A recent article in ISM’s eSide by Marc Freeman, who is the author of Renegotiating With Integrity: It’s Not Business, It’s Personal, offered three simple and straight-forward tips on what to do when you are in the uncomfortable position of having to tell a supplier that you can’t fulfill your current obligation. While never a position we want to be in, it is a position that we can often work out if we take the right approach. After all, there are many a supplier who would rather take a 50% volume reduction in this economy than a 100% reduction (which will happen if you go out of business, for example).
As per the article, renegotiating is the art of revising, altering or changing a previously negotiated contract or relationship. This means that the concept of win-win does not apply. You can’t expect to tell the other party that it won’t be getting what it expected and expect to turn it into a win-win outcome. This means that your focus should be on creating a scenario in which both parties are satisfied enough to move on. If you can move forward, then, when things turn around, the next time you go into a negotiation you might be able to look for the coveted win-win.
So what are the three simple tips?
Actively Listen
Once you have calmly and respectfully presented your case, you need to sit back and listen carefully. You need to find out what the supplier needs, not what the supplier wants. (You already know what it wants. It wants the same thing you want, to maximize its profit.)
The author claims that the best deals are often secured by supply management professionals who do the best job of listening, and all other things being roughly equal, I suspect that this is definitely the case. For example, he notes how he once secured a deal not by matching the price of his competitors, which he couldn’t do, but simply by reducing his price until the buyer could accept it and choose his product because everyone recognized the superior quality.
Be Nice
This means that you have to be genuine and respectful. You can’t fake it. You need to be someone the supplier wants to work with if you want to have any hope of a reasonable renegotiation.
Keep Track of the Orange Ball
The orange ball represents who’s in control. If the renegotiation isn’t moving forward in a suitable direction, you have to find out who has the orange ball and get it back.