Stronger Supplier Negotiations in Six Steps

Supplier negotiations: A critical element of any successful strategic sourcing initiative, and one that carries a heavy amount of stress for too many Procurement Pros.

My job includes negotiating with my clients’ suppliers to establish best-in-class service at competitive pricing. The process is second nature at this point, but I see a lot of nervous avoidance from less mature procurement teams when it comes to sitting down at the negotiations table. Why? Because negotiating is uncomfortable. It is high pressure. Ultimately, it is an activity akin to a root canal for many, and they do what they can to avoid it altogether. Sometimes this means auto-renewing a contract, other times it means rationalizing a supplier’s opening bid as “good enough already.”

Sorry to say, that deal isn’t good enough already, and auto-renewing without attempting to improve terms is a losing game in the long run. Try as we might, we can’t escape supplier negotiations if we really want to earn our place in our organizations.
So, what can we do to be more comfortable at the negotiating table, and ultimately improve our outcomes? The key is to look at the internal and external factors that strong negotiators utilize to get what they want.

The Mental Game of Negotiations

We throw up a lot of mental road blocks when we think of negotiations. We think we aren’t “cut out” for a task that seems aggressively competitive and outside our own expertise. The beauty of this struggle is that the fix is entirely internal. We can address these fears simply by changing our mindset in a few ways.

• Start loving “no.” Nobody likes being told “no,” yet strong negotiators seek it out. Why? Because that’s how they know they’re getting the best deal. Negotiations are meant to establish limits. When a supplier says no, you’ve effectively found theirs. Alternatively, leaving the negotiation table without hearing the word invariably means you left some money on top of it.
• Recognize the other side’s mentality. Fear of failure can be a strong influence. Don’t get so wrapped up in it that you forget – this is true for suppliers, too. By the time you’re negotiating, they are invested in closing the deal as well. They won’t walk away any easier than you could, because they also have plenty to lose. 
• Don’t View Negotiations as a Competition. At the same time, don’t think negotiations are a zero-sum competition. You don’t “win” just because your supplier “loses.” Aim for deals that create win-win opportunities to not only get great terms and pricing, but also establish long-term supplier relationships (instead of forcing a zero-sum transactional win that causes suppliers to bolt when the contract terms).

This change in mindset, alone, is often enough to get a newer, greener Procurement pro feeling more confident. And confidence is important. Suppliers need to recognize that we’re coming to the table ready to work – we’re here to guide the conversation, not just be led as the supplier sales team sees fit. Which leads to the second area in need of improvement…

Coming to the Table Prepared

Once our mental game is on point, we need to consider the other side of the table and understand how to best interact with them as negotiations proceed.

• Come armed with market intelligence. Procurement pros may not engage in negotiations very often – it is safe to say that your suppliers’ sales teams have much more experience. This puts us at a disadvantage, since they know the market better and have more insight into inking these deals. Counter this by gathering your own intel. Minimally, engage with multiple suppliers in this space through an RFI or RFP to better understand your suppliers’ competitive landscape.
• Focus on relationship building. Negotiations start with the first handshake, before talking turkey. Focus on building rapport before talking terms – doing so extends any hard, quantifiable leverage you have with a secondary form of social leverage. The more engaged the supplier rep is with you personally, the more open they will be in discussing concessions.
• Expand the Scope of the Negotiations. Cost is critical, but there are other elements at play. Don’t focus exclusively on cost, relegating SLA terms, customer service capabilities, and other value adds to the back burner. All of these items are negotiable.

Long story short, if you go into negotiations unprepared, you are at the mercy of your suppliers. You need to know both what you want, and what that supplier can offer. Additionally, you need to understand how other players in the market can compete with those offerings to truly create leverage.

In Summary

Yes, negotiations can be tough – even for seasoned Procurement pros. However, we don’t have to let suppliers run the negotiation table. The strategies above help to even the playing field, while also elevating negotiations from a competition to a chance to build up a valuable partnership.