Negotiating Out of a Hole: Techniques for Difficult Situations
ISM's 93rd Annual International Supply Management Conference
St. Louis, MO
Mark Trowbridge, C.P.M., Principal of Strategic Procurement Solutions, LLC
Negotiations run the gamut from complex sole- or single-source acquisitions to those in which a stakeholder has released confidential information to the supplier. One predicament common to all negotiations, however, is the frequency with which supply management professionals dig holes for themselves which are difficult to escape.
This filled-to-capacity ISM Services Group-sponsored workshop, led by Mark Trowbridge, C.P.M., principal of Strategic Procurement Solutions, LLC, showed attendees how to handle the toughest negotiations situations.
According to Trowbridge, negotiations is such a hot topic because the average Fortune 1000 company spends $10,000 training each salesperson compared with the average $1,200 spent training a supply management professional. This puts supply management professionals at a disadvantage even before they get to the table.
To help level the playing field, Trowbridge presented six negotiations techniques:
- Early involvement of supply management — Avoid "paper-to-deal" scenarios with strong relationship with key internal customers; build a reputation for value-added contribution — sponsorships, for example; get supply management professionals involved in budgeting and forecasting; and ensure supply management is responsible for soliciting supplier proposals.
- Understand the differences between collaborative and competitive negotiation — Collaborative negotiations are based on problem-solving, are non-confrontational, and two winners often emerge. Competitive negotiations, on the other hand, are characterized by "hard bargaining," and the outcome is usually unequal.
- Prepare the team to fight the tough battles — To get everyone on the same page, Towbridge advised attendees to meet with all key stakeholders, break ties by escalating to senior management, and to "divide and conquer" to mitigate dissention. "About eight-five percent of our time should be spent preparing," he added. "By preparation, I mean gathering data, prepping to present and strengthening your team."
- Empower negotiations with factual data — Towbridge recommends developing an industry cost profile based on similar supplier relationships or published data from sources such as the Bureau of Labor or the Census Bureau.
- Negotiate all Total Cost of Ownership Elements before beginning a supplier relationship — TCO is key to this strategy, Towbridge said, citing the TCO of lodging as an example. The cost to stay at a hotel for a night is greatly reduced by the availability to choose a hotel that offers free breakfast, a shuttle service and a fitness center. "When you actually map all those out, only about fifty-four percent of what you pay is related to room costs," he explained.
- Shift the paradigm — This is especially important when a supplier thinks for sure it has your business, Towbridge pointed out. He presented a handful of ways to shift the paradigm, including: strengthening the business relationship (e.g., extend the contract), starting negotiations early, increasing volume and acquiring other products and services from that supplier.