Negotiating is how we get what we want from others. Everyone has negotiated at one time or another: As children, many of us wanted to stay up late and would bargain with our parents. As young adults, maybe we tried to get a good deal on a car and haggled with the salesperson. And as supply chain professionals, we are often in “buyer mode,” where it is imperative that our negotiating skills are disciplined and constantly honed.
Although there are several important steps to the negotiation process, this article will focus on preparation, as so much hinges on the groundwork. Furthermore, once you earn the reputation of being someone who is always well prepared, this sets the tone for everyone else to bring their A-game.
I have spent 35 years in the foodservice industry, so here’s an example that features cornmeal breader. But feel free to imagine any product or service that you may need to purchase.
First, to be certain the supplier understands your expectations, you must know the product specifications. For cornmeal breader, there is a detailed formula of ingredients, which illustrates exactly how it is made and how these items contribute to the cost. The ingredients are corn and flour, derived from the corn bushel and hard red wheat markets, respectively. Then, there is processing that takes raw material from farm to ingredient. This is all critical information. And don’t forget about non-food components, such as plastic and cardboard, as well as how these resources are obtained and how they affect the cost. Develop a library of online resources to serve as your reference. Your product is the foundation of your RFP, and you must possess this kind of detailed knowledge.
Next, know the players and do your homework on them. The goal is to include only the suppliers who meet your standards and match your culture. Having subpar suppliers is a waste of your time, so vet them appropriately. Here are some key considerations:
- Does the supplier mirror your core values? If you’re unsure, review their website, ask if you can talk to their customers, and reach out to people in your own network who might have knowledge about them.
- Is their location a good fit? For example, if you’re based on the West Coast, it might not be cost-effective to work with a supplier based in New York.
- What are their financials? Find out if the supplier is publicly or privately held, who are their key stakeholders, and what percentage they own.
- What is their track record? Ensure that they have the proper certifications and perform well during inspections.
Consider implementing an annual RFP schedule and targeting certain suppliers that you want to learn about. Let’s continue with the cornmeal breader example: You would set up a visit to the farm, the milling company and the processor. Be sure that you control the agenda — and this should be done well in advance of your visit to ensure it is impactful and your expectations are met.
The people who would be responsible for your product must be involved in the visit: the field person, the commodities buyer, someone from sourcing, the plant manager, a quality assurance professional and so on. Get into their world. I’ve heard of many companies visiting a plant and coming away with nothing more than a good dinner. Have questions prepared for each person at each location. For cornmeal breader, these would include the following:
- How long does the corn grow?
- What is the yield per acre?
- What is the cost to grow per acre?
- What is the conversion from bushel to corn meal?
- What happens to the waste?
- How many employees work in the plant?
- What is the average hourly wage?
- How long is the production time?
- What capacity do you run at?
- Tell me about your safety program.
- How many accidents happened last year?
- What were they?
- What makes a great customer?
- What are your biggest challenges?
- What are you most proud of?
Yes, these questions can seem endless, but winners want to work with winners, and intelligent, thoughtful questions build mutual respect.
When you leave the farm or facility, take time to send a thank-you note to everyone you spent time with. I always carried notecards with me so I could write them on the plane ride home. I assure you that this small gesture means you will be remembered.
Next, think about your goals, both financial and others. In our cornmeal breader example, you would be of course striving for a good price, but what else should you consider? Think outside the box. Maybe it’s the growth incentive of the product, bundling other products, a seasonal promotional discount or inventory turns. Once you are negotiating, you may be too hurried to think of every objective.
Likewise, consider the supplier’s goals. The key to a successful negotiation often is the ability to put yourself in someone else’s shoes. Empathizing does not mean agreeing, but it sure goes a long way.
Then, determine your timeline. This is extremely important, as the suppliers has other customers, and neither of you want surprises.
Finally, think win-win. Be a great listener to pick up on what is important to them and compare that to your own goals — and the goals you thought were theirs. In case you need to pivot along the way, have a plan in place and know your options. Always try to keep calm. If necessary, step away or take a break to diffuse the tension. Silence is golden; use it when necessary. And never make important decisions on the spot.
EDITOR’S NOTE: This is the final “Executive View” authored by Janet Duckham. SCM Now magazine would like to thank her for her service and wish her all the best for her future endeavors.
Learn more about the ASCM Supply Chain Procurement Certificate! The foundational program provides an overview of procurement fundamentals, sourcing strategies, supplier relationship management, negotiations, evaluation metrics and more.