I often teach the principals of negotiation to those working in the supply chain, primarily early stage purchasing pros that attend for some basic skills training. Occasionally, I’ll get more experienced folks like an engineer or manufacturing manager. But, no matter the level of experience, most admit with a show of hands that they don’t like negotiation very much. They are at the seminar to try to get some tools and techniques to use during price increase negotiations. They leave with plenty of tools and techniques, and hopefully some confidence gained from their classmates, or my often-awkward role-playing exercises.
However, I take away the pressure that surrounds negotiation after the first half hour or so…when I tell them that negotiation is about improving overall supplier performance, not just cutting prices. In fact, price may be the last thing that is negotiated, rather than the first. Everyone understands the ongoing continuum of managing and improving supplier performance, something we do everyday. The occasional discussion on cost is just a milepost in the ongoing highway of supply management. See, you feel better already!
When do you negotiate? Continuously.
Be it manufacturing, education, not for profits, or the service sector, the fundamentals of negotiation are the same. It is not just about cost reduction but increasing supplier performance. That message does not resonate well in organizations that adhere only to a bottom-line budget number. But improving overall supplier performance will result in long term cost reductions, service level increases, reduced risk and happier customers. A high performing supply base directly contributes to increased customer satisfaction.And without customers we don’t need a lot of suppliers…something I remind them quite often.
Far too many with the responsibility to negotiate look at it as a hard bargaining process, popular with car dealers and labor unions. If one looks at negotiation with the big picture in mind…with ongoing give and take with trustworthy and high performing suppliers… it can be an agreeable experience where both sides do well over time. It is important to keep the relationship in perspective; a relationship is not an excuse for lack of due diligence.
Strong and evolving supplier relationships have proven to be beneficial to both the buyer and seller, but these relationships are not a replacement for active and ongoing negotiation. It is also important that buyers are aware of negotiation strategies that may be used against them. Buyers need to be aware that even those suppliers who are considered partners may not have their best interests at heart. Negotiation, posturing, and positioning continue to have their place in relationships based supply management. From both sides!
The growth of successful supply chain management is anchored on excellent commercial relationships with critical suppliers. The benefits of close relationships are well known and documented. They include a focus on total landed cost rather than price, early supplier involvement on key commercial and technical aspects, improved supplier performance in the areas of quality and on-time delivery, and an enhanced level of communication. Strong relationships with key suppliers aid in the focus and success of the supply chain management process.
There is a need for active and continual negotiation in a relationship based purchasing environment. However, many purchasing professionals feel the need to negotiate may end once the purchase order is let. Strong supplier relationships are not a replacement for negotiation. Continued efforts for cost reduction, process enhancements, and overall supplier performance improvements are negotiated elements that need constant vigilance. Buyers need to focus on negotiating and establishing the performance framework early in a supplier relationship to allow for continuous improvement, and continue to use relevant negotiation tools and techniques to improve supplier performance.
Never lose site that no matter the depth of the relationship, its just business, and nothing more. At the turn of the century I left my position with a high tech manufacturing company to find my fortune in the dot.com boom. During my notice period, a steady stream of suppliers, typically my ‘partners’ came in to see me and allegedly wish me well. The accolades I received were appreciated, but self-serving to the supplier. The bottom line to them was learning about whom they would work when I left.
Many of the suppliers asked if they could stay in touch with me, an odd request, but my ego said sure! In the 60 days post job, I received two calls. And both were from the same person. Call one asked who took over my desk. Call two was seeing if I could get my replacement to return his call.
Focus on the long term, aim towards improving supplier performance and leverage the relationship as hard as your supplier. Enjoy the process…nothing to worry about!