What Contributes to a Successful Negotiation?

Saturday, December 28, 2013 , Cost Reduction, by Rich Rafdahl

In business, I have found that your negotiation strategy and tactical approach may vary depending on project and final objective.  For example, negotiating a one-time purchase typically involves a more basic plan and set of skills while an opportunity that requires continuous reliable supplier performance, specific services and on-going quality – often requires a more comprehensive strategy and approach. This article will focus on the skills that will improve your chances of a successful negotiation for those more complicated programs.

DSCN0055This first component may or may not be a skill but I believe it is the most important element of a successful negotiation.   It may seem so simple and obvious you may wonder why I had included it but be aware that if not given the needed time and consideration it often leads to disappointing results.  What is it? It is your objective and expectations. I suggest that time; research and discussion with key staff and management take place so that you are very certain regarding the goal.   I have seen many rush into negotiations in an attempt to secure the lowest price while overlooking other critical requirements and opportunities of the program.  Price is the last point to negotiate once all other expectations and requirements have been met.

For example, some questions you may ask to help determine the full objective are as follows.  What specific supplier services and performance elements are critical to your program’s success? What is the quality level needed?  What are the preferred terms of payment? Who is handling the freight?  What is the required lead-time?  Will backup inventory be needed and how much? Can your supplier assure continuous flow of material without interruption throughout the year? What is the guarantee or warranty? Are certain marketing funds, growth rebates or incentives of interest?  What exact price is acceptable?  What will be the future price change logic and methodology? Should initial pricing be firm for a period of time?  In essence, what are your needs and what are your wants?  These are two completely different lists that should be considered since you can be more flexible with some vs. others.

Once you are clear as to your objective then one can invest time in the preparation.  Preparation may involve further research and internal discussion with key management so that you are on the same page as to expectations and objectives.  It may include reviewing the alternative products and services available in the market.  What are the pros and cons of each?  What are the “best in class” suppliers to consider? Do certain suppliers want to align with you and prefer working with you? What is your competition doing?  What are the market trends?  What are the market pinch-points, suppliers’ capacity, capabilities, pricing trends and pricing catalysts?   Are there any near term market challenges, threats or future improvements to consider?  What are your organization’s big picture goals and does your plan support it?   Obviously, there are more questions one may have but this is a good starting point.   You never want to negotiate in a vacuum assuming you know what is best for the company only do find out later senior management had completely different plans which your efforts don’t support.

When you are fully prepared and ready to negotiate put together a final list of your top 2 or 3 preferred suppliers. If possible, get to know the individuals you will be negotiating with.  What is their style, what are their likes and dislikes, what are their goals, what are their strengths and weaknesses, what method would serve you best in order to achieve your objective?  If the negotiation will be a complex effort involving a lot of different options and factors, then it is suggested you role play with another co-worker to review possible points and counter points that may be presented.   The more you are prepared the quicker you can respond to any suggestion, offer or new idea.   You don’t want to think on your feet and risk overreacting or suggesting an option that has not been thoroughly thought through.  Also, based on your initial work above, review your list of “wants” and “needs”. In essence, be prepared.

When you meet with the supplier treat them courteously and with respect and be precise in your discussion and clear regarding your goal. Equally important, relax and LISTEN.  This is truly a skill that many of us could improve upon.  You can often hear exactly what is important to your counter part by what they say.  By listening and watching you may discover exactly what is needed to achieve your objective.

As the negotiation unfolds, be flexible with your wants but firm on your needs.  Remember negotiation is a 2 way street that requires some give and take on both sides but be prepared to walk away if the other party is not willing to work with you, compromise or play fair.   Also, in addition to offering some flexibility, be patient and prepared to offer options. If you need to break so that you (and your team) can consider what has been discussed and then reconvene later in the day or another day – suggest that. If you are involved in a complex negotiation, several breaks are important so that critical information is shared with key staff and possible new strategies and options are considered before reconvening. This is where your preparation will pay off.  If you give the appearance of being impatient it may work against you and imply to the other party you are desperate.

Again, the goal is to achieve what you need but it is also important to provide benefits to the other party so that they feel they have won too.  If both parties can agree to terms which are favorable to both and meet their needs, you have achieved a very successful result.

 

 

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