Excellent negotiation skills not only influence the outcome of individual transactions, but also relationships with suppliers and overall success. One common misconception of negotiation is that one party has to win, while the other party loses. This idea is inconsistent with the meaning of negotiation. A commonly agreed upon definition of negotiation is a process of compromise by which the needs of different parties are managed (1).
In the supply chain environment, negotiating often involves the cost of an item, arrival time, and quality standards. When everyone works to leave the bargaining table happy, the affected parties have more positive attitudes and contractual obligations are more likely to be followed. When negotiating with suppliers, more is at stake than just price. Knowing the other variables in a deal and prioritizing them makes negotiating easier. Other items to consider are:
- Delivery time/schedule/frequency
- Payment terms
- Warranties, merchandise return policy
- Ease of Reordering (2)
If it is not possible for your firm to be flexible in one area, compromise in another detail may improve the tone and outcome of the negotiation process.
The ideal negotiation results in a win-win situation for both parties. To accomplish this, both parties need to enter discussions with a clear goal. Some common mistakes in negotiation are:
No bottom line
It is necessary to have a clear idea of priorities: what is necessary to have, what would be nice to have, and what you do not care about at all. Additionally, it is important to know what your party’s deal-breakers are. The negotiations will be better focused when parties organize this in advance.
Setting low goals
By asking for more than you expect, you may end up happier with the results.
Negotiating against yourself
Wait after making an offer. The other side should counteroffer before you start trying to modify your offer.
Not hearing all demands before beginning to compromise
By waiting until the end, negotiators can choose which demands are best for compromise. If you choose to compromise throughout, the other party may continue to ask for more (3).
Behaviors to watch out for
Sometimes, negotiating parties will enter the negotiations with only their interests in mind. There are a few questionable behaviors to watch out for during the negotiation process. These include:
Good Guy, Bad Guy
Two representatives of the other organization have predetermined roles. The bad guy says “no” to everything. By comparison, anything the good guy has to offer will appear better.
The Devil is in the Details
The lesson of this is to read the fine print. Small details in often overlooked places can make a deal cost much more than initially expected.
Changes are profits in escrow
In this situation, the supplier may bid low to win a contract and afterward increase the cost by convincing the buyer to make changes (4).
One final tip is to ask questions. Salespeople are trained to ask questions. This gives them an advantage in understanding their customers’ needs and wants. Buyers can also benefit from knowledge. Using the right question with a supplier can uncover the details of the deal that are most important to them, the concessions they can make, and arrangements they have made with other customers (2).
(1) Demers, Julie. Negotiating Skills can be learned. CMA Management. 11/2002. pg. 33-37.
(2) Rapp, Jim. Effective Negotiating Skills: Tips for Getting the Best Deals from your suppliers. Office Solutions. 5/2002: pg. 23.
(3) Diener, Marc. Negotiating Slipups Can Be Hazardous to Business. Computer Resaler News. 5/12/03, pg. 18A.
(4) (Karrass, Chester. Dirty Tricks Persist Despite Era of Win-Win Relationships. Purchasing. 9/2/99, pg. 24.