Negotiation Plan

NegotiationPlanNegotiation Plan Template

Designing a negotiation plan is the systematic mapping of the steps you should conduct when negotiating with your suppliers.

Effective negotiation will enable your to deliver increased value to your organisation. It’s also the best part of the tendering process. Show the supply base and your internal stakeholders that you do procurement and not purchasing. Focus on cost drivers and push for the most competitive result and do not tolerate mediocre goods or services.

Here’s How

Plan ahead! You must understand the supplier’s motivation and position.

Pre-negotiation Conditioning

  • Warm up the supplier and plant the seeds for what you hope to reap before the supplier even realises you are in negotiation mode
  • Use enquiries and proposals to create competition
  • Work hard to lower expectations prior to a formal negotiation
  • Be clear about your short, medium and long term objectives
  • Agree what are acceptable outcomes
  • Determine your fall back position, what is the minimum you are willing to walk away with or walk away from
  • What are the key concessions and tradables
  • What can you offer and why does the supplier want your business?
  • How can you improve your position
  • What persuasion style will you adopt? logic, emotion, bargaining, principled or power
  • Assess what’s important to the supplier

Supplier Profile

  • How does the supplier fit – why do they want the business and what are there needs other than profit?
  • Review the supplier’s financial performance, what room is there for leverage
  • Understand the supply chain
  • Assess the level of autonomy that the person negotiating has and sound them out to see if they are in a position to make deals
  • Who are their competitors
  • Who is the market leader and is the position fluid or static
  • Conduct detailed cost profiles
  • Break down component costs
  • Understand their pricing policy

Types of Negotiation

  • Tactical– Short to medium term negotiations
  • The negotiator of the negotiating team perceives they have the balance of power and want to exploit their advantage over the other party
  • The negotiator is skilled in negotiating and can adapt to different styles with ease to get the results
  • The supplier is not in the market for relationship building
  • There is an opportunity to get better pricing based on volumes
  • The contract is cost driven

A tactical negotiation is single supplier focused and you want to close a deal. Any conversations about longer term issues are usually used as a tactic to increase your bargaining position rather than a serious discussion point.

  1. Prepare for the negotiation
  2. Consider the conditioning process
  3. Open the negotiation
  4. Question your supplier to regain control
  5. Test and probe the suppliers position
  6. Persuade, pace and lead
  7. Agree concessions and close

A SWOT analysis might be useful to compare the relative strengths and weaknesses of both parties.  You may want to share certain opportunities or threats with the supplier during the negotiation.

Condition the supplier by lowering their expectation. Highlight the position and potential consequences. Winning an account isn’t always about profits, sometimes its about the prestige of landing certain accounts, so if you have a brand they want in their portfolio or can open doors for future business, test the suppliers willingness to negotiate.

State your intent and adopt a clear position. For example if a requirement is really a “make or break” make it mandatory and exclude suppliers who can’t meet the requirement immediately to save time.

Don’t be embarrassed to aim high. Be the first to state your intention and let the supplier figure out whether if they can meet the requirement. Make sure you have the same understanding as your supplier. Reiterate what they are saying back to them.

During a post tender negotiation or clarification hone down to the crucial details. If required ask all suppliers to re-submit an updated pricing sheet to ensure that you are comparing like for like.

When required ask questions to check hypothesis against facts. Help the supplier aspire to become the winning bid.

If you need to make concessions then give some up for swapping. Listen for signals and concede very, very slowly.

Confirm all negotiations in a schedule that forms part of the contract. Don’t get caught out by an entire agreement clause that doesn’t take into account matters discussed prior to the contract signature.

 

  • Strategic– involves close relationships of key suppliers often where the requirement is complex or there is limited supply
  • There is no volume leverage available
  • Suppliers are not responding to lowering their price
  • The business is willing to invest time and resource to build a long term relationship and get value from non monetary terms
  • Partnership approach is more important for problem solving
  • Gain/Share win win is better for both parties

Strategic negotiations should take into account medium to long term cost, value and risk. The negotiation is about framing the underlying needs of both parties by working together closely rather than at arm’s length or second guessing the next move. Generate options rather than being prescriptive about outcomes. Success is measured on the quality of the relationship and the track record of delivering long term planned benefits.

  1. Prepare for the negotiation
  2. Consider the conditioning process
  3. Open the negotiation
  4. Explore the principles to support a partnership approach
  5. Agree to promises and commitments
  6. Solve problems together

Strategic negotiations may involve a project team to provide expertise in the relevant areas. The lead negotiator should relay a consistent message and the internal team should be briefed in advance on what they can and can’t negotiate. Establish what constitutes success and what your final walk away position should be. All team members should ultimately report back to the chief negotiator to lead on the big ticket items

Before you start the negotiation process concentrate on your aims, objectives and what concessions you are willing to make.  Raise expectations for the benefits you expect to receive.

Sell your need and why you could benefit from a new approach. Listen and watch your supplier to test their reactions. Show willingness to listen and understand their business model.

Be assertive but not overpowering. Allow yourself time to think before committing to long term plans. Behave in an open manner, give reasons if you reject a proposal and offer alternative options. If you need to attack, do it suddenly and end the bring the meeting to an end. Use this sparingly and only in non- compromise walk away position.

Neither is better than the other. the key is to use the right type of negotiation relevant to the situation.