As a buyer, you need to interact with suppliers for various deals. The success or failure of the deal depends on how effectively you are able to negotiate with your suppliers. To gain maximum advantage from the suppliers, you need to keep in mind certain principles of negotiation.
Negotiation is a process in which you and your supplier with conflicting requirements reach an agreement of mutual interest. It is thus all about creating a movement between each other.
The objective of the negotiation process is to ensure the supply of five rights: right product or service at the right price, right time, right location and right quantity. You will have to balance these rights i.e. a faster product delivery may result in a higher price.
Preparing a negotiation
Before making a deal, you need to prepare for it. You need to gather all the important information that you may need to successfully execute the best possible deal. If you are prepared, you can steer the way the negotiation moves forward and close it to your advantage.
Before you contact the suppliers, you need to do some homework. You need to gather information such as your timelines and budget for the deal.
You have to prepare and decide upfront the critical issues for the deal and what your targets are. Every deal has some critical issues. To identify these issues, think what your internal customers are expecting from you. After identifying the critical issues, you should put a target on each issue before you enter a negotiation.
For every issue, decide a wow and a walk-away target. These are two ends of a spectrum.
Opening a negotiation
Opening the negotiation is all about starting on a friendly note and building a climate for the negotiation, understanding the offer and listening attentively to what the supplier has to say. In most circumstances, let the supplier talk first and try to delay your opening offer as much as possible.
Let the supplier give you his one-way concessions and then make your offer.
Conducting a negotiation
After you have understood the supplier’s offer, you should present your offer. Discuss all the negotiable requirements you identified before starting to negotiate and bargain to get the most favorable offer on each requirement. Part of being a good negotiator is to extract information from the other party by asking relevant questions. The questions you ask and the manner in which you ask them can impact the results of your negotiation.
Closing a negotiation
During a negotiation, you will come across several signals indicating it is time to close the deal. When the supplier starts accepting your terms and conditions and presents very few counter offers, the supplier is willing to close the deal.
Before closing the deal, summarise all the points you have discussed to avoid any disagreements at the time of signing the contract.
Suppliers may ask for a concession at the time of closing the deal. In such a situation, you should consider the importance of the deal, the time you have spent on negotiation, the alternatives and the nature of supplier’s demand. If the demand is not critical, it is not worth negotiating at this stage. If the supplier asks for a concession on a critical component, you must not accept it. You should handle it by giving a credible explanation.
Read more about the Competences:
|Strategy Development||Category Management||Finance Management|
|Cost Management||Sourcing Process||Negotiation|
|Legal||Performance & Contract Management||Operational Procurement|