6 Tips For Effective Vendor Negotiation
As per Wikipedia,Negotiation is a dialogue between two or more people or parties intended to reach a mutually beneficial outcome, resolve points of difference, to gain advantage for an individual or collective, or to craft outcomes to satisfy various interests.
In short, you are negotiating to reach an outcome which satisfies both parties interest. The real world situation can sometime be contrary to that , it is not uncommon to see individual egos take over the negotiation and outcomes could be far less than desired.
However, You can follow simple techniques to improve the outcome of your negotiation. Yes they are simple, and yet not followed by many procurement professionals
1. Establishing Rapport
It might seem irrelevant to a Buyer - Vendor negotiation, but ask yourself, would you like to work with a person whom you don't like?. I am not saying you need to be pals, but it is important that you have earned mutual respect. It is imperative that both parties understand that this is business negotiation, so nothing personal about it.
Tip: It doesn’t always have to be about sports or kids, you can learn about other person's background and see what common ground you might share with them.
Documenting the key issues before a negotiation meeting, not only allows you be better prepared, but also ensure that you are not missing any key issue.
It could as simple as creating an excel file with following columns
- Description of the issue
- Priority of the issue: High, Medium, Low
- Is this a deal breaker? Yes,No
- Desired outcome for that issue. You might want to list your best case, worst case and acceptable scenarios.
Also equally important is to understand vendor motivations. Vendors might be willing to provide better deal/value if you are Marquee account or a leader in the industry. It could be that the sales representative is trying to hit the numbers before the quarter close of the fiscal year close.
3. Sequence of Issue
Should you discuss tough issues first or easy issues first? The answer is, it depends.
Discussing easy issues first, might lead to sense of achievement, assuming that it is easier to come to an agreement on such issues. However, there is always of risk of deal falling off, if you leave the tougher issues for later.
On the other hand, getting an agreement on the tougher issues first could make the rest of the negotiation easier. Also once you have agreed upon key issues, it is less likely that the deal will fall through.
There could be cases where you hit a wall during negotiations, and sometimes you land up in proverbial “Take it or leave it” situation. The other way to look at the situation is , to understand key issues on both sides and come with a creative solution.
Let’s say the vendor is not willing to lower the price, and you are not willing to commit higher volumes to get better discounts. A creative solution might be to setup a 10 - 20 % volume flexibility to adjust for change in demand or some creative payment schedule which doesn’t create too much burden on current year’s cash flow.
5. Selling to the Vendor
Sometimes, it is not your typical RFP scenarios where you have top 2 vendors lined up and have options. It might be the case that you are in a Sole supplier situation, so what can do to create a win-win situation?
Come with a list of what is in for the vendor, is it mutual growth, is it entry into a whole new market.
6. Post Negotiation Analysis
To improve is to change; to be perfect is to change often.
Always conduct a post negotiation post mortem, things to consider
- Check how your final outcome compares to your desired outcome, Did you get all the desired outcomes or did you landed up with your worst case scenarios for all negotiation items.
- What worked and what didn’t worked.
- What is one thing you would do different next time.
Have any interesting negotiation tip to share, Please feel to drop a line in the comments section.