Posted 5th Jun
Right at the heart of procurement negotiation is having a really good idea of what it is we need to achieve. And herein lies a problem. Building a comprehensive picture of what we want to achieve is often a challenge as we will need to knit together a broad set of requirements from the overall business, and make sure we have a good understanding of the boundaries we need to remain inside.
Our starting point, if it is not clear to us already, is a view of the broader business aims and goals which are operating at present. Tying our negotiation to the direction of travel of the business is important, as it anchors us within the overall business environment. It helps us look at areas such as financial and environmental goals, expansion and market penetration plans, customer aims and desires. Ideally, all of this should be known anyway, but if it is unclear, we may need to work out those key issues. Fortunately, once it’s done, it’s available for other negotiations as well.
Once we’re through the high level requirements, we also need to know what we are aiming to achieve in this general area of spend, or category. If we’re fortunate, we will have a developed category strategy available which gives us the category specific aims and goals in a series of areas, described by an acronym: we typically use IMPACT to look at requirements in areas such as Innovation, Management, Performance, Assurance (includes Risk), Cost and Transparency. If these don’t exist, we’re going to have to work them out for this negotiation, by discussing the various needs and wants with the stakeholders.
As ever, this will lead to a degree of conflict, as competing requirements will surface which are not mutually possible. As an example, we may have a supplier in which margin protection dictates reductions in price, while at the same time requiring innovation and new ideas, while also extending payment terms. The balance point between these various areas needs to be understood before the commencement of the negotiation.
This identifies another issue: which of the areas that we could negotiate in are we going to negotiate in? To some extent, this will also be determined by our counterparts, but we may be able to condition and influence the direction in which discussions go through effective pre-negotiation conditioning and messaging.
If we can get the requirements agreed, and the areas to be negotiated agreed, we are starting to have a good sense of the preparation we will need to do to make this negotiation work.
We also need to understand the consequences of not negotiating in some areas. If we choose to exclude the legal parts of the process from the negotiation, then we will clearly be having a partial negotiation, which may impact on other parts as those elements are worked through. If we have onerous clauses in place, there is likely to be some impact on the overall outcome which we are seeking.
At this point in our preparation, we are trying to build a picture of the areas we have to cover; we have yet to determine the limits which we want to place on the negotiation outcomes. We’ll be looking at how to do this in the next blog.
Talk to us about negotiation and how you can improve your outcomes. Click here to see the previous blog in this series.
Tagged by topic: Negotiation