Tag Archives: negotiation tips

Don’t Be Afraid To Kick A Colleague When Negotiating

In a major negotiation, procurement needs to deal not only with the supplier representative on the other side of the table, but with the internal stakeholder sitting next to you. If that person deviates from the script – as they so often do – then don’t be afraid to kick them in the shins. It’s your job!  

Procurious was invited to attend a Negotiation Roundtable organised by CABL (Conti Advanced Business Learning) and facilitated by its Founder, Giuseppe Conti.

Conti introduced the subject by pointing out that in many negotiations, it isn’t enough to negotiate with the suppliers. Usually, there’s a minefield of internal negotiation to get through first.

Don’t enter the maze without a map

Håkan Rubin refers to his company (IKEA) as a “matrix organisation”, and therefore sees stakeholder mapping and management as crucial before any sourcing activity. In his role as Supply Chain Operations Leader (Group Sustainability Innovations), Rubin says that identifying who the key players are internally isn’t always that obvious. “We try to get everyone on board, to make sure that resources are available and that everyone feels they are involved.”

Paul André, Emerging Products & Commercial Supply Director at JTI, built upon Rubin’s point: “I find that even though you’ve carried out your stakeholder mapping and have a joint meeting with key people involved, a lot of discussion happens outside of that meeting. What happens between the meetings is often more important, where people agree on things in one-to-one discussions.”

Overcoming resistance

Kemira’s Senior VP of Global Sourcing, Thierry Blomet, examined some of the typical resistance that procurement faces from internal stakeholders. “They have restrictive time constraints, heavy specifications, and often want to select suppliers based on past history and how comfortable they are with using them. It’s often challenging for procurement to convince stakeholders that there’s a better option against so much resistance, especially in a conservative industry not willing to take on the adventure of new technology or new suppliers.”

Xinjian Carlier (Strategic Sourcing Commodity Manager -Honeywell) shared an example of how she overcame resistance to a request for extra resources to deal with a major issue with significant financial impacts. “The reaction was ‘we don’t have time – I can’t give you the resource.’ I explained that the reason I came to them was that the company including both procurement and engineering would suffer an impact of hundreds of million in sales. Basically, I converted the issue into facts and put both of us in the same boat. This helped the senior leader in engineering understand, and reprioritise his resources.”

Resolving conflicting objectives

Laurence Pérot, Head of Global Supply Chain & Procurement at Logitech, comments that particularly in larger organisations, it’s procurement’s responsibility (and challenge) to juggle differing objectives and agendas from varied teams. “When you’re dealing with different functions, it sometimes isn’t clear what the company actually wants out of the negotiation. It means we [procurement] are unsure what we’re going to ask for. I had an experience where we had to make the decision on our own about the objectives on behalf of the rest of the community, because we couldn’t get alignment between the functions.”

Procter and Gamble’s Global Capability Purchasing Leader, Tamara Taubert, adds that procurement owns the discipline to be able to turn around complex, multiparty negotiation effectively. “To do that, our stakeholders need to get educated on what a negotiation is, the do’s and don’ts, and their role in the negotiation itself. The procurement representative might be the only person sitting at the table across from the supplier, but there are others involved in the negotiation, whether they like it or not. Procurement can lead by connecting all parties together and help them come to a value agreement.”

Staying in control

Blomet has found that engineers are generally happy to be guided by procurement as they’re often less experienced in negotiations and sourcing events. But when senior business stakeholders step in, it’s often more challenging for procurement to keep control of the process. “Business stakeholders are more likely to say that they know how the negotiation should be handled. Procurement may be tempted to back off at this point, but my advice is don’t back off. It’s even more important to help set the scene, do the roleplay, and keep them under control both during the preparation phase and during the meeting itself. And yes, this means it might be necessary to kick someone under the table if they deviate from the script.”

Alessandra Silvano, Global Category Director Capex and MRO at Carlsberg Group, says this has happened to her. “I had to ask someone who was not keeping to the script to leave the room. This person was becoming emotional and I could see we would be left in a bad position. I called a time-out, we took a break, left the room, and the supplier stayed behind. Eventually, we went back into the meeting and said we’d like to continue in a smaller group – leaving out the person who was not playing according to the script.”

Francesco Lucchetta, Director of Strategic Supply at Pentair, noted that although emotion can cause people to leave the script, it’s part of the negotiator’s toolset. “There’s a difference between playing with emotions and keeping negotiations under control. In a supplier negotiation, you’re the customer, so you can be much more emotional than they are. In an internal negotiation, you’re more likely to change a stakeholder’s mind by pointing out the emotional/risk side of the issue, rather than presenting facts around savings.”

Interested in attending a CABL Negotiation workshop? Visit http://www.cabl.ch/ to find out more. The founder, Giuseppe Conti, has over 20 years of Procurement experience with leading multinationals and over 10 years of negotiation teaching experience at leading Business Schools (including Oxford, HEC Paris, IMD and ESADE).

Negotiations Milking you Dry? Why Not Unleash the Power of the Herd!

On Day 8, the true love bestowed that famously lusted after gift of eight milking maids…

eight maids a milking

The traditional 12 days of Christmas might not start until the 26th of December. But this festive season, we’ll be bringing you the 12 days of procurement Christmas in the run up to the big day. Catch up with the story so far on the Procurious Blog.

“On the eighth day of Christmas, my true love gave to me…eight maids-a-milking.”

As the gifts become more and more extravagant, we have to question the logistics of it all – we wouldn’t be procurement professionals if we didn’t!

It’s unclear how the true love bequeathed the eight milking maids. Were eight cows also included in the purchase or was it simply a milking service that was required? Were the maids employed by an hourly rate or at a fixed cost, and how were they delivered to the lucky recipient?

Whatever happened, it would have taken some great negotiation skills to strike up a fair deal that ensured neither party was milked dry.

Perhaps the true love harnessed the knowledge of a crowd of friends to get ideas on how to orchestrate the whole thing – using the power of the herd as it were!

Negotiating Your Best Deal 

The festive season calls for a lot of meticulous planning but when it comes to negotiating deals, you need to be prepared all year round. What’s your pre-match strategy when it comes to negotiating with suppliers, clients and stakeholders?

In order to achieve the right outcome, you ought to have considered your objectives well in advance. This will help you determine what sort of negotiation you’ll need to have and assess any additional support you might need such as legal advice.

It’s also important to ensure you know the other party. What are their aspirations, weaknesses and objectives?

This Procurious e-learning video has it all covered: 

Here are some key things to bear in mind:

  • Will your agreement stand the test of time? Both parties want to feel that they’ve achieved a good deal and a satisfactory outcome.
  • Is the outcome efficient? Make sure no value has been left at the table.
  • Are you off to a good start? Negotiating a deal sets the foundation for your supplier partnerships and a precedent for the relationship you want to build.
  • Have you mastered your verbal, written and non-verbal communications? When it comes to negotiating, you need to be assertive but not aggressive!

Milking The Power of the Herd 

Sometimes, no amount of self-determination and commitment can get you across the finish line alone. We all need a little help from our friends for ideas, innovation and support.

We’ve certainly noticed that collaborative innovation has been on the rise in 2016 with more organisations embracing the power of the Hackathon.

In November, Spotless Group and Startupbootcamp hosted an epic two-day event at the MCG in Melbourne, Australia, focusing on the Internet of Things (IoT) and DataTech. Events such as these help to generate new ideas and turn innovation into reality.

Lisa Malone spoke about the value of the Hackathon at this year’s Big Ideas Summit.

Lisa explained why it’s key to foster creative cultures in the workplace, giving employees the chance to dare to think about the unthinkable. It can be hard to think big and innovate when you’re stuck in the routine of day-to-day office life.

Hackathons can be a great way to harvest creativity and allow teams to deliver the big ideas CEOs are demanding.

If hosting a hackathon seems a bit out of your reach, remember there are other ways to drive change and innovation within your organisation.

Internal collaboration also has a huge part to play. Procurious recently addressed why it’s so critical to engage Millennials with new tech implementations. They’re tech savvy and accustomed to participating in digital communities.

Their contributions, for example, could be invaluable when it comes to the adoption of e-procurement.

It’s very nearly Christmas, and many of you will be dancing out the door to your Christmas party. But what happens if there’s a crisis that arises, demanding your attention? Don’t worry, help is at hand!

5 Price Analysis Methodologies to Apply to Negotiated Costs

How can you find out if you’ve got a good deal from your negotiation? Here are some price analysis tools that could help you out.

Volume Price Analysis

One of the key performance measures that invariably arises at the end of a negotiation is if the final price achieved is a good one or not.

If we, as buyers, have purchased the product or service for a number of years, we can rely on our experience. But we have all faced a situation when we have to deal with an unfamiliar product. What do we do then?

I have outlined the pros and cons of some different approaches to price analysis. There’s no magic formula we can apply to confirm if the negotiated cost is accurate to the market price.

Each price analysis method has its own strengths and weaknesses. Knowing them will help us to understand which one to apply in which situation.

Price Comparison

The most basic method. You take the final price, and compare it against the prices quoted for the same product by other suppliers in the market place. This is the most common method, and it’s usually applied to common products, or those with transparent pricing.

Pros:

  • Doesn’t require too many resources.
  • Relatively easy to find out if the cost is over the market average.

Cons:

  • It can only be applied to common products – it should not be used, for example, for the cost of a lab analysis service, or customised goods.
  • You have to work with updated costs – in some areas, like electronics, a 6 month old cost may be obsolete.
  • You have to compare exactly the same product, under the same circumstances – not, for example, two different mobile phones, or services from two different countries.
Cost Structure

If it’s not possible to find equivalent market prices for the products or services, procurement can use the approach of a detailed cost structure analysis.

In order to do it, we ‘only’ have to replicate the manufacturing process, and assign an estimated cost to each stage. We can then benchmark this result against the cost provided by the supplier.

With a service, rather than a product, the process requires disaggregation of the service into its constituent parts (salaries; materials; equipment), and a cost assigned to each.

Pros:

  • Provides a detailed view of costs.
  • Can be used as a basis for supplier partnerships, and to visit supplier facilities to look at the manufacturing process.
  • Allows for negotiation on each constituent part of the good or service, increasing potential for savings.

Cons:

  • In-depth knowledge of the manufacturing processes and costs is needed.
  • Resource heavy.
  • Without supplier input, manufacturing process costs will be estimated, increasing the error margin exponentially.
Price Index

If the product has a published price index, then it is logical that the index will be a good guide to check if the negotiated cost is a good one. It would then be a matter of comparing the negotiated and index price to see if the negotiated cost was good or not.

The process is a bit more complex than that, but for the purposes of this article, there is no need for further explanation.

Pros:

  • Price indices usually are available on the Internet under paid subscription. As an added value, these sites usually offer forecast analysis that could be helpful for ongoing procurement strategy.
  • Can show trends and provide a comparison to the cost the last time the product was purchased. For example, if a product index has decreased a 5 per cent, but the supplier has only offered a 2 per cent cost decrease, then it’s clear that there is room for further negotiation.

Cons:

  • The indices are just a guide, there is a more complex cost structure which has to be considered. For example, other factors, such as a trader’s fee, would not be expressed as part of the product cost.
  • Indices only have a partial influence on the final price. A drop of 30 per cent on a factor, such as petrol price in the plastics market, wouldn’t necessarily mean a 30 per cent drop in the product price.
  • Markets can fall victim to speculation, or an issue that distorts the index. Being unaware of these issues prior to a negotiation could lead to a higher than expected cost.
Unit Price Analysis (UPA)

The Unit Price Analysis (UPA) is a mathematical model which predicts the right cost that a product or service should have based on its specific properties or details. It’s like a price calculator.

Pros:

  • We have access to a goal cost before starting negotiations.
  • Companies have developed their own UPAs based on non-linear regression statistical analysis. You can hire their services in the same way as you sign up for Price Index sites.
  • They are quite helpful when calculating complex project costs, and provide an accurate cost result for EPC projects.

Cons:

  • Building this model from scratch is expensive. Nearly all companies outsource this service.
  • You must be sure that data comes from a trustworthy source before using it for a negotiation.
  • UPAs are unitary prices based on a specific volume. The data doesn’t support different volumes.
Conclusion

In addition to the price analysis tools outlined above, there are a number of other, less common, ones. They are less used as they can only usually be applied to very specific cases.

There is no, one correct method. The specific circumstances of each sourcing activity will determine which method can be best applied to the post-negotiation benchmarking activity.

The Fine Art of Negotiation

Your negotiation skills come into play practically every day in the procurement game. But that doesn’t mean there isn’t room for improvement.

essential negotiation strategies

Strong negotiators master verbal, written and non-verbal communications. They’re assertive, approachable and know what they want.

And while procurement professionals are relying on their negotiation skills more than most, there’s always room for improvement to ensure you’re getting what you want during the negotiation process, regardless of whether you’re the buyer or seller.

Getting the Right Result

Strong negotiators rely on specific skills including patience, self-confidence and creativity. This is according to Australian business and leadership coach Cheryl Daley, who focuses specifically on the art of influencing others.

“People don’t often believe they have strong negotiation skills, but it’s a skill we all need in life, particularly in business. There’s always better ways to approach negotiations, but we often fall into the same rut and forget about the importance of looking for new ways to get the result we want when negotiating,” Daley says.

Negotiations often become a power-play between two parties, but the aim should be for everyone to walk away feeling good about the outcome, she says.

Long-Term vs. Short-Term

Anyone about to enter into a negotiation of any kind should start by determining the type of negotiation it will be.

“The type of negotiation will have a huge impact on the way you approach it. A buy and sell negotiation with someone you will deal with once, will be a completely different situation than if you’re entering into something you believe will be a long-term partnership,” Daley explains.

“The longer-term negotiation processes in the business world can take months or even years. These usually involve higher stakes, and can involve a discussion back and forth for some time until everyone has an outcome they are happy with.”

Set Your Goals

Be sure to set the goals in your own mind, before the initial discussions with the other party, so you don’t feel disadvantaged from the outset, Daley says.

“Be prepared to do some personal preparation before the first discussion with the other part. Always be polite and create a dialogue that doesn’t position one party as the ultimate winner and the other one as the loser. Be firm, but not aggressive. Stay calm, because the moment you lose it, you’ve lost the battle.”

Knowing what the other person’s weaknesses are will really help. It’s easy to be steamrolled by the other party if there’s no connection or relationship in place, so take the time to get to know them, and how you can help them achieve what they’re aiming for.

“It will always be more difficult to negotiate if you don’t first ask a few questions of the other party first to determine whether you’re able to solve their problems during the negotiation process. Otherwise, you could find yourself at a disadvantage,” Daley adds.

Not All About Price

Meanwhile, licensed Buyers’ Agent Nicole Marsh reminds us that negotiation isn’t always just about price. Often, negotiating other terms for real estate buyers such as a longer settlement, being able to move in on an earlier date, or the vendor leaving behind the white goods is enough to get the deal over the line.

“Long term partnerships may require each party to make concessions to make it work and may involve more problem solving skills to get the deal across the line,” Marsh says.

On the other hand, when a negotiation does come down to price, it’s important to set a ‘walk away’ price so you don’t agree to a higher price than you can afford, she says.

“It’s never too late to look at how you approach your negotiations, and consider adding new skills to your repertoire,” Marsh says.

Top Tips for Negotiating

Marsh also shared her top tips for negotiating:

  • Be firm, but not aggressive.
  • Strive for solutions that work for both parties.
  • Stay calm. Stick to the issue, and don’t become hostile or frustrated.
  • Don’t take it personally.
  • Pick a mutually convenient time and place for the negotiation to take place.
  • Put details in writing.
  • Consider whether you need legal advice.

Negotiation is no game… but here’s how to win at it (anyway)

Welcome to the first blog in a monthly series from John Viner-Smith.

I have spent my career negotiating. I’m guessing that you have too. I’ve worked in procurement as a buyer, a manager and consultant for over ten years but it was only when I left procurement and worked as a consultant and trainer working with procurement and sales people and focused solely on negotiation that I really came to appreciate negotiation as the core commercial skill.

Children negotiating marbles
Negotiate hard (like these children – over marbles…)

People have some funny ideas about what negotiation is. Let’s start by talking about what it’s not;

1.    Negotiation is not the price discussion that happens at the end of a sourcing process.

  • The entire sourcing process is the negotiation. Every conceivable variable (what are we buying? To what spec? Under what terms? Delivered where? When? How? Etc.) is negotiable.
  • If you park all of those early and plan to negotiate the price at the end, you’re either going to sleepwalk into a very competitive haggle or (assuming you’re negotiating with someone who knows what they’re doing), maybe you’ll just get the deal they wanted to give you all along.

2.    Negotiation is not comfortable

  • Negotiation is a tool for resolving conflict. It is therefore rooted in conflict, which is inherently uncomfortable.
  • If you fail to acknowledge and embrace that discomfort, you may find it becomes a factor in the outcomes you achieve. Ever held back from pushing for a little more in a deal because you didn’t want to be that person? That was your discomfort. And your failure to manage it costs you. Macchiavelli said “Whosoever desires constant success must change his conduct with the times”. Become comfortable with assessing and doing what is necessary.
  • As buyers, we have developed techniques and technologies that serve to insulate us from the discomfort of direct, face-to-face confrontation. The assumption that this is a good thing is deeply flawed.

3.    Negotiation is not compromise

  • The task of every negotiator is to get the most they possibly can get from each negotiation for themselves and their employers.
  • Compromise is what happens in the absence of effective negotiation.
  • Your goal is not to give the counterparty anything. Gifts are a sign of generosity.
  • If you are perceived as being generous, your counterparties won’t reciprocate with gratitude. They will become greedy. They will want more from you the next time.
  • Instead of conditioning people to expect free gifts, condition them to expect positive outcomes only if they earn them.

4.    Negotiation is not about securing a win-win outcome

  • Negotiation is about you getting everything you can get, not to be fair to the other party.
  • Win-win is a myth. If you assume you negotiate with rational, competent people, you must further assume that they won’t do a deal that has zero or negative value to them.
  • Therefore, they won’t do deals where they “lose”.  If your counterparty criticizes you for acting in a “win-lose” fashion, they are trying to influence how you feel about the deal. They may be genuinely aggrieved, or they may want you to think they are (it’s a backhanded compliment, designed to make you feel good about your “prowess”). If you have genuinely taken everything they could give you well, they still did the deal. So they’re winning something.
  • Conversely when your counterparty exhorts you to do a deal because “It’s a win-win”, one thing is clear; they’re winning something and want to close the deal. You may be doing ok, but could you do better?

5. Money never gets left on the table

  • I have heard countless negotiators tell me about the times they left money on the table.
  • No money ever stays on the table. If you didn’t take it, the other person did.
  • If the value is there to be had, your job is to get it. In a simple, one dimensional negotiation (typically price), that means you take everything and leave them just enough to close the deal and leave the table. In a complex, multi-variable negotiation that means you identify every conceivable source of value to them and to you and ensure you trade them to create a deal that’s bigger than the sum of it’s parts.

6.    Negotiation is not a game and it is not optional.

  • I meet (and negotiate with) people who’ll say “I’m not going to play games with you, the price is X”
  • If you have all the power in the world, and the counterparty has zero option but to do the deal with you on those terms, they will do it. But they will devote time and energy to clawing back some satisfaction in the deal. If and when the balance of power swings their way, you will be punished.
  • What if you’re counterparty was willing to settle for a price of X – Y? You just overpaid by Y, at least. Chances are that the counterparty will get you to move on your price, so you’ll pay more than X.
  • Negotiation is a necessary and important ritual to help you gauge and attain the best possible outcome every time.
  • Fail to negotiate and you just fail. If you closed a deal without negotiation you either created a risk for yourself down the line, or you got exactly the deal they wanted to give you.

I consult for and train procurement teams and sales forces. Effective negotiation training is not cheap, but it is also essential and an investment in people that delivers great returns in short order.