Key Success Factors for an Effective Procurement Negotiation

Written by Fay Khoo Yock Fan, GDPM

by Fay Khoo, GDPM

Negotiation skills are an important part of doing business, especially in an increasingly competitive market. Both buyers and suppliers could make a deal that benefits both parties. Importantly, procurement negotiation requires parties to communicate and understand each other’s expectation. Thus, this can reduce disagreements and enable a good working relationship between both parties.

Effective procurement negotiations build stable business relations, avoid conflicts and more importantly, work towards a win-win situation for profitable outcomes in both companies. Successful negotiations require preparatory research through intelligent and reasoned planning. Without negotiation planning, this is analogous to a company trying to fumble its way through a dark and unfamiliar room.

Typical framework towards a successful negotiation

The diagram above shows a typical framework towards a successful negotiation.

Below are six key steps to guide an approach for planning the procurement negotiation.

Step 1: Understanding why we need to Negotiate

Procurement professionals need to understand the purpose for negotiation, and this can be established through prioritizing and ranking our objectives. They should also attempt to follow the same process for the other party. This understanding should be based on all the intelligence that can be gathered about the other party. It may either be an estimation of their objectives, or a fairly reasonable guess. Likewise, there is also a need to rank and prioritize what is perceived as the needs and objectives of the other party. This first step enable procurement professional to consider possibilities about a potential and beneficial outcome for both parties.

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About the Author: Fay Khoo has substantive years of experiences in the field of procurement, and especially in the oil and gas industry. She is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Fay holds a Diploma in Procurement and Supply Management (DPSM) and she is a candidate for the Graduate Diploma in Procurement Management (GDPM) at SIPMM Academy.