If the last few years have taught procurement professionals anything, it’s that supply chains are fragile and good relationships are golden. While we might be seeing some relief in terms of supply chain stressors, we’re not quite out of the woods yet.
So, how can procurement teams make the most out of these often complex situations and come out on top? It all comes down to negotiation skills training.
The right procurement negotiation training will empower individuals to search for common ground, balance their initial mindset of self-interest with a desire to collaborate and find the right strategies to reach win-win outcomes.
Here at RED BEAR, we teach a negotiation methodology based on the Principles and Behaviors of successful negotiations. It’s the same training utilized by 45% of the Fortune 500, and for one reason: it gets results.
When it comes to procurement negotiations, what do teams need to know to navigate these discussions and build long-term value? Let’s explore the role negotiation skills training plays in everyday procurement environments and why RED BEAR’s training workshops offer value that your team can take with them into any negotiation — whether it’s with international suppliers or internal team members.
The Importance of Relationship-Building in Procurement
While managing supply chain turmoil is becoming an easier task, 67% of organizations still say meeting expectations for delivery speed will impact the structure and flow of supply chains through 2024.
Developing and nurturing long-term relationships with suppliers provides a buffer against these issues, as well as all the other challenges procurement professionals face. More importantly, it positions your team to secure favorable terms and make the most out of each deal.
Skilled negotiators understand that the value of a strong relationship outweighs the benefits of a short-term win.
When procurement teams build robust relationships with suppliers and other parties, they can bolster a company’s financial resilience, increase vendor accountability, and create systems to optimize working capital. Let’s break these down a little further:
- Cost Savings: When negotiators build strong relationships, they can develop more beneficial pricing structures because suppliers are more open to offering favorable terms or willing to prioritize needs during high-demand periods.
- Vendor Accountability: Suppliers are more likely to uphold high standards in quality and delivery timelines when they value the relationship.
- Optimized Working Capital: With improved terms, such as extended payment periods, businesses can focus on more strategic capital management.
“When procurement teams build robust relationships with suppliers and other parties, they can bolster a company’s financial resilience, increase vendor accountability, and create systems to optimize working capital.”
It all starts with the right negotiation skills training. Here at RED BEAR, our goal is to offer your team the skills, tools, and behaviors they need to craft profitable, value-based agreements with suppliers. Purchasing is more than just cost savings. The right training will enable growth, impact financial performance, and, most importantly, build profitable supplier relationships.
Ask yourself: who would you rather work with? Is it the team using manipulative tactics and aggressive strategies to undercut at every corner, or is it the team showing their commitment to building up the relationship and finding mutually beneficial wins?
The Principles of Successful Procurement Negotiations
How can procurement teams build these valuable relationships? It’s not a matter of just being liked; it’s a matter of approaching each situation individually with the goal of balancing one’s own self-interest with a desire to collaborate and find common ground.
That’s where RED BEAR’s Negotiation Principles come into play.
Now, we’ve explored the Principles in past posts so that we won’t dive too deep into the definitions. Instead, let’s explore these Principles in the context of procurement negotiation and uncover why these strategies are the keys to long-term success.
Position Your Case Advantageously
Positioning your case advantageously simply means setting a strong foundation for negotiations. Here is a practical example.
Let’s say a procurement team is negotiating a large-scale purchase. They present a detailed analysis showing that bulk purchasing will not only cut costs by 15% due to volume discounts but also streamline inventory management, leading to a reduction in administrative tasks.
They present the case not only as a financial win but also as an improvement in operational efficiency.
Set High Aspirations
Aiming high leads to better negotiation outcomes.
By setting high aspirations, a procurement manager might aim for a 20% discount on raw material purchases. They start the negotiation with robust market research to support the feasibility of this heavy discount.
While this is a high target, the procurement manager is prepared to accept a 15% discount. Starting negotiations with the higher target sets a favorable anchor point, making even the lower, yet substantial, discount feel like a success.
“Starting negotiations with the higher target sets a favorable anchor point, making even the lower, yet substantial, discount feel like a success.”
Manage Information Skillfully
While building trust is important, divulging too much information too quickly can be detrimental. Always use discretion when sharing and uncovering information for an advantage in negotiations.
This might be withholding certain information, like the maximum budget or the existence of competitive bids, to create an advantageous position. On the flip side, revealing too much too fast can weaken one’s negotiation stance. When procurement teams carefully disclose and uncover selected information, they can better steer negotiations favorably.
Understand Your Power
Power comes in many forms in a negotiation. When negotiators recognize and leverage their own strengths, they are better positioned to reach successful outcomes.
There are six sources of power in any negotiation, but for now, let’s focus on organizational power; the power that stems from an individual’s position in an organization or the reputation a brand carries.
Let’s say a procurement team from a large and well-respected organization starts negotiations with a supplier. They might use this reputation to negotiate better terms. The team understands that its partnership is valuable and leverages its high-volume orders to negotiate lower prices or exclusive access.
Prioritize Needs Over Wants
Needs and wants, while similar, are quite different in practice. Often, the other party won’t overtly explain their needs, that is to say, the reasons behind their actions. As a negotiator, your goal is to uncover these underlying needs.
A procurement team is negotiating with a supplier for a materials purchase. The supplier insists on a higher price than the team’s target. But, after some digging, the procurement team uncovers that the supplier faces higher than normal raw materials costs. This is a common problem as prices for raw materials, while lower than in previous years, are still much higher than pre-COVID numbers.
Understanding this, the procurement team might agree to the higher price for a commitment from the supplier to maintain quality standards. In return, they offer commitments for bulk orders to help the supplier maintain steady revenue. The ‘want’ may have appeared at face value as a desire for more money, but in reality, it was a ‘need’ to stay competitive in the market and break even in a high-cost environment.
Plan Your Concessions
A well-planned concessions strategy is essential in procurement negotiations. Giving up points can build trust and rapport. But don’t offer anything up without asking for something in return.
Here’s a scenario: a procurement team is working with a software vendor. While the vendor’s quote exceeds their budget, the team accepts a 5% cost increase over their target. In return, they negotiate a two-year price lock and additional post-sale support to ensure price stability and reduce future costs. But, this didn’t just happen in the moment; the procurement team had these negotiables planned well ahead of time, putting them in an advantageous position during discussions.
Start Your Negotiation Skills Training Journey with RED BEAR
Negotiation skills training is the key to unlocking optimized outcomes in procurement. By leveraging RED BEAR’s Negotiation Principles, your team can weave through the complexities of procurement negotiations with confidence and ease while building long-term relationships that produce results repeatedly.
That’s the value of RED BEAR. For every dollar invested into our workshops, our clients receive, on average, $54 back.
Get started on your own procurement negotiation training journey by getting in touch with the RED BEAR negotiation experts.
