The negotiator - January 2015

1 January 2015

This issue, we explore how manufacturing bottlenecks and procurement effectiveness are related to negotiations.

Cambridge Dictionary defines a bottleneck as: “a problem that delays progress” – not something any of us want to be. In manufacturing, that may be the piece of equipment in the process with the lowest throughput, or a raw material that is only available in a limited quantity, or a certain time of year. In procurement, it’s generally anything that stands between our internal clients getting what they want, from whom they want it, as soon as possible. Sometimes it’s the process of creating an RFP (request for proposal), other times it’s waiting for suppliers to propose a proper response, and of course there’s always the time between making the supplier selection and the conclusion of negotiations.

While I applaud an ‘entrepreneurial’ spirit and the associated flexibility that comes with it, I believe there are things that we can do to get out ahead of almost any issue. A lot of people believe negotiations are about reacting effectively to the situation – we have to wait for the other side to move before we move. True, it’s a differentiator, but relying too much on your ability to react is really just another way of saying you’ve made the conscious decision to be lazy.

Early in my career, internal clients would regularly voice their frustration that “procurement takes too long to negotiate deals”. Not willing to just award business on the supplier’s proposal as it was, I took a detailed look at the bottlenecks and found there was a lot of time spent reviewing and negotiating our terms and conditions, both commercial and legal. That led me to evaluate options, where I concluded I would include our standard terms and conditions in every RFP, along with some basic instructions.

As I believe there’s tremendous value listening to the other side as opposed to just dictating mine, I gave suppliers two options. Suppliers could sign the standard terms and conditions, or they could mark-up and return the document. If they elected the first option, I could focus just on the commercial terms and other deliverables specific to their proposal. Though I did wonder if they even read the document, it definitely sped up the process. If they elected the second option, it took a little more time than the first, but still less than by not taking this step. I found suppliers didn’t object to every little thing, they only pushed back on issues that were critical to them, which allowed me to have insight into their business – valuable for any negotiator.

I strongly suggest including your company’s standard terms and conditions in every RFP package to help avoid or speed along issues later in a negotiation.

If there’s one thing every buyer includes near the top of their negotiation priorities, it’s price. But only the most sophisticated buyers stop to ask themselves if the product or service isn’t delivered, does the price matter at all? The top global supply chains in the world place a high priority on assurance of quality supply. Regardless of natural disaster or a strike at a port, companies need products and services from their suppliers in order to please the end customer.

So how can a negotiator help? In most cases, certainly when issues like limited supply, physical distance, transportation mode, international borders, political instability, and/or differentiation with an end customer group are issues, an expert negotiator will make delivery one of their top concerns. It sounds so obvious yet it’s often overlooked. If I had to guess, I’d say it’s because human beings tend to operate under a glass-half-full scenario. After all, you’re negotiating with your first choice, things are rosy!

Using the glass-half-full momentum to your advantage, an expert buy-side negotiator will make sure they include language that states their company will get priority after any interruption. I’d start by asking for my orders to be filled 100 per cent before the supplier produces or ships for any other customer. Another priority might be how expedited freight will be handled. I was a part of one international negotiation early in my career that involved shipping steel on a 747 from the US to Germany and back just to avoid the penalties involved with consequential damage to the automotive industry. They did a great job negotiating, while the best I can say for us was we found an opportunity to improve.

No one can be held accountable for knowing the future with certainty but we can hold ourselves accountable for asking “if (when) a problem occurs, how can we make the best of it?” Then take practical steps to both improve our own efficiency and minimise bottleneck risk.

? Mike Inman works internationally as a professional negotiation instructor and advisor with TableForce. Previously he was a head of global procurement for MGM Resorts International and IAC/InterActiveCorp

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