Successful negotiations with suppliers have never been more critical. With every penny saved going directly to your bottom line, you need highly skilled negotiators to help control costs to grow and strengthen your business.
When negotiations go right, everyone at the table should walk away feeling satisfied. However, when things go sideways, the consequences can be catastrophic. A failed negotiation or bad contract can disrupt continuity, increase costs, and damage relationships. This can severely threaten your company's top-line performance. That's why it's so important to equip your team with the skills needed to avoid costly negotiation mistakes and successfully execute your strategy.
Suppliers: Friend or Foe?
In the past, purchasing professionals relied on adversarial negotiation tactics to press vendors to succumb to overwhelming price pressure. They would often pit suppliers against each other to create a competitive bidding war. At which point, they would "award" their business to the lowest bidder. Such behaviors have proven ineffective and detrimental to long-term business relationships.
Your suppliers are not your adversaries. In fact, you should seek vendors to develop long-term relationships with who will willingly collaborate to identify mutually beneficial agreements. Your goal needs to be more than just about the lowest price. Today, it's all about overall value and finding innovative and inspiring ways to meet shared business challenges with knowledgeable and trusted suppliers.
A positive, strategic relationship with vendors should focus on price as only a singular slice of the pie and not the whole pie, itself. A holistic approach is needed that takes into consideration inventory management, quality, delivery, responsiveness, and other non-financial components.
Having quality over quantity is also important with suppliers. Developing strategic relationships can help to alleviate sole sourcing threats and create high-value exchanges. Collaborating with the same suppliers helps to build long-term relationships that give value that far exceeds price alone.
Principles of Negotiating with Suppliers
There are six basic principles to follow when negotiating with suppliers:
- Position your case advantageously
- Set high aspirations
- Manage information skillfully
- Know the full range and strength of your power
- Satisfy needs over wants
- Concede according to plan
Let’s break these down for a deeper understanding of each principle.
Position Your Case Advantageously
When you enter negotiations, how you position your case will end up laying the framework for how your supplier responds. If you have a strong theme and focus on the key points of communication, then you can definitely craft a firm foundation that outlines your point of view. Initially, you should avoid revealing too much data, features, or even benefits.
Set High Aspirations
It matters if you set high aspirations in negotiation - yes, it's okay to have lofty goals. You’ll aspire to meet your goals. If you present your side without confidence, then you are giving your opponent a leg up. Always avoid lowering your objectives, instead stay the course and maintain your high aspirations.
Manage Information Skillfully
The value of information in procurement negotiations should never be underestimated. You’ll want to be cautious about the use of the information and you might even want to hold back some of it to your advantage. Share when appropriate and hold back at other times. You never want to give away too much too early. Lay out a plan and stick to it so you uncover in layers.
Know the Full Range and Strength of Your Power
People who have not taken one of our negotiation workshops might have low aspirations and underestimate their skills. However, sometimes setting the bar too low puts you at risk of failure. You enter the negotiation from a weak position, and you create a self-fulfilling prophecy of failure. Identify your powers and then apply them.
Satisfy Needs Over Wants
Consider the needs and wants of the supplier you are negotiating with. Sometimes they might want a higher price, but their need is less. Sometimes making such determinations is difficult if you don’t personally know the person, but their core need is often personal or simple, such as trying to protect their job or look impressive to their boss. People are like onions with multiple layers, and you have to uncover each layer to gain an understanding of their true needs and not just acquisition to their demands (wants).
Concede According to Plan
Newbie negotiators might think they can enter procurement negotiations holding strong and not give an inch, but such an attitude is only going to hurt the process. Concessions are actually a tool. You can give something of lower value to get something you want more. Think about it as leverage and how you can use it. You will concede, but only something that you want to give away at the perfect time to gain something you really want.
Examining the top 10 Procurement Negotiation Mistakes
Research shows a common theme when it comes to negotiation missteps. Time and again, an outdated perception that negotiation is a combat sport between opposing forces is central to most mistakes. This mentality can contribute to an inflated sense of power that leads to a lack of planning and preparation and a stubborn, and often counterproductive, aggression. It can also undermine a self-conscious negotiator worried about being at a disadvantage before one even exists. Let's take a look at the top 10 procurement negotiation mistakes that most commonly occur.
MISTAKE #1: LACK OF PREPARATION
“It pays to be prepared” - Aesop
Many people believe that they can skip negotiation preparation and just take things as they come - Big Mistake. Being confident and cocky can quickly lead to a negotiator's downfall. If you lack appropriate preparation for procurement negotiation, you significantly increase your chances of missing the mark and ending up with a bad deal.
Most suppliers spend a tremendous amount of time negotiating and they have honed their skills. You can bet that they have done their homework and are sitting down at the negotiating table with a well-prepared strategic plan.
Everyone on your team needs to be prepared, know the game plan, and be ready to execute the negotiation process without a hitch.
The lack of preparation is a leading negotiation mistake that is easily avoidable by spending time preparing beforehand. Top negotiators know the impact of poor planning and dedicate themselves to the process of looking at a range of variables and potential scenarios.
Failure is not an option during negotiations.
Advance preparation and the ability to stick with the best approach are critical necessities in the negotiation process.
- Stay on target and share only necessary information during the negotiation process.
- Uncover critical information that can increase the overall value or help to avoid paying higher prices.
- Use the pressure and tension that naturally occur in negotiations as a tool to tackle cost issues.
Planning helps you remain calm, thus avoiding costly mistakes. It is when you are emotionally tied to negotiations and feeling the pressure that you are most likely to make mistakes.
MISTAKE #2: NARROW FOCUS ON PRICE
When negotiating with suppliers, discussing costs too early is detrimental to the negotiation process. Price is already on the minds of everyone in the room. However, bringing up the subject too early can narrow the focus of the conversation and lead to missed opportunities to increase the overall value of the deal. Everything is about timing and not losing sight of things. Remember, when the dynamics change, so too can the price.
Focusing on price is also a surefire way to risk damaging your supplier relationships. No one enjoys working with someone who constantly and unrelentingly chiseling away at the price.
Negotiations are a creative craft that takes skill, confidence, knowledge, and patience. You want to build a relationship with your supplier. Go beyond price when negotiating. Think about the long-term rapport with your supplier.
- What matters to your supplier?
- What is going to make them feel satisfied with the process?
Again, we hearken back to the first section of this article, Suppliers: Friend or Foe? You want to be friends with your supplier and not adversaries! It’s not always about being a stickler for price or so-called nickel and diming.
MISTAKE #3: AIMING TOO LOW
If you aim too low, you are limiting the potential of your deal. This is a mistake of amateur negotiators. It’s easy to undersell yourself. We all lack confidence occasionally. In some situations, you might not want to appear too unreasonable or ostentatious, so you aim low. However, such actions will constrain your goals and impose limits on perceived value.
Research shows that those who ask for more in negotiations get more. Setting high expectations is tricky and there is a real science to the art. A skilled negotiator can gently push negotiations toward their target price and pave the way for a very efficient and rewarding discussion. Without a doubt, there is value in having high aspirations.
Basically, if you are not afraid to ask then you will get more and if you don’t ask then you won’t get what you want - you have aimed too low.
- Positive Anchoring: You want to communicate a higher value for your service or product to anchor the other party’s perception of your value.
- Clarity: If the negotiation is firmly affixed to high aspiration, then you create concise intentions for both parties involved.
- Increased flexibility: You want to evaluate all of the boundaries of the deal being presented with the supplier. You’ll quickly achieve an understanding of the flexibility the other party is willing to offer on particulars like payment terms, volume, schedules, delivery, and communication. Aiming too low shrinks your range of reason and you’ll have fewer negotiables which leads to unfavorable settlement.
The range of reason is the range of price and value that is reasonably entertained by both parties. If you fall outside of the range of reason, then the other party might not see the possibility of ever reaching a deal. Setting the bar high helps an otherwise vague range of reasons seem attainable. A skilled negotiator can set parameters and then streamline the conversation towards the focused target which is always aiming high and not low.
Set Your Targets
When aiming high, you want to remember these three main targets:
- Opening Offer: Carefully consider the opening offer to anchor the negotiations. If you fail to start near your high number within the range of reason then you’ll end up with far less maneuverability later on – so basically, avoid aiming too low and aim high!
- Target Price: This is the price and terms that you want to achieve.
- Walkway price: This is the price that you will not accept and must respectfully decline.
Remember, when you sit down at the negotiating table, you have your targets, and your supplier has theirs. You want to have set your targets before the discussion begins, which goes back to:
MISTAKE #1: LACK OF PREPARATION – Never enter the negotiations unprepared
If you are struggling to understand your targets, then ask yourself these questions:
- What does your company need?
- What does the other party have to offer?
- What is your target?
- What is your ultimate walkway?
- What will be your opening demands?
- How will you test the supplier’s perception of reasonableness without harming the relationship or hindering the deal?
Never fear conflict and never aim too low. Always understand the dynamics. Both negotiators in the room – you and the supplier – want to achieve your own self-interests. Usually, the differences in the prices will cause friction. You do not want to feed conflict but instead, protect your company’s interests and gain clarity. If you aim high and communicate your aspirations, then you can always lower them as the negotiations progress.
When negotiating and aiming high, state your demands using “I” statements so the procurement supplier better understands, and you have effectively framed the conversation in their mind.
Without a doubt, the ability to aim high is one of the core skills of a seasoned negotiator.
MISTAKE #4: AVOIDING TENSION/TALKING TOO MUCH/SHARING TOO MUCH INFORMATION
Humans are geared to avoid tension. The feeling often makes us uneasy. It can even trigger that primal response of fight or flight that is hard-coded in our DNA. However, a skilled negotiator has the ability to thrive in a tense situation and use it to gain the upper hand in procurement negotiations.
Tension actually spawns creativity. When negotiations are at a stalemate use tension to push the conversation forward and towards a fulfilling resolution. Of all of the negotiation tools in your arsenal, tension is one of the most powerful when yielded correctly.
The three dimensions of tension include:
- The collaborative dimension
- The competitive dimension
- The creative dimension
Tension should never be unhealthy, negative, or arrogant. You want to achieve a healthy and positive tension that inspires wonderfully innovative solutions. Remember, with the creative dimension you can move beyond an uncomfortable impasse and reach a solution that satisfies both parties.
When discussing tension, it should be noted that we are not talking about unhealthy, negative tension which results from arrogance or bad faith negotiations. Healthy tension is positive and inspires both parties to discover innovative solutions.
The following five negotiation behaviors have been crafted to help build healthy tension:
- Make Demands: You’ll want to make demands confidently, clearly, and concisely. Let the other party know that you are a strong negotiator who knows what they want and won’t be easily manipulated.
- Ask Open Questions: Asking questions helps you uncover valuable information so you can discover your customer’s needs and add value. Questions also work to diffuse any unhealthy tension and lower frustration levels. It’s the perfect way to learn about the other party's needs and not just their wants.
- Test and Summarize: You want to build a relationship while understanding the supplier’s wants. Always evaluate and summarize what the other party states and then be sure to ask if you are understanding things correctly. Such behavior displays a willingness to understand the other party and see things from their vantage point. You should listen closely and retain everything being said so you can form a real and solid relationship with the supplier.
- Propose Conditionally: Once you make your demands, ask questions, and summarize things. You will have achieved a healthy tension that is going to help you move forward. Congratulations, you have reached the creative stage of the negotiation process. You can now present innovative ideas, so you are both walking away satisfied.
- Make Trades: This is a way to formulate the creative process. Be willing to make trades that are based on value to break any gridlock. You should also be willing to make concessions to move forward. You must give something to get something. This can help you achieve a favorable outcome.
MISTAKE #5: DON'T REALIZE POWER/DON'T PUSH BACK/GIVE SUPPLIER TOO MUCH POWER
Failure to push back and make demands is a problem for novice negotiators. They feel like pushing back is being aggressive or combative. Appearing too challenging can make things take a turn for the worst. However, if you know how to push back then it can become a valuable tool because it validates your position and gives you strength.
You want to always be clear with your wants, needs, and expectations. Avoid being vague or evasive. Push back with transparency. Let the supplier know you are a skilled negotiator.
Pushing back and issuing demands will lift the negotiations up to the next level. If you do not push back, then you will appear easy to manipulate.
As mentioned previously, use “I” instead of “you” statements. Any time you use “you” people become defensive. If a supplier enters a defensive position, then the negotiations will quickly come to a standstill.
- Always remain clear and concise. Avoid being vague. The other party should understand your position.
- Don’t soften things up or you’ll seem weak. You want to generate a bit of tension to achieve a creative solution and nudge the negotiations onward.
- Avoid giving things away. Don't elaborate on everything and risk weakening your position. Don’t hesitate to fall silent and avoid saying too much.
- Demand statements should be clear while showing the other party respect.
- Never be afraid to repeat demand statements.
Failure to push back will give your supplier too much power and you don’t want to appear weak.
MISTAKE #6: PUSH TOO HARD
Pushing too hard will likely make the other party dig in their heels. Negotiations are about give and take. It is unrealistic, and unproductive, to enter a negotiation with the belief that you will hold firm, stand your ground, and bullnose your way through without relenting. Such an attitude is going to take away a highly effective negotiation tool - concessions. The trick is to find the sweet spot between not pushing back and pushing too hard.
Once again, it all goes back to preparation. Planning concessions before entering negotiations helps to identify the scenarios in which you will entertain making a concession and what that concession might be. This will help you strike a balance between the competitive and collaborative dimensions and know when and how to explore the creative dimension. Your planning should identify high-value/low-cost exchanges and brainstorm return concessions that maximize the overall value of the exchange and strengthen your position.
Knowing how to manage tension and leverage concessions, will help you push through stalemates without unnecessary sacrifice. Being sure to always get something in return for a concession is the high-performers way of applying appropriate pressure to maximize value and avoid a damaging force of will.
MISTAKE #7: NOT THINKING ANALYTICALLY
Failure to use logical reasoning is a forfeiture of power. High-performing negotiators understand the need to look at negotaitions objectively when planning. Too often average negotiators only focus on their own pressures and perception of power. It's important to consider that all party's have pressure. And, when considering who has power in a negotiation, to remember that power is fluid and often only as relevant as one's perception. If you perceive your opponent to have more power, they do.
This is why a careful exploration of what information should be uncovered and how best to expose that information is a key aspect of negotiation planning. Knowledge is power when negotiating. Your aim is to strengthen your position with knowledge and information. An objective and thorough analysis of power and opportunity requires an analytical mind.
Planning and being well-organized will only complement your negotiation skills and increase your power during discussions.
MISTAKE #8: DON'T ASK QUESTIONS
Not asking questions is a serious mistake during procurement negotiations. You need to ask open questions to reduce the other party’s level of frustration and gather information.
- Ask open questions such as “who, when, what, where, tell me about, and why.”
- Avoid asking rapid-fire questions in a row or it will feel like an interrogation
- Never ask judgmental questions. The questions should not have an edge, sound like scolding, or be passive aggressive. Instead, they should help the other party relax and start to open up.
- Listen carefully when asking a question and avoid interrupting. You can also use silence to encourage a more thorough answer to the question.
- Ask questions for clarification so you understand what the other party is saying.
Questions help you gain information, uncover needs, and involve the other party in the negotiation process.
MISTAKE #9: NOT FOCUSING ON NEEDS
During negotiations, you must uncover your supplier's needs over wants. This will help you identify the underlying motivations behind their wants and open the door to creative solutions that can maximize the overall value of your agreement.
When everyone sits down at the negotiating table, each side has their own strategy. They know their demands and wants beforehand. And, they have likely considered the best possible path to get the best possible deal. If wants were all that was discussed during a negotiation, there is no doubt it would likely end in a deadlock. This is why negotiation often boils down to give and take exchanges.
In order to avoid or break through a deadlock, it is necessary to move past reacting to wants and carefully consider the other party's needs. This is best done with open-ended questions. Exploring your counterpart's position through effective questioning helps to broaden the scope of the negotiation. As this happens, more and more opportunities arise to satisfy those underlying motivations, or needs, and that increases the possibility of landing on a mutually beneficial agreement that leaves both party's satisfied.
RED BEAR 6 Principles of Successful Negotiation include:
Satisfying Needs Over Wants.
You must uncover the other party’s needs and not just focus on their wants. You’ll need to understand the company and supplier.
- Wants are what they are asking for during the negotiation. Typically, they are very black and white such as product prices, quantities, or delivery time.
- Needs are the reason why they are asking what they want. They are a reflection of motivations such as their desire to look good to their boss, solidify their position, or flex power.
MISTAKE #10: GO BACK TO OLD WAYS AFTER TRAINING
People are creatures of habit. Even after taking a negotiation training course, you might find yourself going back to your old ways after training - which is a common mistake.
Instead, focus on what you have learned when negotiating with suppliers. Remember that above we listed the RED BEAR Principles of Negotiation? Use them to your advantage and to prevent yourself from going back to old ways after training.
Be sure to leverage colleagues and managers to help reinforce the effective use of negotiation tools and techniques to cement lasting behavior change.
RED BEAR understands the challenges faced when negotiating with suppliers. The 10 Procurement Negotiation Mistakes can harm relationships and negatively impact the company’s bottom line. Learning how to avoid missteps will not only help you become a skilled negotiator but also build strong relationships with your suppliers that will last years. Procurement professionals often function as the backbone of a business and having a good relationship is a boon for any organization’s future success.