How to negotiate with suppliers

There’s no doubt about it, times are changing. With increasing market volatility, uncertain political environments and the impact of climate change the world around us is changing at a rapid pace. This is no different in the business world. Organisations are constantly adapting, re-calibrating, planning and reacting to forces seemingly out of their control. These are all key reasons why organisations need to better manage their supplier relationships. With so much movement it’s important to focus on what we can control.

Whether you’re a business partner, client, internal or external stakeholder, any negotiation with suppliers has a direct impact on the organisation you work within and reflects on your own reputation.

So, how do we negotiate with suppliers?

Nurture the relationship

One of the largest shortfalls of many negotiations is a failure to build positive ongoing relationship. Relationships where there is an existing mutual trust and respect between counterparts, the negotiation process made easier. Where we have rapport and deference, the process is streamlined to some extent. We often get to the core of issues more quickly and we have a greater appreciation of our counterparts’ point of view. This is not to suggest that we can’t run into difficulty, inevitably we will, but having a solid relationship means we have a strong foundation to navigate this difficulty. In a way we have more at stake. We are more invested in finding our way out of the difficulty because we value our counterpart, and they value us beyond the negotiation. Incorporate building relationship into your supplier negotiation strategy for long term success.

Bring New Value to Your Supplier

When we negotiate with vendors or suppliers, we need to consider what it is we’re looking to achieve. Are we looking for a quick win, a cheap deal? Or something more? Given that supplier negotiations and vendor contract negotiations are generally ongoing negotiations it’s particularly important to create value in each of our negotiations. To create value, we start by understanding and articulating our own needs and motivations in the negotiation as well as those of our counterpart. Once we have a sense of what these motivations, we can gain insight into where they overlap and where common ground exists. We want to use this list of needs and motivations as a checklist to come up with creative options that meet both of our needs. This is where the value lies, in finding ways to meet needs together rather than at the exclusion of another. This also works to reinforce a positive relationship between negotiating parties.

Discover Areas of Mutual Gain

Throughout the negotiation process we should be striving to discover areas of mutual gain. This is something that requires active discovery from one or more of the negotiating parties. What we want to create are, ‘options’, ways that the parties can meet their needs together.

Options may relate either to the substantive content of the negotiation, or to the process – the way in which the negotiation is occurring. Process include ideas about when and where to meet, a range of possible agendas, suggestions to involve others in the discussion, proposals to meet again after gathering information or consulting others, and so on.

Change How You Buy

In the eyes of many, negotiation with vendors or suppliers alike are all the same. There are some initial offers, some haggling and eventually a point at which both parties have compromised sufficiently to reach agreement.

Vendor contract negotiations for example should not be view in such a linear fashion. All negotiations are not the same. In fact, to the contrary they are all unique. We often fall into the same established patterns of behaviour in our own negotiations which causes us to feel like the negotiations are the same, when in fact it’s us behaving in a repetitive fashion. This is especially the case if we regularly negotiate with the same people.

Over a period of time, we come to rely on these behaviours whenever we negotiate. If we’re looking to improve relationship and outcomes when we negotiate business, we need to change our behaviour. In other words, we need to change how we negotiate and when it comes to suppliers, change how we buy.

One way to begin to change our behaviour is to engage in some self-reflection about our past negotiations. What worked well, what can we do differently for next time, where and how did we get off track.

We also want to consider preparing differently for our negotiations. Dedicating time to considering all the elements of the negotiation before we engage in the process will enable us to see more clearly what may impact the negotiation from our point of view as well as our counterparts.

Never Compromise on Communication

It doesn’t matter if we’re in the midst of a price negotiation with a supplier or negotiating vendor contracts we never want to compromise on clear communication.

At every moment during a negotiation, messages are being sent back and forth. The complexity of our communication is staggering when you think about it, as we need to make choices about how to make our communication effective at the same time as deciding what it is, we’re actually trying to communicate. But don’t despair! While there will always be more details you could be thinking about, you won’t be too far off if you pay attention to the basics:

  • When and where to communicate
  • Which medium to use – writing or speaking, with their basic variations (letter, fax, email, etc)
  • When to listen and when to speak (generally more listening than most of us are used to!)

It’s helpful to recognise that there are two key aspects to every example of communication: on the one hand there’s the speaker’s intention and, on the other hand, there’s the impact they have on the listener. Communication is only truly effective when those two things match up. Notice how, in response to apparently rude comments, you often hear people say things like: “I’m sure that’s not how she meant it.” This figure of speech recognises the potential difference between a speaker’s intention and the impact of what they’ve said on the listener.

Use evidence & standards

Using objective evidence in the course of a negotiation can help strengthen your argument and assist your counterpart to understand what you’re saying from a less biased point of view. We want to focus on objective fairness to assist us to reason and persuade our counterpart. It’s not uncommon to come across the question, ‘how to negotiate in business more effectively?’ One of the most effective ways to improve business negotiations is to incorporate standards/evidence.

Providing your counterpart with objective standards enables them to feel confident that your suggestions, offers and perspectives are in line with broader community norms. It’s a little like saying, “don’t just take my word for it – you can ask all of these other people, and they’d reach exactly the same conclusion!

Conversely, when you are able to verify the legitimacy of your counterpart’s perspectives by reference to objective standards, you derive a similar level of comfort. Not only is this likely to bring you closer to agreement, it will also help to build a good working relationship – one that is based on fair dealing.

An agreement that is based on objective standards will be much easier to justify to your (and their) constituents, to third parties and to the public. It’s a way of ensuring that these stakeholders’ interests are also met, at least to an acceptable degree, without complicating the process by involving them in the negotiations directly.

Manage the process

There is a distinction between the content and the process of a negotiation. The content is the ‘what’ of the negotiation, it’s what you’re negotiating about. It may be the terms of a lease or the price of a shipment of product. It’s expected in any negotiation that you know your content inside out. We then have the process. The process is the ‘how’ of the negotiation what steps are you taking to navigate the negotiation.

The best negotiators are deliberately managing the process of negotiation. Managing the process doesn’t mean seizing control and holding onto it for dear life! It does mean paying attention to how things are progressing. At times you’ll need to make a comment or ask a question, not to disagree on the content, but to steer the conversation in a different direction. But at other times you might also be quite happy with the direction that the other person is taking. Good process management will then involve choosing to listen to them, or answer their questions, for as long as that seems constructive.

Making commitments

It’s fairly obvious that the signing of contracts at the end of a negotiation represents a commitment (or set of commitments) by each party. But commitments can also be made at any stage along the way, by either or both parties. Agreements to follow an agenda, or to meet again next week, are commitments regarding the negotiation process and help the parties build towards a final agreement.

A substantive promise by one party regarding one of many issues might also build momentum towards the full package of mutual commitments. For example, if at some stage during the negotiation, agree to pay whatever price is agreed to within 14 days, then this is a commitment – i.e. I have agreed to pay a certain amount within 14 days. (As we’ll see later, however, there are also reasons to avoid making substantive commitments too early.)

It’s amazing how often two negotiators leave a room with two different interpretations of what they have just agreed. Even when experienced commercial executives shake hands on the major points of an agreement, it is not uncommon for their lawyers (called in to draw up the written contract) to discover that their clients have quite different ideas about what was agreed upon. The executives may have misunderstood what was said (a failure of communication), or one of them may have assumed that certain conditions would be part of the agreement, while the other assumed they would not. Either way, their failure to ensure that their commitments were clear is likely to lead to delays, higher legal fees and damage to the relationship.

It may seem that the benefits of operational commitments are self-evident, yet negotiators often fail to achieve those benefits. For instance, representatives seeking to be creative sometimes come up with “in principle” solutions that are well outside their company’s capacity or desire to perform. Salespeople may strike agreements that leave their delivery or project management colleagues throwing up their hands in horror. Needless to say, negotiated contract buying can become a complicated experience when commitments are unclear.

In those cases, the negotiators’ failure to check the operationality of the commitment is likely to frustrate the other party (not to mention their own organisation!) and, in turn, impair the parties’ relationship and the ongoing process of negotiation.

The supplier client relationship can at times be a challenging one. It’s a great example of the need to manage relationships for the long term. To negotiate the right deal with suppliers we need to invest time into the relationship, create and share value, examine and change how we buy, prioritise clear communication, use standards/evidence, manage the process the commitments that stem from that process.

How you negotiate with suppliers is up to you. The question becomes, what type of a negotiation will it be?

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