Key Challenges for Effective Procurement Negotiation
The art of negotiation is not rocket science, but it’s not a breeze either—at least not with every supplier you’ll sit across. Some are sharks and the only secret to winning against them is having negotiation skills twice as good as the strongest shark you’ll ever encounter.
Mastering procurement negotiation might be a process but you’ve probably heard the saying ‘train hard, fight easy’.
Good thing is, it’s not always like that… The best-case scenario for a procurement negotiation is concluding with two smiles yours and the supplier’s, having sealed a deal that favors both parties.
Knowing how to negotiate when decks are stacked against you and when factors are constant, is important. For an effective procurement negotiation, avoid these pitfalls:
You need enough time to negotiate effectively. Sealing a deal in a hurry is a cardinal sin in procurement. Analyze the product and its value, hear the supplier out, make an offer and justify it to the supplier’s satisfaction. Never rush to buy or to seal a deal.
2. Lack of information and proper planning
You win half the battle in the preparation stage. Conduct thorough background research on the product and the supplier, have all important details at your fingertips including the supplier’s operational facilities, company history, management profile, their major clients, development plans, and history of performance; and prepare answers for all hard questions the supplier might have.
Suppliers do their homework. Don’t be caught flatfooted. Like Abraham Lincoln, if you have eight hours to chop down a tree, spend six sharpening your ax.
3. Closed mind
Remembering both of you want a favorable deal is key in effective procurement negotiation. Flexibility begets the same. Have your non-negotiable demands but don’t be so rigid with other things that you’re only looking at the extra dollar a product will cost, without paying attention to any unique properties or value the product might have or a special deal that’s tied to it. Listen, think, and ask questions.
4. Poor communication
Communication is a three-step process: encoding, decoding, reply. You speak, supplier understands, and then responds, and the wheel keeps rolling. If either of you does not listen, or understand, negotiation will stall.
You might have little to no control over how the supplier communicates, but be clear on your end to save the situation.
5. Overthinking the power dynamics
As a rule of thumb, never be in awe of the supplier, however big they are. You have what they want however small it is. You might not even know what’s important to them it might NOT be money. If they didn’t want to have you on their list of clients, they would not be at the negotiating table with you.
Be well versed with the product, understand the market, and stick to your non-negotiable demands, your company’s bottom line, and the walk-away figure. Ask questions too and shoot for the best deal. If the offer on the table doesn’t work for you, it is what it is. Move on.
6. Using short-term negotiation tactics with long-term suppliers
It is one thing to want a product real fast and cheap, and another to want the same great product for a long-term supply, at the same price. Giving a supplier a thin margin when you have to, is okay, but if you’re looking to establish a cordial long-term relationship, make better offers. Your supplier will stay in business and you’ll be on the priority list.
A procurement negotiation is like a tug of war. The savvy supplier is pulling from one end, to squeeze the best deal out of you, and you are on the other side pulling harder to save your company every dollar possible. Avoid these pitfalls and you’ll not be the one crossing the line in defeat.