Negotiate over costs not price, buyers told

4 October 2012

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4 October 2012 | Rebecca Ellinor

Stop negotiating over the price with your suppliers and begin negotiating over the costs, advised former CPO Mike Inman at the CIPS Annual Conference at Kings Place in London today.

The former head of global procurement for MGM Resorts International and IAC/InterActiveCorp who is now a professional negotiation instructor and advisor with TableForce, said: “All too often buyers trap themselves into price-focused negotiations which actually end up being a fool’s errand. They result in diminishing returns. Think about how little sellers are truly allowed to negotiate.”

He gave one example where negotiating on price would have resulted in a maximum of 5 per cent of savings, whereas re-engineering the way the service was delivered resulted in 30 per cent. This approach, he said, requires procurement professionals to look at the specifications, requirements, demands and design and see where waste occurs.

“Total-cost negotiations that produce a healthy short- and long-term win-win both internally and with the supply chain require a more sophisticated mindset,” he said.

Inman also advised the audience to build relationships with internal customers by first asking them what their biggest supply chain problem is and listening to the answer. He said procurement professionals should then find a way to speak to them in their language, to mimic it. He said this was not just the jargon of their function but how they communicate, for example, have they trained in Six Sigma, do they use the language of entrepreneurs, do they like graphs and charts?

He then outlined a four-step approach buyers should take. This starts with offering to look at all their invoices and contracts – to do the work they don’t like, learn about their situation and build trust. Next, he said, find suppliers and build RFP templates. The third phase is to run RFPs and score the responses and the final step is to identify opportunities and solutions. “I’ve seen people try to come in at stage four, but it doesn’t work because you haven’t built the relationship,” he said.

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