Power in procurement negotiation
By Mark Hubbard |
In this blog we look at power in procurement negotiation.
A frequent area of discussion in negotiation is the idea of the balance of power between the parties involved. This often feels like a clear-cut position, but there are a number of reasons to explore this more completely, as the actual balance of power between two parties may be other than what is assumed, or historically apparent.
Fortunately, we have a host of familiar analytical tools we can use to develop a better understanding of the power balance. The first to look at is the Supplier Positioning analysis, which asks us to consider how the supplier thinks about us. If we are in an apparent low power and low attractiveness position, we will often see a characteristic lack of interest, slow response to service issues and limited engagement; Even worse, we may see a supplier attempting to exploit their position with us. We need to look at this and consider what is driving our attractiveness to a supplier.
The tool also challenges us to look for differentiated behaviour between different parts of a particular supplier, perhaps from different countries, regions or divisions. There is a challenge here, in that we can feel that we are in a high-power position, but the supplier still seems to treat us inappropriately. We need to explore why this might be to get a better understanding of what is going on.
We can also look at the areas of Interest that the supplier has; if we can identify what it is that the supplier is aiming for, or driven towards, we can influence the balance of power by positioning ourselves towards that interest. We have explored supplier interests further in another blog (link at bottom of this article). Clearly, being able to align better to those interests puts us in a more powerful position.
A deeper tool is a variation on our old favourite, Porters 5 Forces. However, as we are considering this from a purchasing perspective, we have to modify if from the original concept, and recognise that Porters areas of Threat (Substitutes and New Entrants) are actually opportunities, and also, we are positioned not in the centre of the market competition, but to the right-hand side as a buyer. Once we have allowed for those variations (in a new model which I now call ‘Marks 5 Forces’) we can start to look at what is driving the balance of power for a particular supplier, while considering their participation in the marketplace as a whole.
Finding insights which help us swing the balance of power
Each of these tools provides an aspect of the power balance which is in place between ourselves and the supplier. What we are aiming to do is to find insights which help us swing the balance of power in our direction (if we are feeling disadvantaged) or make sure we are taking advantage of the power we already have. Quite often, once looking more deeply at the power balance, we will find that the position is not as we perceive it. History of relationships, or a particular view of the marketplace, can often swing power in a particular direction.
We often see positions portrayed where the power swings not because of marketplaces, but more because of the senior relationships in businesses, and we need to recognise that not all power comes from market positions – people are involved as well. This emphasises the need to make sure our stakeholder management is working well when embarking on negotiations where the supplier is well connected internally.
So, we need to stand back and think about power in negotiations, but to do it with an analytical viewpoint, using familiar tools to inform insights, and therefore actions, which will help us to optimise our position. If we can do that well, we can get better outcomes from our negotiations.
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About Mark Hubbard
30+ years experience in procurement and supplier management, in line and consulting roles
Previous employment: Positive Purchasing Ltd, SITA,
QP Group, BMW, SWWS, Rover
Education: BSc in Engineering Metallurgy, MBA University of Plymouth
CIPS: Current Member