Daily Archives: March 21, 2012

Procurement Game Plan: A Review Part II.3

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. In our first post, we set the stage with The Purchasing Professional’s 10 Commandments. In our second post, we covered the first four chapters of the book that discuss organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon. In our third post, we continued our detailed review with a discussion of the chapters on strategic sourcing and supplier qualification. Our last post began our discussion of the chapters on negotiations, and this post concludes our discussion on negotiations and Part II of our review.

The section on negotiation preparation was a good one. Quoting Benjamin Franklin is extremely relevant in this context. Where negotiations are concerned, By failing to prepare, you are preparing to fail is a definite. Sales people spend every second of every minute of every hour of every day trying to figure out how to maximize the sale price, and thus their bonus cheque. You can bet they are preparing every free minute they have, and that they have been trained extensively on the art of the sale. As a result, you need to do as much preparation as you can on the art of the negotiation. So how does a skilled negotiator prepare?

  1. Try to find the win-win.
    If the only way for the buyer to get better terms is for the seller to sacrifice margin, it’s going to be a tough fight. But if the buyer can offer something to the seller that can look like a win in the rep’s pocket — such as more volume than expected, better production batch sizes, co-marketing — which may not cost the buyer much, the pie can be expanded and both sides can win. While the negotiation will still be tough, it is much easier to get a bigger slice of a bigger pie than to try and take the few scarps the sales person has left on margin.
  2. Know thy counterpart.
    You can bet that not only is a good sales person going to be researching everything he can about your organization if a big deal is on the table, but he’s going to be researching you too. Chances are, he’ll know your public Facebook and LinkedIn profile better than you!
  3. Know thy worst enemy.
    Your worst enemy is not your counterpart, but the assumptions you make. If you assume a supplier cannot go below a certain price because of your cost model, then you will never get below that price. But if the supplier has a better than average production process, maybe the supplier’s cost + 10% is lower than your modeled cost + 10% and a better price is obtainable. But if you don’t think to push for it, you’ll never get it.
  4. Use deep logic.
    Know all the potential responses to your arguments and have counter-responses prepared. Leave your supplier counterpart at a loss for words occasionally.
  5. Control the meeting.
    It’s your buy, and your agenda. Don’t let your counterpart make it your supplier’s agenda. That’s just bad news.
  6. Know what the supplier will ask, and have your responses ready.
    What really matters to the supplier rep? Deal size? Volume? Agreement date? Margin? Know this, as these will influence the initial set of questions, and have your answers ready. Plus, be prepared for the universal questions of budget, decision timeframe, and competition.

I also liked the sections on increasing your negotiation confidence, as you need confidence to control the meeting; and supplier’s psychological warfare, as we already know they do this (from our Review of Stephen Guth’s Contract Negotiation Handbook); body language, as this is often key to what some negotiations are thinking; and today tactics, as using all of your ammunition at once could leave you defenceless near the end of the negotiation. But the best section that you could easily miss is the section on tactics that can backfire. While you might think that crying-poor, saving-the-toughest-issue-for-last, and threatening to get-it-from-someone-else might give you some edge, it could result in the supplier just walking away at the worst possible time.

The second chapter on negotiations focussed on negotiating in specialized situations: adapting your game plan for different conditions as some specialized situations require specific negotiation approaches and tactics. Examples are policies, (proposed) price increases, cost breakdown requests, information exchange requests, and mutual cost reduction proposals. The text includes a discussion of each of these, but we’re going to skip through these, and the section on time-and-materials contracts, to negotiating force majeure clauses. In the case of a disaster that causes a significant disruption to your supplier, such a clause can make or break you. (Stephen Guth has discussed these clauses more than once on the Vendor Management Office blog, with one example being his post on The Get Out of Jail Free clause.) The short-list of what must be addressed should be in every Procurement Professionals’ master checklist:

  1. Will you get to waive exclusivity while your supplier cannot deliver?
    You need to meet your customers’ expectations one way or the other!
  2. Will you get most favoured customer treatment after a recovery?
    And will that be specified?
  3. Can your supplier provide you with a written contingency plan for each event the supplier wants to be defined as force majeure?
    If the supplier hasn’t thought this true, then maybe you need to think through whether they can serve you.

The sections on contract template was also good, but the next section of particular relevance was the section on negotiating with a supplier in another country. The 20 question checklist is a great starting point to discover much of what will be necessary for a successful international negotiation and relationship, and complements both SI’s series on Cultural Intelligence and Overcoming Cultural Differences in International Trade
as well as Next Level Purchasing’s course on the Basics of Smart International Procurement which were edited and co-created by Dick Locke.

Finally, don’t miss the section on why asking for suppliers’ advice isn’t as dumb as it sounds. Sometimes suppliers might have cost saving ideas they are happy to share in exchange for continued business. You’ll never know if you don’t ask.

This concludes Part II of our review of The Procurement Game Plan. In Part III, after a short break, we’ll discuss managing supplier relationships, measuring performance, and improving performance.