During tumultuous times, it’s more crucial than ever that the negotiation process fosters strong supplier relationships based on trust. Parties will not always agree, but negotiations should be collaborative, empathetic, honest and driven to ensure both parties meet their objectives. It’s also important to remember that, in supply chain, several aspects of a transaction are often negotiated: the accuracy and timeliness of deliveries, payment terms, warranties, liability, quality standards and even reordering procedures. It’s about a lot more than just price.
No matter the industry you’re in or what you’re trying to procure, negotiating is one of the most valuable skills in supply chain. Here’s how to master it.
Negotiation starts well before you get to the table, whether you’re preparing for a conversation with an ongoing supplier or looking to start a relationship with a new one. During the preparation period, it’s essential to understand the fundamentals of your business so you can develop a negotiation strategy. Consider key objectives and priorities as they relate to what’s being sourced. Look into weak areas that you hope can be improved.
Give proper attention to the context of a negotiation. If it’s within an ongoing relationship, the significance of that relationship must be recognized as you craft your negotiation strategies.
Once you’ve considered these things, write a script for the conversation. Draft everything you want to say. Don’t spend too much time editing; just document key points. When you’re done, take a step back and read out loud what you wrote with a fresh and critical eye. Negotiation can be an emotional exercise, with the pressure of the bottom line creating an environment of conflict and mistrust. Rehearsing helps you stay calm, professional and confident. It can also improve your strategy and ultimately make you more successful during difficult conversations.
There’s a reason why seasoned negotiators say, “Listening is the cheapest concession you can make.” To develop this skill, resist the urge to multitask and instead employ active listening techniques. Ask questions, stay engaged, give feedback and acknowledge what you hear. You might repeat or summarize important statements the other party makes. This not only reassures them that you’re listening, but also allows you to confirm that you understand.
This is particularly important as the industry continues working through so many supply chain shortages. It’s essential to appreciate what business issues your suppliers are facing and how they might affect your business. This also prepares you with information about pricing trends, market constraints, regulatory issues and more.
When both parties understand the market, it’s highly unlikely that either will be surprised by the initial offer. So go ahead and set the tone by making the first proposal. If one or both parties are unsure of the market — or the market has changed — let the other party speak first, as this will be a source of information for you.
Avoid ranges. People have a natural tendency to use ranges because it softens the ask. The problem is that the other party naturally gravitates to the portion of the range that is advantageous for them. Instead, come up with the best possible ask you can justify and be confident about. Using specific numbers also demonstrates that time and effort that have gone into calculating them.
Lastly, avoid accepting offers too quickly. When the other side makes a proposal — even if it's better than you expected — take a little time to process it, maybe check if you missed something and be thoughtful in your response.
Andres Lares is managing partner at Shapiro Negotiations Institute. He may be contacted via shapironegotiations.com/who-we-are/andres-lares.
To take a deeper dive into supplier negotiations, learn about ASCM's Supply Chain Procurement Certificate program.