There is a lot of advice about how to plan and execute supplier negotiations, but the key to success is understanding the objectives and tactics of the supplier.

Counter-tactics can improve negotiating outcomes for procurement professionals. For example:

Know where the supplier is in their sales cycle.

The supplier may be at the stage of prospecting, identifying needs or proposing a solution directly to budget holders or functional managers. The procurement person will be using different conditioning and influencing methods at each stage.

Remember, the supplier will sell first and negotiate second.

Avoiding negotiation is a smart way of deal-making for suppliers. Procurement can counter this by starting the negotiation process first, and early.

Recognise the supplier closing tactics.

There are many ways a supplier will try and close discussion and make agreement. The procurement professional needs to be in control of this. Taking charge of the progress of discussion blocks the suppliers attempts to close too soon.

There are 3 ways you can learn more about supplier negotiation tactics and how to tackle them:

• ADR’s Online Procurement Academy for Negotiation: eLearning for people who negotiate with suppliers
• ADR’s Online Supplier Influence Course: An instructor-led webinar for in-house teams
• ADR’s Negotiation Tactics Training : A role-play based classroom course for procurement people

Negotiating with suppliers requires a blend of behavioural and analytical skills. Without thorough analysis, no mystical influencing techniques will help to secure agreement in a challenging discussion. A review of the buyers’ and sellers’ markets alongside an assessment of the position of the respective parties is essential.

Supplier economic analysis uses supplier financial statements to provide a view of the supplier’s financial performance and associated negotiation stance. The buyer can choose to take a quick view of the supplier’s position and how this may impact relative power. Or, the buyer can choose to take a more in-depth study of the supplier. This will depend on the level of risk involved in the purchase and the amount of time available to invest for what level of return.

A quick overview will tell the buyer some information that is useful prior to negotiation:

• What gross and net profit does the supplier make as a business?

This may be compared to the industry benchmark, to the historical trend and to the account cost model that the buyer has obtained from the supplier for the purposes of should or could cost analysis.

• How is the supplier organization structured?

Ownership is an important element of how the supplier makes decisions. If they are shareholder owned, they may have different priorities and perspectives to a private or family owned organization.  The organization will impact when the supplier’s financial year runs and when their accounts are published in what form. It is useful to be aware of financial quarters of the supplier when they may feel pressured to make a significant sale.

The form of the accounts may be an extensive annual report or a summary that meets government requirements, depending on the organization type. This may impact the type and quantity of information available to the buyer.

• What level of financial risk does the supplier represent?

A brief calculation of the size of the buyer as an account relative to the supplier’s overall income gives a good indication of how the buyer sits compared to the suppliers’ other customers.

This also helps the buyer to determine if the level of planned spend with the supplier is appropriate, particularly given the overall mix of products and services that the supplier is selling.

The size, profitability and attractiveness of the sale are relevant to the supplier’s potential motivation to sell to and service the buyer’s account.

An analysis of supplier solvency and liquidity provides a snapshot of the supplier’s ability to meet both immediate and longer-term liabilities in the form of salaries, purchases and debts. This analysis can be supported by a credit report and should be viewed in the context of the overall business plans of the supplier and the market conditions.

Deeper analysis

Where there is a greater need to assess supplier financial performance to understand their business efficiency and effectiveness, ratio analysis is useful to support a deeper economic study. This will give indicators of performance through return on capital employed, speed of collection of income from customers and inventory turnover. Comparison of these elements with similar organizations and industry benchmarks will provide the buyer vital clues that indicate where there are areas of opportunity.

This opportunity could be immediate cost reduction or longer-term continuous improvement ideas. In either case, supplier economic analysis is a good starting point for a challenging or collaborative discussion with a supplier.

Yes, you can learn negotiation techniques online. It is not an “inferior” approach to instructor-led classroom role-play-based teaching. E-learning is simply a different learning mode that fits with the way the modern professional wants to learn.

1. It’s global: E-learning breaks physical barrier limitations. With internet access negotiators from any part of the world can access content 24/7/365 on desktop, laptop or tablet.

2. Learn at your own pace: With internet access learning is provided on demand. Got a negotiation coming up and need to prepare and plan? Need to decide on the negotiation strategy? E-learning is there to help just when you need it.

3. It’s interactive: The best way to “sense-check” your negotiation strategy or determine if “I have been doing it the right way all these years?” is to self-evaluate using e-learning’s scenarios, checkpoints and quizzes based on real-life scenarios.

4. Use and learn at the same time: Negotiation e-learning is packed with templates that can be used to model the learner’s own negotiation strategy. By completing the templates the learning and negotiation execution happen at the same time.

5. It’s inclusive: Negotiation e-learning focuses not only on the buyer’s role and negotiation tactics but on those of stakeholders and suppliers too. E-learning takes into account all parties’ perspectives and counter-tactics.

6. Leaves no stone unturned: Negotiation e-learning reminds us that no single tactic or personal negotiating style makes for an effective negotiation. Each negotiation must be tailored and adapted to secure an effective agreement.

7. It’s flexible: Negotiation e-learning can be used standalone or blended with other learning modes such as pre and post online negotiation skills assessment, instructor-led negotiation simulation and online coaching.

ADR International trains thousands of buyers and contract managers globally in negotiation skills.

This support is given through instructor led classroom training, online negotiation eLearning modules and team coaching where our procurement experts work together and negotiate alongside the client’s negotiating team.

This experience has provided ADR International with a unique insight into the most common mistakes made when negotiating with suppliers, and the impact of those mistakes on the organization’s financial and operational performance.

For example

• Failed savings opportunities
• Damaged supplier relationships
• Reduced quality from suppliers
• Demotivated suppliers

The top 3 mistakes that drive these sub-optimal results are:

1. Lack of adequate planning to strengthen the BATNA

Most negotiators fail to spend enough time planning. You must create and strengthen the best alternative to negotiated agreement (BATNA) through:

• Aligning negotiation objectives with your organization’s business requirements
• Consulting stakeholders who will be impacted by the negotiation
• Deciding your most desired outcome (MDO) and least acceptable agreement (LAA) (your walk-away point).
• Having a credible back-up if the discussions fail (BATNA).

2. Poor insight into the other negotiating party’s objectives

It is common to spend too much time assessing your own organization’s perspective, and not enough time thinking about the supplier’s point of view:

• How do they position you as a customer or potential customer?
• What are their objectives from this agreement and the wider commercial relationship?
• What are the supplier’s most desired outcome (MDO) and least acceptable agreement (LAA) (their walk-away point)

3. Underestimating the power of concession planning

Concessions are “trade-offs” or bargaining items that can be traded with the other negotiating party. Concessions by both parties allow the negotiation to progress.  Planning for concessions is vital to ensure that you secure an agreement closer to your MDO than the supplier’s MDO.  Negotiators need to plan their concession strategy so that:

• They have as many potential concessions as possible
• They always obtain a concession from the supplier of equal or greater value in exchange for your concession
• They are able to respond appropriately to the concessions made by the supplier