round face-to-face negotiations with your (new) preferred suppliers. This means that, if you haven’t already, you should be brushing up on your negotiation skills, starting with the basics.
To this end, Industry Week published a useful article last fall on the Powers of Persuasion that noted that while all good negotiators have the power to persuade in common, no two negotiations are the same and no single strategy will always be effective. Furthermore, some of the most successful negotiations are the result of knowledge and information and that comes from doing research, asking questions and listening. However, there are some basic skills that will always be useful to you, and that you should have mastered before starting any negotiation, including:
- The Ability to Define Success
What is a successful outcome to you, and where do each party’s interests lie? This will allow you to find a common denominator that will lead to an agreement.
- The Ability to Identify Priorities
What’s a real “need”, and what’s a “want” that can be sacrificed for the greater good? Is 10 days turn-around time essential when 15 days can give you a 10% reduction in cost?
- An Understanding of Power
Who has the power? You? The Supplier? And to what extent can the negotiation be influenced?
- The Ability to Gain Leverage
You need to insure that you don’t disclose unnecessary information and give the supplier leverage. You also need to do your research and understand your supplier’s situation.
- The Ability to Deal with Deadlock
Good negotiators know that a deadlock doesn’t mean a negotiation is dead. They’re prepared to walk away and then come back later with different information and a different perspective, and to even move on to another potential supplier if required.
In addition, good negotiators are aware of the common negotiation mistakes, covered in Next Level Purchasing’s Negotiation No-No’s mini-course, and they don’t make them.
Last fall, both Chief Executive and Industry Week published some good articles on how to survive the downtown — and win — that are worth a quick review.
In Winning through the Downturn, Chief Executive starts off by telling us that as far as your business is concerned you should be seeking to harvest cash and be really hard-nosed about any investment. In tough times, an investment must generate an adequate, and expeditious, return on investment. It also tells us to be super cautious with the banks – they caused a good deal of the [current financial] problem and that we should not assume that we can trust them at this time. Hear! Hear! (I’ve read too many stories about how mortgage resellers during the housing boom convinced people making 40K a year that they could afford 400K homes. Not being a trust-fund baby, I know from personal experience that it is tough to afford a 200K home on 80K a year if you have a family to support! So how could a family making half as much afford a home that costs twice as much?)
Other advice it gives is to consider outsourcing as opposed to increasing head-count, to consider increasing inventory in consumables when they start rising in cost (which currently makes sense for certain metals and plastics categories where the storage and capital cost are less than the expected monthly rise in raw material cost), and to make sure you are being tough enough with your suppliers. (You need to be fair, and always, always, always, pay them on time, but that doesn’t mean that they shouldn’t partner with you and share the pain of the current economic climate.) You should also focus on providing products and services that will make your customers go “wow” — as those are the products and service that they’ll spend their money on.
In Keeping Small Business Up, While the Trends are Headed Down, Industry Week tells us that a little bit of innovative thinking and belt tightening can go a long way and offers up eight suggestions. they are:
- Show Me The Money!
Now, more than ever, you need to get paid on time. Boldly (but respectfully) emphasize what you did, how much you are owed, and when payment is due.
Use technology efficiently and consider web-based accounting and CRM software, video conferencing, and multi-function office devices that keep costs down and productivity up.
- Boost Sales
Focus on selling more to current customers, who will be an easier sale than a new customer.
- Market Smart
Use targeted pitches through targeted mediums that are already reaching your audience. (For example, if you wanted to reach the sourcing, procurement, and supply management space, a great way to get visibility would be a Sourcing Innovation sponsorship. After all, it often comes up #2 for “sourcing” on Google.)
- Stay Visible and Helpful
Keep in touch with your customers and be their supplier of choice.
- Inventory In Motion
Unless it’s actually cheaper to buy in bulk when costs are rapidly rising or rapidly falling, keep inventory to a minimum. For most products, the storage costs and costs of capital are way more expensive than just spot-buying what you need when you need it.
- Keep Workers Working
Workers waste time on trips to the supply store, the post office, and Starbucks. Use on-line ordering and next-day delivery (which is typically free for business orders), use Stamps.com or a similar service for postage and courier services that pick-up, and buy that $500 cappuccino machine (but I’d avoid the $5,464.31 Inox) — you’ll make up the cost in increased worker productivity in the first week!
- Don’t Cut the Perks (Completely)
If necessary, reign them in and keep them reasonable, but free juice, soda and lunches (which keeps a worker in the office more and working more), the occasional party, and small bonuses for a job well done keep morale up, and productivity up. They should not be cut. (On the other hand, if times are tough, do you really need that private box at the track/ball-palk?)
But if you’re really serious about how to weather the downtown, consider checking out 10 Secret Strategies to Recession-Proof Your Business, a recent Executive Whitepaper from Coupa.