Having coached Procurement professionals in over 30 countries to prepare them for upcoming negotiations, we believe negotiation skills are the top skill for effective category management because negotiation is all about effective communication.

  • Promoting ideas and influencing internal stakeholders
  • Supporting and being supported by colleagues to benefit everyone’s skills and wellbeing
  • Enabling hard and soft power where appropriate with third parties
  • Using good communication habits daily to expand the impact of your work

When people hear ‘negotiation skills’, they tend to interpret that as meaning ‘leveraging suppliers to reduce price’.

However, we know in Procurement that we reduce operating costs in so many other ways where negotiation is a core element of effective implementation.

Internally focused examples include:

  • Showing the impact of commissioning services externally compared to internal provision
  • Strengthening policy awareness and cultural attitudes to cost management
  • Presenting data that highlights demand and consumption management
  • Highlighting the business benefits of specification reengineering

Externally focused examples are:

  • Sponsoring risk and business reputation management
  • Championing sustainability issues through category choices
  • Exploring new contract, relationship and payment models with suppliers
  • Tenaciously driving continuous improvement initiatives in supplier cost and performance

Where negotiation is a core skill for Procurement, it becomes the sine qua non of post-contract supplier management.  While day-to-day supplier management is focused on the important issues of performance management and contract delivery, there are inevitably additional negotiation demands that occur in the field of:

  • Contract breach and dispute management
  • Conflict resolution and relationship expectation concerns
  • Payment and reward management
  • Risk and dependency management

Negotiation skills therefore become not only about application but also about coaching.  In this space we need to enable our internal colleagues, who may be the daily post-contract supplier managers, to be just as effective as commercial negotiators as our Procurement colleagues.

You don’t have to let people buy without learning the ropes first

You wouldn’t dream of flying with a pilot who had just learned the theory but had never flown.  Sensibly pilots have to combine theory and practice before taking off.  So why not adopt a similar approach with buyers too?

Now you can.  Simulation training is an immersive, competitive ‘virtual’ game facilitated by an experienced tutor that creates a realistic ‘real-life’ learning experience in a controlled environment.  The big advantage is that if there are any wrong moves, there will not be any real-world consequences that could damage the organization or harm personal or business reputations.

According to research, 70% of what we learn is on the job, 20% is from interaction with peers, and 10% is from traditional learning modes.  Simulation training emulates the real work environment, the 70%, and involves substantial interaction with peers, the 20%.  In line with modern trends the 10% can be best delivered through self-learning e-learning or instructor-led online webinars.  For example, an introduction to should-cost analysis and could-cost analysis via e-learning or webinars, followed by a 2-day simulation event will be hugely more impactful than just learning the theory.

Learning through online courses plus simulation takes your learning strategy to the next level.  Learners build their skills faster, retain it longer and, because it’s fun too, recall the concepts readily and apply them in their job.

Are you thinking about developing a training simulation for your purchasing team?  If not, you probably should be. 

For Procurement professionals applying the Kraljic matrix, leverage is the quadrant that represents spend categories with high spend and high risk or market complexity.

Typically, the approaches recommended for this quadrant include competition (or the threat of it) and assertive price negotiation.

For those of us buying in this quadrant, we know things are rarely that simple. We can’t just ‘kick out’ a supplier as a knee-jerk reaction to perceived poor performance.

Frequent switching of suppliers can result in:

Increased total cost – This can occur during switching and beyond, through internal contract management costs

Customer dissatisfaction – This is especially problematic if the supplier had direct contact with customers / users

Inconsistent quality – This is most noticeable when materials / people are swapped out or in warranty claims

Leverage quadrant strategies require a refresh in organizational sourcing models.  If we are too blunt, leverage tactics have risks, for example:

  • Price-based discussions ultimately mean that we don’t know – or don’t care – about the supplier’s cost base.  This lack of transparency makes understanding the business model and negotiations difficult
  • A ‘just get it done’ attitude to cost opens the buyer up to a multitude of risks related to financial health checks, sustainability, ethics and fraud
  • Threats don’t segue into conversations about value-add, innovation, waste reduction and cost down

There are reliable value-based Procurement practices for consistent, proactive suppliers in the leverage quadrant.  For example:

  • Business growth / reduction based on supplier performance
  • Application of partnership-style behaviors and practices without shifting supplier status to “strategic”
  • Avoiding supplier complacency through reward / sanction schemes tailored to each vendor

Maintaining competitive pressure is still possible, but it is best approached in the context of supply chain interdependency and the operational realities this presents.  Where leverage suppliers are genuinely providing advantage to the business, there are other approaches.  For example:

  • Constantly maintain awareness of supplier profit for the contract and protect it.  Where appropriate, suppliers boost profit through productivity initiatives
  • Give suppliers interesting work when they contribute to continuous improvement
  • Arrange skills transfer from suppliers to in-house teams, to develop capability in up-to-date methods and enable good end of project handover
  • Help internal colleagues to manage suppliers well – with regular feedback, dispute resolution tools and opportunities to develop their business

Eroding supplier profit year on year doesn’t make them hungry.  It makes them look for shortcuts.  Leverage is the right label; it just needs a little adaptation sometimes.

Covid-19 has radically altered working life – maybe forever – and procurement training is no exception.  Driven by the pandemic over the past weeks e-learning and instructor-led webinars have become a growing popular and viable alternative to more traditional classroom training.  More than that, there is a general acceptance, indeed a desire, to continue with online learning as we gradually move out of lockdown.  Clearly online learning is becoming the “new normal”.

Why is that?  First and foremost is that it works!  With new and advancing technology such as 5G there are few barriers and for the new generations in the workforce it fits in perfectly with their mobile lifestyle.

Online learning also completely eliminates the travel and subsistence expenses associated with traditional classroom training.  These costs can be as much as 50% of traditional training costs.  Costs aside online learning also burnishes your organization’s sustainability drive.  Online learning is environment friendly.  LearningIndustry.com research statistics state that e-learning requires 90% less energy and CO2 emissions per student are reduced by 85% when compared with traditional classroom training.

When you take into account these and other benefits of online learning, it makes good sense to use it whenever possible.  Now is the time to review your existing procurement training program to see whether it’s fit for the post pandemic future.

Accounts Payable Teams are an important stakeholder for Procurement.

Accounts Payable Managers are finance professionals who are expert in problem solving, stakeholder engagement and conflict resolution with teams that span the entire organisation.

It is a smart choice to consult their wealth of experience to develop strategies that look at the total cost of buying, the customer experience and the supplier experience.

Accounts Payable colleagues help Procurement teams to honour the contractual commitments made to suppliers around payment terms. Suppliers are more likely to view us as a customer of choice when we:

  1. Pay on time.
  2. Protect them from exposure to fraud or unethical practices.
  3. Help them to resolve payment queries quickly.

As Procurement Professionals, we invest a lot of time in developing strategies for our categories, sourcing projects and supplier relationships.

It is crucial that each of these strategy types give careful attention to the Source to Pay process. The cost of poor quality (COPQ) to the buying organisation in this area could include the consequences of contract breach, good and services not being delivered and reputational damage.

When Procurement professionals create strategies with internal Procurement influencers, Accounts Payable are important stakeholders. Like budget holders, specification owners and supplier managers, they give us the parameters for what is desirable, practical and possible. They understand the implications of payment mechanisms in terms of the total cost to the business and the impact on customer and supplier relationship quality.

The payment mechanisms that we put in place may be very different depending on your strategy objectives. For example:

  • Strategies may reflect organisational working capital initiatives. E.g. lengthening payment terms.
  • Strategies may reflect a requirement to gain goods or services at short notice or with short lead times from niche SME vendors with low capacity. E.g. reducing payment terms.
  • Strategies may reflect a financial performance incentive negotiated with a supplier so that your business is prioritised to receive urgent goods or services first. E.g. adjusted payment values.

Given this range of outcomes, Accounts Payable Managers are the right experts to consult to ensure a joined-up experience for internal stakeholders and suppliers.

Give your negotiation the maximum chance of success with these must-haves:

1. Aims.

Make a clear plan of what you need, what you want, what would be nice to have.

2. Limits.

Set strict high and low boundaries for what you want. Don’t breach them unless the facts change.

3. Plan B.

Have a back-up in case the negotiation fails. Even if it just buys you more time, a back up is essential.

4. Concessions.

You have to give to get. Know where you are prepared to be flexible and what you have to offer.

5. Creativity.

Good negotiations include many options, possibilities and hypotheses.

6. Listening.

Be prepared to listen and consider ideas that you have not planned for. Avoid a fixed mindset.

7. Influence.

Persuasion should be tailored to the personality and motivations of the other negotiation party.

8. Data.

Even if the facts do not support your line of argument, understand them.

9. Control.

Assert control by stating the purpose of the discussion, managing the agenda and keeping to time.

10. Intelligence gathering.

Understand the market conditions. Don’t let your internal commercial information leak outside.

11. Style.

Choose the right style – competitive or collaborative – depending on the environment of the discussion, the relationship you want and the outcomes you seek.

Most professionals try to spend as much time as possible preparing for their negotiations with suppliers.  However, little time is typically spent considering the supplier-side of negotiation planning.

Suppliers will prepare their own negotiation plan that is aligned to the customer account strategy and sales goals.  Whilst suppliers will not want to openly share this with their customer, it is essential that the buying organization’s negotiators takes the time to consider, not only the supplier’s negotiation objectives, but also:

  • What tactics will they deploy?
  • Which personnel will they involve and why?
  • Which personnel will they try and engage on the buyer side, and why?
  • How does their negotiation approach align with their account strategy for you?

It may seem cynical to speak in terms of supplier tactics, a term that suggests that the supplier is trying to manipulate the discussion.  Negotiation tactics can be defined as methods of persuasion and lines of discussion that support an overall negotiation strategy.  The supplier is simply doing their job properly by using tactics, just as the buy-side negotiator is. Supplier tactics include:

Tactics to open the negotiation:

There is evidence that an effective opening can sway the whole progress of the negotiation in terms of the balance of power, the extent of openness and the nature of the conditional statements made.

Tactics to influence the stakeholders into the supplier’s way of thinking:

Supplier conditioning before and during the negotiation can position them in a more favorable light with decision-makers and users.

Tactics to get the buyer to make a deal:

Subtle methods are applied to nudge the buy-side negotiator into a closing mindset.

Tactics to enhance the deal value for the supplier:

Suppliers will propose options that offer a win to the buyer but a bigger win for themselves.

To deal with supplier tactics, the buy-side negotiator must identify the type of supplier (and therefore negotiation) they are likely to have:

  • In competitive supply markets, many tactics are in use by the supplier to optimize their weaker position.  The buy-side negotiator must be aware of all the tactics in use and prepare counter-tactics for implementation before and during negotiation.
  • In non-competitive supply markets, the buy-side negotiator must influence the supplier to abandon the use of win/lose tactics in favor of a more open and collaborative approach to finding a solution that enhances value for all parties.

Being aware of the specific tactics that may be used, when and how is an essential part of the negotiation planning process.

You can find out more about individual supplier tactics in our Online Procurement Academy for Negotiation (OPRA).

Most modern negotiations occur using a variety of online and offline modes.  Typically, there are complex issues to discuss that require a mixture of communication methods such as:

Email: Ideal for documenting discussion, sending reference information and making written proposals.

Online:  Web meetings are useful for checking understanding, screen sharing, brainstorming options and involving multiple disparate parties.

Telephone:  Telephone discussions help to maintain interpersonal contact, supports relationship building and helps maintain momentum in lengthy negotiation.

Face to face:  In-person negotiation is often combined with all of the above and is useful when the discussion would benefit from the efficiency that a meeting can bring.  For example, using body language to check intention and comprehension, or collaborative discussion using materials or sharing tools, that can often spark more creativity when it is hands-on.

Many of us are driven to negotiate in a particular format due to time constraints, travel or budget restrictions or availability of key personnel.

However, the format of negotiations can optimize the discussion and have an impact on the outcome of the deal. Therefore, it is wise to treat the choice of mode as a business case – you should seek approval to use the mode that gets the highest return on investment.

Similarly, some negotiation formats will disadvantage the buying organization and it would be foolhardy to actively choose such methods simply because of convenience.

At their office

Advantages to the Buyer

  • Better access to key data and personnel
  • Combine with cost data gathering
  • Demonstration of respect

Disadvantages to the Buyer

  • Personal discomfort associated with “being away from home”
At our office

Advantages to the Buyer

  • Control the environment
  • Save travel expense

Disadvantages to the Buyer

  • Burden of provision of hospitality
  • Full access to information and people
  • More difficult to use confrontational tactics
Neutral venue

Advantages to the Buyer

  • No perceived power imbalance

Disadvantages to the Buyer

  • Cost
Remote (online) discussion

Advantages to the Buyer

  • Enables an ongoing discussion over a period of time
  • Fosters a decision-making environment

Disadvantages to the Buyer

  • Unable to use and interpret non-verbal cues
Email

Advantages to the Buyer

  • A well-documented discussion that can be adapted to fit the time available

Disadvantages to the Buyer

  • High likelihood of misaligned understanding, expectation and relationship values, particularly with a new supplier

Negotiation method is integral to the nature of each of these elements and deserves analysis and discussion with stakeholders before major negotiations begin.

It feels like everyone is vying to be a customer of choice in crowded supply chains.

Buy-side supplier managers have budgets but often a limited choice of vendors.

The supplier managers are seeking proactive suppliers who are continuously improving and contributing cost and value proposals that improve the contract outcomes.

It can be a tricky balance between getting the attention of busy suppliers with asking too much of them.

On the one hand, vendors are bombarded with buy-side initiatives, and they need to consider the return on investment of their efforts.

Some buyers I work with say they feel deprioritized compared to the original opportunity that the supplier proposed during the selection process.

On the other hand, some vendors I work with say they feel their buyers don’t care about their business goals.

These vendors also feel disappointed compared to the original opportunity proposed during the selection process.

When the supplier manager is navigating these waters, it is useful to look at the behaviour on both the buy and sell side. Often responses are driven by the other party’s actions or we can draw incorrect conclusions by making assumptions.

These might be signs that you are asking your suppliers for too much:

 

What you are doing

How it feels to your supplier

Evaluation of the existing vendors’ business practices that are beyond the industry norm

Like the supplier manager is taking advantage of their leverage

Expecting work that is not included in the original scope of work / agreement

You failed to accurately specify the work or don’t wish to fund additional needs

Asking for your supplier to contribute to the relationship but not reciprocating (for example, if they want a referral)

You don’t care about their business being successful

 

These might be signs that you are not asking enough of your suppliers:

 

What your supplier is doing

How it feels to you

They only contact you proactively when they want something

Like they are complacent

Putting a price against every request or discussion

Like you are in inconvenience to them

Their problem-solving or improvement ideas are thin and unsubstantiated

Like your business is a stop-gap until something better comes along

 

Ultimately, becoming a customer of choice is a team approach that requires the buy-in of a multi-functional team of business colleagues and one or more suppliers. The right strategy, relationship style, contractual terms and motivation can deliver positive outcomes for all parties.

But grating feelings about the relationship behaviours are an indication of poor quality that is already (or will soon start) leaking into the contractual performance and cost. Addressing the practices behind these feelings though regular, open and action-driving communication is the first step towards appropriately negotiating a beneficial relationship.

A customer of choice feels:

  • Listened to and respected.
  • Able to take appropriate actions as a response to listening to their suppliers.
  • Proud to be part of a high-performing team.
  • Like an effective champion of the end customer.
  • Regardless of the balance of power, the current relationship was mutually agreed.

Many of us find it tough to get our suppliers’ attention.

Just like us, they are pushed for time and tend to prioritize the people that are most interesting to them.

Our job as Procurement professionals is to figure out what can be interesting about our business, our account and our personal style that will garner loyalty from the supply base. We tend to over-emphasise the importance of the value of spend as the main method of motivating vendors.

The author Dan Pink describes three areas we can focus in his book “Drive – The Surprising Truth About What Motivates Us”. His research said that people at work are motivated by autonomy, purpose and a sense of mastery much more than they are by money.

For example, you may be managing a contract with disappointing supplier performance and looking to introduce some form of incentive scheme, financial or otherwise. Or perhaps you have a supplier who is fulfilling their contractual obligations but is not contributing to continuous improvement.

How do we motivate our suppliers’ senior management, account managers and operational staff to improve performance? Let’s apply Pink’s three motivators.

Autonomy: the ability to design our own working priorities.

Asking our suppliers to tell us what we should be measuring seems like a radical concept. After all, performance metrics must be based on your organization’s business needs. But suppliers can propose innovative approaches to how our goals can be achieved.

For example, I worked with a supplier who had a target for telephone response time. They employed a flexible workforce so that at peak times, telephone calls that were beyond the capacity of their call centre could be routed to second tier sub-contractors trained in the customer’s needs.

Purpose: the feeling of making a difference.

It’s easy to think that suppliers must be motivated by money above anything else, so we often have financial incentives and disincentives in supply contracts for good or poor performance.

Pink, however, argues that instead of motivating people not to do something, fines tend to encourage people to treat the sanction as an acceptable “price” for a allowing a failure.

Effective supplier performance contracts that are most successful when the incentives are constantly updated and addresses areas of interest of both the buy and supply-side. For services, it is more powerful when those who benefit from any rewards are those executing the day-to-day contract, rather than account managers or senior managers.

Mastery: achieving personal improvement.

Too often contract managers are reluctant to praise suppliers for doing “what we are paying them to do anyway”. But recognition programmes have been proven to deliver better contract outcomes. These may be formal annual supplier award schemes or more informal acknowledgements like getting a mention in published content.

Understanding what motivates our suppliers is worth the effort. Use an opportunity like a supplier visit to gather the opinions of many different people in the organization, not just the account manager. And if you already have a supplier survey active in your organization, you can link your message to a wider narrative about listening to your suppliers.