Estimated reading time: 5 minutes
• In most industries, the power equilibrium has shifted from buyers to suppliers. A classic example is the railroad industry. In the 1900s, North America had 35 suppliers of cast railroads, and companies could choose among these.
• A century later, no one has this essential comfort of suppliers because the number of suppliers has shrunk. Only two suppliers remain a century later. And today, there’s only one supplier of rail wheels to select.
Reasons The Power Dynamic Has Shifted
The shift of power from buyers to sellers has come for multiple reasons.
First, suppliers have consolidated themselves to drive costs and better negotiate terms. In addition, suppliers have adopted new technologies, building resilient supply chains and improved terms, including prices.
In other industries, the demand for resource inputs has outpaced the supply such that suppliers charge whatever they want.
In other markets, buyers have consolidated demand leading to a decline in supplier prices. As a result, most suppliers are exiting the market, giving the remaining players more clout.
Regardless, companies that have fallen apart with their suppliers must rethink their strategies and reconsider their positions at the negotiation table.
Organizations can no longer make hard procurement decisions because of shifting power dynamics. Instead, the organization must learn and adopt the best negotiation practices.
How To Lead a Successful Procurement Negotiation
Here’s how anyone can lead a successful procurement negotiation:
1. Background information
The first step of negotiating is to gather sufficient information about the supplier. Identify their location, ethnicities, cultures, behavior, and business ethics. Do due diligence to identify their ways of communication and their communication platforms or channels. Knowing your supplier and their behavior is the first step to negotiating successfully with them.
2. Negotiation tactics
The second step of negotiating with the supplier is identifying your arsenal of negotiation tact. Your knowledge of your negotiation tactic and your negotiation approach will inform your negotiation strategy and timing. You’ll have more options for executing your negotiation when you already know your strategies and tactics.
3. Negotiation plan
After identifying background information and establishing negotiation tactics, the next step is to create a procurement negotiation plan. First, consider the overall strategy you’ll leverage for your negotiation. Then, segment this strategy into steps and tactics. In addition, assess and evaluate alternative strategies the other partner may employ.
It’s critical to take into consideration the use of red herrings.
Red herrings refer to items with little value to you but items that the other party or partner can use to their advantage. For instance, if you pay little value to late payments, your supplier may use late deadlines in their procurement negotiations. So, ensure that you seal all loopholes before proceeding with any negotiation.
4. Engage in the negotiation
Critically observe mannerisms and body language. Observing mannerisms can be done over the phone, through email, or online, and how the other party responds to messages and requests.
A friendly tone will have such words, ‘let’s get along.’ However, a reserved partner or party will respond, ‘I’m not sure how it’s going, I’m apprehended.’ A hostile tone may sound something like, ‘I’ll show you mine if you show me yours.’ And a patronizing tone will sound like, ‘I have the driver’s seat.’
Ensure you’re aware of any red flags and pursue neutral procurement negotiations that don’t seem overbearing. Remember, suppliers may use different tactics to gain the higher end of the bargain.
So, remain vigilant throughout the negotiation process.
5. Close the negotiation
Always remain on high alert for conclusions that appear to be agreements that serve as the next phase of the deal. In some cultures, people change commitments in the end. So, if you’re unsure of the sincerity of the other negotiator, put deliverables in the negotiation process.
6. Review the negotiation
It’s advisable to conduct a post-mortem of the negotiation. Identify what went wrong. Identify what could have been improved and where you failed. Also, identify key learning points and set milestones for the future.
Use every negotiation as an opportunity to learn and improve your negotiating skills. In addition, identify what hindered you from applying the best or an alternative strategy that will allow you to gain control of the negotiation strategy.
7. Negotiation archive
List down everything you learned and record the negotiation in an archive so that you remember every last bit of the negotiation. Set up keywords for cross-reference check-ups for negotiation tactics, strategies, and approaches. The procurement negotiation archive helps you extract quick ideas during a negotiation exercise and serve as a resource for future negotiations.
Whether you’re a negotiation amateur or a seasoned negotiation professional, by using the above seven steps of negotiating, you’ll be ahead of your competitor.
Today, we share some tips on how to negotiate like a pro. These tips have been used by novices and experts alike and prove to bear fruits in virtually all situations and circumstances.
- Exploit your strengths. In any negotiation process, seek to optimize your strengths. Identify opportunities that help you optimize your strengths without disparaging the negotiator in your quest for victory.
- Learn, learn, learn. When a negotiation outcome is less pleasing or less than expected, endure doing better next time. You cannot dwell on present failures; you must cast your eyes on the future. Commit to constant improvement by boosting your knowledge of how to utilize the right tactic.
- Control biases. Control your biases when evaluating the parties or partners you’ll be negotiating with.
Always exhaust your options and take notes of your lessons.
ProcurePort – Acing Your Negotiation Process
ProcurePort is a procurement platform that offers best-in-class procurement solutions. ProcurePort provides robust procurement software that delivers different procurement solutions to businesses and organizations.
With ProcurePort, you can leverage multiple procurement solutions, including purchase requisitions, contract management, and negotiation solutions.
Reach us today to hone your negotiation skills from a negotiation neophyte to a pro!