The “perfect storm” is here for procurement. Do your negotiators have a robust, standardized negotiations process? Do they have the recent training and advanced skills needed to go toe-to-toe with their highly trained, highly skilled, and highly motivated sales counterparts?
Procurement’s perfect storm:
- Supply chain disruptions
- Highly trained, highly skilled salespeople.
It’s been quite some time since the challenges facing procurement professionals have been so intense. Three powerful forces have combined to form the “perfect storm” for procurement professionals.
First, the threat of significant inflation is real. The recent Inside Supply Management® Weekly article, “How Procurement Organizations Can Protect Against Inflation,” does an excellent job of exploring the drivers behind the growing threat and identifying methods to offset inflation’s impact.
It’s not just inflation’s dark ominous clouds on the horizon. There is also the constant threat of global supply chain disruptions. Consider the impact of semiconductor shortages on the automotive industry. Or the backlog on steel and lumber orders. While the pandemic’s disruption of supply chains still ripples around the globe, the Suez Canal blockage only compounded the problem. While some shortages have improved, the reality is that further disruptions are inevitable and procurement organizations need to proactively plan for the next supply interruption.
If this were not enough, procurement leaders should also note that, according to a recent Harvard Business Review report, sales organizations are investing an average of roughly US$1,500 per person annually on sales training; this is more than any other function in an organization.
Today’s highly trained and highly skilled salespeople are just licking their chops right now sensing the power shift. You can be certain they are well-prepared to take advantage of this perfect storm of market conditions.
Now, more than ever, advanced negotiation skills are the most effective way to counter today’s toughest business challenges. What’s needed is a robust standardized negotiation process that the entire organization can use to establish a common language and drive internal alignment.
Team members need to develop advanced negotiation skills and behaviors to protect the company’s self-interests while also building strong relationships with suppliers. Effectively balancing these competitive and collaborative interests requires leveraging tension as a positive force to explore and identify creative solutions through value-for-value exchanges.
Negotiation is the primary driver of value for procurement organization; yet many procurement professionals receive far less training than their sales counterparts and as a result are prone to many common mistakes. By focusing on three key areas of negotiation performance, you can prepare your procurement team to not just survive the current storm but consistently thrive in the harshest of conditions.
Improve Negotiation Planning
Poor planning is expensive. When you fail to plan, you typically get a higher price, more than your fair share of risk, and more conflict with suppliers and/or internal stakeholders. Effective planning provides a heightened sense of confidence and clarity that empowers your team to negotiate more profitable agreements. Good planning uses a proven process, a common language, and practical tools to produce consistent and predictable results.
Planning should be cross-functional and seek to establish alignment across all internal stakeholders. Through increased internal alignment it will be easier to identify key needs and requirements that will avoid costly mistakes or omissions. Planning should also prepare your team to manage information they give and how to uncover the information they need.
Highly trained salespeople understand the importance of planning and use every interaction with you and your colleagues to build and shape their negotiating position. Your planning should focus on managing information skillfully and seeking to uncover information critical to your own cause. High performing negotiators ask three times as many questions and talk two-thirds less than their counterparts. Consider the impact of this approach over the course of the typical sales cycle and not just in the final stages hashing out terms and conditions.
In addition to thinking through the relevant cost issues related to inflation, a negotiator must consider questions like these:
- What negotiables, other than money, can you trade?
- Which negotiables have a relatively low cost for you and a high value to the supplier?
- What is the best approach to sharing information during the negotiation?
- What are the critical questions you need to ask?
- What are the toughest questions you will be asked and how will you answer?
- What is your bottom line, the point beyond which you will not go with the supplier?
Planning will help you stay calm, thus avoiding costly and unnecessary giveaways that happen in the tense moments of your negotiations.
Tension is a natural part of negotiations. When you have two or more people with interests that are not always aligned, you have tension.
Most people are uncomfortable with the tension created by competing interests and look for ways to reduce it. High performers, on the other hand, realize that tension is a natural part of negotiations. When handled constructively, tension can be a catalyst for achieving creative solutions, especially through collaboration with suppliers. A collaborative approach will help uncover opportunities for value-for-value trades beyond price breaks alone.
What makes managing tension so challenging? The reason is simple: these skills are counterintuitive. Your instinctive, natural reaction in negotiations is often the opposite of what you should do.
Among the "wrong turns" negotiators can make:
- Aim only to get the best price
- Give away too much information, get too little in return
- Give too many concessions, too quickly, in order to reduce the tension
- Negotiate about what the supplier says they want
- Begin negotiating with minimal planning
- Look for ways to reduce tension in the negotiation, or use it to win at the supplier's expense
The counterintuitive right way:
- Set higher goals to get the most profitable deal, and to build a stronger supplier relationship.
- Be intentional about what you share. Ask more and better questions to get the right information.
- Give concessions reluctantly. Focus on concessions that are high value to supplier and low cost to the company.
- Identify underlying needs that can lead to more creative, profitable deals.
- Anticipate likely negotiation situations and plan approaches for dealing with them.
- Use the natural tension in the supplier negotiation as a constructive source of creative, profitable solutions.
In the face of a supply chain disruption, it can be difficult not to get lost in the tension. You need to be able to count on the strength of your supplier relationships to pull you through. The best way to do that is through collaboration.
A transparent relationship with your suppliers will help you predict and reduce potential supply chain disruptions. You must develop skills to ask questions and listen with open curiosity to earn the trust of your suppliers. This leads to a reciprocal partnership where suppliers look for creative solutions with your best interests in mind and everyone wins more.
Practice, Practice, Practice
As they say, practice makes perfect. We say, perfect practice makes perfect. Adopting and retaining new skills requires coaching and reinforcement. Everyone has their own strengths and weaknesses when it comes to negotiating - even your most experienced negotiators.
When going head-to-head with highly skilled salespeople, you need every advantage available. Every detail should be considered when preparing for and practicing negotiations, such as negotiating in a virtual environment, using tools effectively, and executing to achieve strategic results. Top performing salespeople understand the long game of negotiation and recognize that each and every conversation can help to build their position to maximize their deal, therefore they are methodical about their approach to uncovering information that works to their advantage.
Developing real-world scenarios to allow negotiators to practice how to handle common situations will help them not only perform better but will also help them plan better by identifying blind spots. The more time and attention that is put into practicing with skills performance exercises the more your team can anticipate, prepare for, and execute against highly skilled salespeople.
Transform Your Negotiating Team
Procurement professionals need negotiation skills development now, more than ever, to regain and maintain their advantage in supplier negotiations. With the proper planning, skills, and practice your procurement team can fight back the storm. RED BEAR’s negotiation workshops have helped more than 25 percent of Fortune 500 companies transform their team into world class negotiators. To learn more about our Negotiating With Suppliers™ workshop, please visit our website: www.redbearnegotiation.com