Category Archives: Negotiations

Negotiation Pitfalls

Negotiations. Some people love them. I don’t. My strategy is to go in more informed than the person I’m dealing with, with hard data to back me up, force a short circuit to the bottom line, and figure out if it’s worth talking for any more than 15 minutes. But still, it’s part of the job description, so it’s worth, at the very least, knowing what not to do, especially since one could always debate as to what one should do in a particular situation. (Don’t know where to start at all? You might consider checking out “Powerful Negotiation for Successful Buying”, a course from Next Level Purchasing (now the Certitrek NLPA). You might also consider boning up on your leverage points.)

Supply Chain Digest recently ran a brief summary of what not to do in their article on “15 Negotiation Pitfalls – and How to Avoid Them” that serves as a good cheat sheet on what not do do. (For a longer guide, check out the guide to “UK SuperMarket Negotiating Tactics” in the UK Telegraph.) Although all 15 are good tips, my favorite 5 were

  • Confusing Contention for Problem Solving
    If negotiations demand contention, because the other side won’t have a negotiation without it, have two parties represent each side, one party to bicker, and one party to actually solve problems.
  • Confusing Superior Force with a Better Bargaining Position
    “We are a $10 Billion company – we can buy and sell your sorry butt 20 times over …” is not a very useful threat if the other company is not for sale and has a specific piece of IP you need to take your product to the next level.
  • Confusing Negotiations with Psychological Warfare
    In addition to preventing problem solving, there’s always a chance the other party could be carrying a concealed weapon and just snap. (Its a fact that some negotiations have ended in physical violence.)
  • Going for broke when you’ve already won
    Once your pre-established conditions are met, especially if your targets were aggressive, pushing forward just in case you might have “left something on the table” or because you might be able to “squeeze more blood out of the stone” is not a good idea. The other party might think you’re totally unreasonable to work with, get up, walk away, and take their goods and services to your direct competitor instead.
  • Focussing on the other party, and not on what the other party is representing.
    It’s not personal, it’s business.

Also, if you want a larger, more detailed list of Negotiation No-Nos, you might consider the Next Level Purchasing course of the same name.

P.S. You might also be interested in the recent Spend Matters post on this topic, which went live after I originally drafted this post.

the doctor’s Guest Posts: The Year in Review II

Since last year’s summary of my guest post contributions (in June), I’ve blogged a number of guest posts over on eSourcing Forum [WayBackMachine] as well as authored or co-authored a significant number of wiki-papers over on the eSourcing Wiki. I’ve also contributed articles to the EyeForProcurement monthly newsletter as well as Efficient Purchasing.

e-Sourcing Forum

December 2007 to June 2008

Regulations Unlimited
Strategies for Supply Chain Finance
Customs & Security
The Seven Scruples of a Sourcing Sensei
Discovering Your Leverage Points
Seven Risk Mitigation Strategies You Can Do With Smart Optimization
If it ain’t Multi-Tenant, then it ain’t got SaaS (co-authored with David Bush)
Not All Free Trade is Equal
Best Practice Freight Bidding
CSI: Corporate Social Irresponsibility
Critical Skills of Supply Chain Leaders
Devising an RFP That Works
Core Capabilities of Supplier Enablement
Is it Center of Excellence or MindSet of Excellence
Successful GPOs Are About Value, Not Cost Savings
Don’t Swing the Wrecking Ball Unless You’re Prepared for the Falling Debris
Can you really afford to leave Millions on the table?
Are You Managing Your Talent Chain?

June 2007 to December 2007

Supplier Enablement
Confucious eSourcing Project Management Tips
Brunswick Corporation’s e-Auction Best Practices
Collaborative Negotiation
Seven Tips for SaaS Selection
Incentives Motivate
Optimal E-Tool Selection
Five Ways to Take Your Sourcing to the Next Level
A Global Trade Primer
Applications of Spend Analysis
The Benefits of Purchasing Consortiums
Optimization is the Future And The Future is Now
Some Low Cost Country Sourcing Insights
Twelve Steps to Purchasing Program Predominance
Ten Tips for Talent Retention
A Case for E-Sourcing and E-Procurement Integration
Nine Steps to e-Procurement Success
Key Challenges of Tomorrow, Part II
Key Challenges of Tomorrow, Part III
Ten Common Negotiating Mistakes

Articles

Why aren’t you optimizing?, Efficient Purchasing Issue 5, Fall 2007

Why Aren’t You Optimizing Your Sourcing Decisions? EyeForProcurement August 2007 Newsletter

Are You Ready For (a) Divorce (from Your Strategic Source of Supply)?

You might think that divorce rates in North America are high, with some statistics as high as 50%, but in the business world, divorce is the name of the game. As a recent article, “On Target”, over on Supply Chain Digest points out, no matter how valuable a strategic “supplier alliance” may be at various points of a relationship, for a high percentage of them, the relationship will change substantially and probably end somewhere along the way.

At some point in time, one of the following indicators will arise:

  • multiple requests on either side before action is taken
  • requests need to be made for items or services that used to be proffered without asking
  • the buying organization starts to feel that it is being “nickel and dimed” by the supplier

At this point, the “marriage” is coming to an end and you’ll start to see the commitment of the supplier decreasing rapidly, the sharing of information dwindling, and contractual language identifying each party’s dos and don’ts increasing … and you will know that problems are brewing.

So what do you do? Well, you start by calling in the corporate equivalent of the Ashley Madison Agency and discretely find yourself your next partner – before the current relationship ends and before you’re ready to even announce the shift.

As the article points out, you need a plan to end a strategic supplier alliance – and the most important part of the plan is knowing who your new strategic supplier will be. Strategic alliances exist because there is one or more functions that are critical to your businesses that you are not capable of performing yourself, or at least not capable of performing cost-effectively. This means that even if the current relationship is sour, you can’t just end it without crippling your business. Thus, you need to have a new supplier ready to take over.

Once you know who your new supplier will be, you’ll need to prepare for the transition. This will include:

  • getting the appropriate approvals to end the relationship
  • understanding the legal ramifications and taking steps to minimize the damages that could ensue (by working with Legal)
  • understanding which organizational groups will be affected, how they will be affected, and readying the information necessary to address their concerns at the appropriate times
  • understanding which systems and processes will be affected and outlining the necessary changes
  • creating a transition plan to transition from the old strategic partner to the new strategic partner

Finally, you’ll need to break it off. If you’ve done your homework, although it will be painful, it should go smoothly. Regardless, it will, as always, be an experience – so be sure to learn from it.

the doctor Hopes That You Don’t Get Too Emotional (in Your Negotiations)

the doctor recently came across an article in The Negotiator Magazine titled “Emotion in Negotiation” that had some good advice on incorporating emotional awareness into negotiations, as long as you don’t take it too far, especially when you’re the buyer and the purchase under consideration is a technology solution.

The article suggests that because emotion is an integral and essential part of the human experience, that it is thus inherent in negotiation, especially since researchers have found that emotion is an integral part of reasoning and decision making. Furthermore, there is research that suggests that an absence of emotion has been found to have the same disruptive effect on decision making as strong negative emotion. Thus, the suggestion of the article is that in order to be a truly skillful negotiator, it is important to also be emotionally intelligent.

The article also suggests that being an emotionally intelligent negotiator involves not only emotional awareness, but the ability to use emotions in creative and adaptive ways. And although I heartily agree that Emotional Intelligence, or EQ, as us bloggers like to put it, is very important both in, and outside of, negotiations, I don’t think you should be relying on EQ alone for negotiations. You should be relying on heavy hitting analytics and expected ROI calculations.

Let’s face it … the big technology vendors, especially those without innovative solutions to sell, have known for years that their chances of making a sale increase greatly if they can get you emotional about their product. But you don’t want to be buying a product for how it makes you feel – you want to be buying a product for what it can do for you.

Moreover, you want to know how much value you expect to get out of the product. How much is the increased process efficiency really going to save you in manpower? (Chances are, not much.) More importantly, how much savings is the product expected to enable through advanced analytics, optimization, risk management, or spend visibility? Per year?

This is the basis for your negotiations. A conservative estimate of how much value you expect to obtain from the application. If you conservatively expect to save 10M per year, than you can conceivably pay as much as 1M per year for a solution. But if you only expect to save 2M per year, it doesn’t matter how good the solution makes you feel – spending 1M+ per year on it is just plain stupid.

I’m not saying that you shouldn’t pay attention to your emotions when evaluating technology solutions, or that you shouldn’t try to use them to your advantages in your negotiation with the technology vendor (should you get the chance), but that you shouldn’t be swayed by your emotions in making a decision.

What’s the Key to Effective Purchasing?

CAPS Research latest Practix, “The Key to an Effective Purchasing System: Is It Technology or Supplier Relationship Management?”, by Keah Choon Tan asks whether sophisticated and often expensive information technology is the only solution to improve competitiveness in response to the tremendous pressures of globalization and increasingly demanding customers. The study describes the lean but highly efficient supply management system of a world-class casino-hotel chain that emphasizes strategic supplier relationships over implementation of sophisticated information technology and that has developed a supply management system founded on a contemporary management philosophy that stresses long-term, mutually beneficial relationships, trust, and sole sourcing.

The goal of the article was to demonstrate that an effective supply management policy can be the key to managing the supply function effectively. The policy emphasizes the formation of strategic alliances to achieve the lowest total acquisition cost, rather than forcing suppliers to bid on each purchase – since this approach tend to focus on short term measures such as unit price. Once the strategic alliances are formed, the best suppliers are selected for each item based on quality, reliability, delivery, and total acquisition costs and blanket orders are issued. Furthermore, to update and continuously improve centralized blanket orders, the company has processes in place to enable suppliers to solicit new business and chefs to request and receive samples and pricing information.

In addition to sole sourcing, the company also employs supplier performance monitoring, continuous evaluation, and competitive bidding when a new product, or source, is needed. The company also has well-defined, rigid, supplier selection criteria which include competitive pricing, quality standards, reliable services, processes, and delivery, the ability to provide niche product and design concepts, financial stability, provision of warranties, insurance and bonding, proven performance standards, and excellent service and support.

The study then deduces that implementing an appropriate process is the key to solving business challenges, and information technology is merely a tool to facilitate the process. Furthermore, the study notes that the process has led to time savings, cost savings, accuracy, waste elimination, and improved control without the support of much in the way of information technology.

Although I’d have to agree that the process is key, I don’t think the study stresses enough that it was based on the restaurant services arm of a casino hotel chain that has only eight locations, all of which require essentially the same items. This is not very sophisticated supply management. For an operation of this size, good processes backed by Excel and Access are pretty much guaranteed to get results (but not necessarily great results, especially from an efficiency standpoint).

Thus, although it’s a good report – it’s also a dangerous one. There’s no way this would work for a major fast food chain if it did not have good sourcing and procurement systems to back such a strategy up. Although tools alone do not a successful sourcing process make, without tools, the supply management team of any chain of even just a few dozen locations would quickly become swamped under information overload and be unable to keep track of who is supposed to ship what where, whether or not performance is acceptable, whether or not quality is acceptable, and whether or not they are truly getting the best price. Although a sole source strategy backed up only by good supplier management is often a great approach for a small business, without good technology to back it up, it just doesn’t scale!

A fool and his money are soon parted … don’t be a fool!