Negotiations are one of the most critical stages of the sourcing and procurement process.  Requests for Proposals and Reverse Auctions are essential in understanding market conditions and a supplier’s potential, but the negotiation phase is when a supplier’s true willingness to collaborate and form a partnership presents itself.  There are a plethora of best practices surrounding negotiation preparedness and strategy, all entailing identifying leverage points and coming into the conversation confident and open to compromise.  What these strategies at times fail to address is when to understand that furthering conversations is a waste of resources, and knowing when it is time to enter into an agreement “as is”, or walk away entirely.  The following are common signs that a negotiation has concluded.

1.       The supplier has become unresponsive or slow to provide follow up materials and data.
If a supplier begins to remove themselves from the conversation or is unwilling to continue to provide necessary additional information, they are likely checking out of the conversation.
  While they may continue to engage it is important to pay attention to communications and recognize if asks are no longer being escalated to the proper decision makers and are instead just sitting with employees who are unable to drive the conversations forward.

2.       You no longer have value that can be contributed to the agreement.
The negotiation period should focus more on give and take and constructing a mutually beneficial agreement rather than intimidating one party into conceding.
  Once the discussions have reached a point where one party is requesting change without concessions to offer in return, it is best to focus on concluding conversations and deciding on next steps.

3.       Results are well below benchmarks or market conditions.
If multiple rounds of negotiations are still falling below expectations based on market data, it is unlikely that goals will be achieved.
  Additional savings and value-adds have diminishing returns in a negotiation, so anything further will be incremental at best.  It may be time at this point to explore other options or adjust expectations.

4.       Legal departments have failed to reach an agreement on non-business terms.
Regardless of the success of business term negotiations, if legal terms will put either party at risk it may be time to move on to an alternate option.
  If both legal teams are unwilling to budge after initial conversations, it is unlikely that one organization will change policy to concede.  A particularly large or critical agreement may be an exception to this rule.

5.       The category has become too volatile.
If negotiations have been ongoing for quite some time due to changes in purchasing needs, volume projections, or commodity conditions it may be a sign that a more generalized agreement is necessary or contracting should wait until things stabilize.
  This is particularly relevant to categories such as packaging which have volumes that vary greatly with company growth, constant design changes, and index prices that fluctuate.  Contracting for items that will be obsolete in a few months does not benefit either party.
Whether the strategy should be to walk away or enter into an agreement depends on the category, goals, and achieved results.  An important item to keep in mind is that collaboration and communication throughout the negotiation process is often indicative of how the relationship will continue under an agreement.  Suppliers who are honest, transparent, and come with innovative solutions are likely to bring value to the organization, whereas suppliers who are stubborn and unwilling to compromise are unlikely to change.  Using the negotiation process as a trial run of a supplier performance review can be an excellent tool to ensure that relationships start off, and remain strong.
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Jennifer Engel

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