What do professional procurement experts know about negotiation strategies that most inexperienced negotiators don’t know? We know we will often be faced with tough vendor contract discussions.
Everyone knows that if we have a pie sitting in front of us, we can cut it in half, with each party taking their share as a compromise worked out to let them feel as though they got something. Just split the pie down the middle. 50-50.
But the reality is that when you simply divide the pie in half that’s not a win-win—most often it’s really a lose-lose situation. The reason it’s a lose-lose is that neither party really got what they wanted out of the negotiation. Both felt they had to compromise. Both parties were stuck in a mindset of thinking about short-term individual advantage instead of long-term mutual gain.
Unfortunately, win-win deals have been talked about so much that the phrase doesn’t mean a lot anymore. In procurement, a win-win involves the art of meeting your firm’s high-value business objectives while at the same time allowing the supplier to feel good about their role in the partnership.
In order to accomplish a true win-win, an effective procurement negotiator needs to understand what the vendor’s goals and objectives actually are before they even sit down to the negotiation table.
A common example that negotiation trainers use to illustrate this concept is to imagine that two people are tasked with dividing an orange. Many beginner negotiators would assume that cutting the orange in half achieves a win-win.
But what if your goal was to get 100% of the juice and the other side’s objective was to leave with 100% of the rind? It could have been possible for both sides to truly experience a win-win if only they knew what the other side valued and was attempting to achieve.
Win-win negotiating makes problem-solving a creative process. It brainstorms all possibilities to make the most of the benefits, to minimize losses and to craft a fair deal for both parties.
So how can we know—with certainty—what the other party’s goals are? We can know simply by asking. We know by treating the vendor as a valued partner, not a commodity, and allowing give-and-take to enter into the process. By asking questions, we can help pinpoint areas of concern as well as areas where concessions might be given.
Win-win negotiations center the discussion on common interests instead of inflexible demands. A positive conversation about interests steers the parties away from unproductive negotiations around demands. It points the parties towards a give-and-take that gets what both parties really want.
I think the toughest negotiation I’ve ever lead was in the fall of 2005—just after Hurricanes Katrina and Rita decimated the Gulf Coast. At the time, I was VP of Procurement for a large multinational company that makes a variety of plastic products. A raw material called resin was crucial to their production.
In the aftermath of the hurricanes, all of the domestic suppliers of resin declared force majeure for relief from their contracts. That left the company I was doing procurement for in a precarious position of potentially running out of resin and being forced to shut down production lines or possibly even entire production facilities.
We searched frantically for global suppliers who could produce the same grade and quality of resin at reasonable prices and within a reasonable timeframe. Within a few weeks, some of the company’s standard vendors were able to resume production by moving to other sites. It meant we had to jockey for position to negotiate our resin needs. The vendors told us how resin would be rationed to various companies like mine so we would not have the same supply stream.
It took hours to uncover the rationing process and then help the vendor understand that my company was using the resin to make plastic bags to protect sterile instrumentation for the medical industry whereas another company wanted the resin to produce golf balls. When it came right down to it, we helped them see that having sterile instruments during life-saving surgeries far outweighed having new golf balls.
That is an example of a win-win. We met my company’s business objective and at the same time the vendor came away feeling good about the part they played in the deal.
Once, when asking a supplier, “what can we do differently that would enable you to offer some cost savings?” the vendor told us that they simply would want to be allowed to ship on Thursdays instead of Tuesdays for a 10% price reduction. This vendor was already coming to the delivery location with a half-truck load every Thursday anyway, and combining the two deliveries to the area would make things easier and more cost effective for them.
Cost savings for the procurement team and ease of delivery with a full truck for the supplier? Now that is a win-win.