Are your procurement negotiations up to the mark? Do you want to enhance your negotiation skill to improve your vendor performance?
Procurement negotiation can work wonders if it’s a delicate balance of act. The skills to negotiate often seem at odds with one another. You must be straightforward but smart and persistent at the same time.
Most of the potential and existing suppliers hesitate to engage in any conflict. But the negotiations are not combative, initiating a vendor’s negotiation is a key skill in numerous procurement roles. Whether you work in a direct or indirect procurement, being able to negotiate has a gigantic impact on success.
According to Red Bear Negotiation, approximately 65% of procurement professionals report that their negotiation efforts result in favorable agreements more than 80% of the time.
Lets you explore the advantages of negotiating with suppliers and vendors. These tips and tricks will help you increase confidence during vendor negotiations.
Procurement Negotiation Basics
What is procurement negotiation?
Procurement negotiation is the process of agreeing on mutual terms among a buyer and a seller. Communication often goes back and forth between both the parties until they decide on an agreement.
In the procurement cycle, negotiation happens after vendor selection just before signing the contract. Supplier contract negotiations are crucial to avoid rework and redlining. Also the initial negotiation helps to build strong relationships and for discussion of contract renewal incase of existing vendors.
Additionally, for a more comprehensive approach to vendor selection, check out our blog on ‘Vendor Selection Criteria,’ where we provide 7 expert tips.
Common negotiation points
The common considerations for negotiations are :
- Cost
- Contract length
- Payment terms
- Contract volume
- Delivery/implementation timing
- Vendor performance metrics
Item of negotiations based on your project and your organization’s needs.
Key negotiation skills
In the sourcing process, negotiation experience is highly prized. Successful negotiation requires a combination of professionalism, soft skills and emotional intelligence. Below are some of the skills and traits that make a good procurement negotiator:
Communication
Knowing what and when to say is the essential part of successful negotiation. You must clearly negotiate your goals, needs, values and requests in a professional manner. Also, the ability to persuade go hand in hand when it comes to vendor negotiation.
Research and organization
By nature procurement experts are highly organized and trained researchers. When it comes to negotiations these skills with attention to details are required in every phase of procurement procedures. Whether it is exploring market trends or gathering competitive insights, prior research brings a massive change in overall result.
Creative Problem Solving
Negotiating with vendors is not like a bed of roses. Instead, a number of factors must be considered while discussing your favorable term that vendors might agree to. In this scenario, the positive approach and little creativity to problem solving can make things less hectic.
Empathy
Negotiating is not always a win-win situation, instead find a way out for agreements being mutually beneficial to make sure long term relations turn into more productive partnership. That’s why the ability to empathize with your vendor is significant for mutual success, encouraging collaboration and building reputations as a reliable negotiator.
Strategy expertise
According to research by procurement tactic, Companies that invest in negotiation training saved 7-12% cost on procurement spends. The sourcing agents must keep procurement strategy in mind to focus to meet the desired objectives and it’s important not to get hung up on details forgetting the main goal all together.
Why is negotiation advantageous in procurement?
The main objective behind procurement negotiation is to bring vendor and supplier on one page and to draft an agreement beneficial for both.
Benefits often include:
- Cost Reduction – Agreeing to a comparatively lower price
- Increased value – Including additional features
- Accelerated timelines – Speeding up the vendor’s time to value
- Mitigated risk – Establishing processes and procedures to guarantee success
- Improved performance – Defining vendor and buyer expectations
Tips for successful negotiations
Define your goals
Before thinking about negotiating, your goals must be clearly defined. Be consistent and specific throughout the process. Don’t vaguely wish for breaking the best deal instead establish deal breaker factors. For example, ask for the latest acceptable date and maximum acceptable price per user. It can be a better option to opt for RFP evaluation criteria to follow this process. You must know what you’re trying to achieve to avoid prolonged discussion.
Centralize communication
Most of the time vendors are in contact with various employees in the organization. It is important for the stakeholders to process subsequent vendor negotiation through RFP and conduct direct negotiation to work throughout the process.
Centralized communication through RFP fosters a fair and transparents process while verifying the documentation and making sure that stakeholders don’t accidently tip their hand ahead of negotiation.
Keep participants confidential
Meanwhile the vendors should be aware about the entertaining offers from other parties, it’s better not disclose the participants as there are chances they might get familiar with competitors strategies, so it may be leading to unjustified opportunities. RFP allows vendors visibility and helps to level the playing field.
Practice patience
If you can leverage flexibility with your RFP timeline, it may be beneficial to schedule negotiations near the end of the month, quarter or year. You will almost certainly secure a better deal because sales teams are more empowered to offer discounts. However, only use this strategy if you are able and ready to buy within the given time frame.
Stay professional and courteous
This process may feel adversarial, your goal is to secure a deal and work as a team with vendors coming forward. Be level headed and professional throughout the process.
Clarify next steps
After the conversation take note of all points that are agreed on and those still need to be settled. Send a recapitulation email about the responsibilities of the next step. Fix the timeline and discuss the functionality of upcoming short term goals. Be sure to be very clear about the deadlines.
Have a backup plan
Discussion and conversation dont always end up in an agreement. That is why it is important not to send vendor rejection emails before you are completely done with the communication. Back up plans are crucial to provide the ‘best alternative to a negotiated agreement’ (BATNA).
Contact BrandNewMD for expert consultation and get prompt assistance about the vendor rejection process and other procurement procedures.
