Every procurement professional knows that supplier negotiations aren’t always plain sailing – and we’re sure you’ll relate to these seven scenarios.
This article was originally published on Procurious, it was based on research conducted by Conti Advanced Business Learning (www.cabl.ch), a Swiss training company that specializes in Negotiation & Influencing training
It’s happened to even the best negotiators. Leaving a negotiation with less than desired results might even be called a rite of passage for procurement professionals. It’s frustrating and time consuming but there are learnings to gain from every disappointing negotiation.
Giuseppe Conti, Founder and Managing Partner of Conti Advanced Business Learning, interviewed seven procurement leaders to find out their most notable negotiation fails.
1. Pushing too hard
Using competition to push your advantage and lock it into a contract can be counterproductive.
I recall a negotiation performed for a global IT project, during which we closed what looked like a great deal secured by a complete and detailed contract. Once the project began, the vendor quickly started to lose money. Having no leverage and way out from the contract, he eventually decided to stop the project. Ultimately, to continue our working relationship, we had to sit down together, find solutions and find fair compromises to make the project a success.
Olivier Cachat, Chief Procurement Officer, IWG
2. Internal alignment
Involving executive leadership into a critical negotiation can be a very powerful ‘tool’, when done in a very concerted way. Our main objective was to secure supply for this material and ideally get a price concession when allocating more volume to this supplier. We briefed the President of our BU and explained the situation. We also explained in much detail that anything beyond a three per cent price reduction is very unlikely and that this supplier would rather threaten us to stop supply. While the first part of the actual negotiation was going well, our president decided to our complete surprise to become very aggressive with our supplier by threatening him to move to a different supplier if they would not reduce pricing by at least -15 per cent. Not only was that very insulting to our supplier, but it was also a complete bluff and our supplier knew that we were not able to move away within any reasonable/manageable timeframe. As a consequence, our supplier stood up and left the meeting, stating that we have one week to think about his offer to raise pricing by +5 per cent as they would otherwise stop supplying us. It took me two months to ‘repair’ the relationship and to convince them to continue supplying us at a flat price. Furthermore, I had to make additional concessions which we would not have made if our colleague would have stayed with our plan.
Matthias Manegold, Head of Global Indirect Procurement, Liberty Global
3. Clarity on agreed terms
Make sure the final terms of a negotiation are clear for both parties.
I had the surprise, for a new supply agreement (over 35M Euro), to discover that we were not aligned regarding the product specifications. Our yearly demand had been multiplied by 10 and obviously, during the negotiation, the supplier did not dare confess not having the capacity to deliver our needs. We needed to rediscuss and revaluate this challenge and find a way forward to solve the issue. It demonstrates the importance of always re-confirming the terms you reached.
Christophe Schmitt, Head of Strategic Supplies, Omya
4. Safety in small numbers
At times I have walked into a room and seen more than ten people around the table. In such a situation, it is very unlikely that any significant flexibility will be shown during the following hours. By nature, most people will not want to lose ground in public. As a general guide, I find the best agreements are made in smaller meetings with participants who have been briefed in advance. Unless related to celebrations, nobody likes surprises!
Jon Hatfield, Director Global Supply Management, PPG
5. Stubborn suppliers
Sometimes even if you have evidence that you could get a better price for same quality the supplier will not move. This can happen especially in the Pharma world where changing supplier is time, money, and resource consuming. I also think this behaviour by the incumbent supplier is wrong. Ultimately pressure on prices will prevail and the new cheaper supplier will be a better fit.
Romain Roulette, EMEA Procurement Director, Bausch Health
6. Changing protocol
Overcoming counter-productive pre-existing relationships of suppliers can derail negotiations.
My corporation acquired a company that had strong links with the local supply base. The local suppliers were working with this company for decades and had developed ineffective habits that were hard to change. When we requested the existing supply base to apply standard requirements, we were confronted with resistance and opposition from these suppliers. A few negotiations went well, however we had to change all of the other suppliers.
Francesco Lucchetta, Director Strategic Supply, Pentair
7. Lack of alternatives
It was a single source supply situation. Over ten years ago, I was renegotiating an IT outsourcing agreement that was expiring. Benchmarking data indicated that our prices were well above market. On the other side, the supplier knew that we had no other alternatives and they enjoyed a strong relationship with the CIO. In spite of our efforts, we only received a very minor price decrease. The next step was to start developing an alternative supplier to be in a stronger position at the next contract renewal.