By Ken Lambert
Credit to: https://kodiakrating.com/2020/11/26/a-new-age-of-negotiation/
Most of us in technical sales are quite familiar with CRM software and technology, and how that assists us in our daily and weekly jobs and tasks. It can help us work more efficiently and also can point us to the more likely “winning” opportunities.
Likewise, savvy companies (owners) are doing the same thing from the other side of the aisle. There are several SRM (Supplier Relationship Management) software programs out there which are geared to a variety of outputs which help compare us vendors and help the owner make the best, most objective, and quickest, decision. It is worth getting behind that curtain to see how companies make purchasing decisions. In many cases, it is not just a “gut decision”. The following excerpts are from Kodiak Rating :
Emerging procurement theory suggests that creating win-win situations within buyer and supplier agreements are the best ways to create long-lasting, engaging, creative, collaborative, and innovative partnerships.
The HBR Article titled ‘A New Approach to Contracts’, published in 2018 utilizes the agreement between Dell & FedEx to illustrate how a buyer-supplier relationship and agreement can turn a partnership sour quickly.
A “100-page-plus document was filled with “supplier shall” statements that detailed FedEx’s obligations and outlined dozens of metrics for how Dell would measure success…..
By the eighth year, the parties were at the breaking point. Each lacked trust and confidence in the other, yet neither could afford to end the relationship. Dell’s cost of switching to another company would be high, and FedEx would have trouble replacing the revenue and profits the contract generated. It was a lose-lose scenario” (HBR 2019).
FedEx simply became Fed Up (pun intended) with the terms & conditions of the agreement, and the collaboration never proved to be fruitful for either party involved.
Language like ‘supplier shall’ and pre-defined performance/penalty metrics are classic terms within buyer-supplier agreements. Many agreements are negotiated with an aim to take collateral within the scope of work, from the very beginning of a partnership, to manage risk, align expectations, and enhance profit margins. The rigid edges of this double-edged agreement may seem like a nice shiny means of protection but can end up cutting deep into your supplier relationship just as easily as it can safeguard your interests.
Co-authors of the article David Frydlinger, Oliver Hart, and Kate Vitasek suggest that “the remedy is to adopt a totally different kind of arrangement: a formal relational contract that specifies mutual goals and establishes governance structures to keep the parties’ expectations and interests aligned over the long term. Designed from the outset to foster trust and collaboration, this legally enforceable contract is especially useful for highly complex relationships in which it is impossible to predict every what-if scenario.”
The world is evolving, procurement is evolving, buyer-supplier relationships are evolving and so should the ways that we negotiate & contract. The way I see it; profits aren’t very profitable if they’re made at the expense of people or the planet.
We’re entering into a new age of negotiation and agreements; what’s in it for me is evolving into what’s in it for WE.
Just as negotiation tactics are moving from ‘what’s in it for me’ to ‘what’s in it for we’, suppliers are moving from ‘vendors’ to ‘partners’.
You know this as much as I do, but it’s important to sometimes say the obvious out loud; Suppliers are Collaborators.
A value chain is a harmonious engine of various moving pieces that would stop dead in its tracks without a solid foundation of supplier relationships & collaboration.
Supplier collaboration isn’t a novel area of focus. Early-adopters & innovators of their time have long reaped the benefits of expanding on supplier collaboration initiatives. “In 1989, when Chrysler was fighting for its life, its president of operations, Bob Lutz, and its vice president of procurement, Tom Stallkamp, brought in 25 of the company’s biggest suppliers and asked for their help in reducing costs. “All I want is your brainpower, not your margins,” Lutz told the suppliers. Buyer-supplier collaboration caught on at Chrysler, thanks to the company’s willingness to share the benefits, and in the ensuing decade, the program (called SCORE, for Supplier Cost Reduction Effort) produced billions in savings” (BCG 2013).
Sometimes the easiest way to allocate savings & profits is to bring suppliers into the conversation rather than cutting suppliers out of the equation.
When it’s all said and done, negotiations and buyer-supplier agreements always come down to 3 areas of discussion and concession: Time, money, or things.
Negotiations are opportunities to reach a consensus between a buyer and supplier. There is no consensus without compromise, and in negotiations parties often need to give and take.
What are your rules of engagement as a procurement team within negotiations? Do you negotiate to receive saving/cost reduction opportunities at the expense of your suppliers?
Understanding where there are opportunities for compromise, rather than entering with preconceived notions of a necessity for compromise will put you in negotiations where parties are looking to amicably find solutions within the framework of the agreement rather than trying to achieve a victory.
As a buyer & supplier within a new age of negotiation, finding a middle ground, conceding & agreeing within the 3 areas should be a top priority in all negotiations, because shared value is the best kind of value creation.
Enhanced digital capabilities & technology have enabled procurement professionals to bid & negotiate with a whole new level of transparency and visibility into supplier offerings.
A more intelligent age of negotiation is upon us, and it’s important that technology becomes a means to not only negotiate smarter but to procure more responsibly.
Solutions such as Kodiak Rating and others enable merit-based negotiation power; allowing users to gain supplier ratings & analytics to negotiate based upon real compliance and supplier performance. Reward those who award you with service and are well-aligned with working towards a common goal.
Best-of-breed solutions like BidOps and others exist within the space of cognitive/AI-driven negotiation and sourcing.
Application of AI technology within bidding & negotiation gives your procurement teams cognitive capabilities to suggest pricing and timing within negotiations with suppliers.
As the saying goes, 2 heads are always better than one. Mixing Machine Intelligence with Human intelligence = strong category competency and negotiation experience with fact-based bidding trends.
(end of Kodiak excerpt)
Key elements that Kodiak tracks for companies include, but are not limited to:
- Supplier data properties and attributes
- Process & Contract compliance
- Insights from 3rd Party sources
- Risk updates
- Notifications and “red flags”
- Supplier engagement
- Supplier Performance Evaluation
- Supplier Ratings
- Monitoring and Follow-up
There is a lot there, and science and data has become a key part of purchasing decisions for many companies. We need to be aware that if we are in a room with a small group for a sales presentation, we may in fact get the technical win, but there still may be many roads to cross to attain the actual win- the purchase order or contract.
The bottom line is that for the most part, everything is tracked these days. Knowing what is considered on the “other side” will help you in reducing the potential 11th hour loss.