The Essential Strategies for a Successful Procurement Negotiation

Written by Jane Koh Lye Choo, DPSM

by Jane Koh Lye Choo, DPSM

The Essential Strategies for a Successful Procurement Negotiation

Written by Jane Koh Lye Choo, DPSM

by Jane Koh Lye Choo, DPSM

by Jane Koh Lye Choo, DPSM

In today’s hyper-connected and increasingly competitive market, the ability to negotiate effectively is more highly valued than ever before. Negotiator plays an important role in every successful organization. This is because a good negotiator can close the best deals, leading to the advancement of an organization, improved supplier relationships, sustainable competitive advantage and managing conflicts effectively which are all advantages of successful negotiations.

Clearly, negotiating skills are important in business. Poor negotiation can cripple a company just as quickly as losing key customers. The good news is that negotiation skills can be learned and practiced for better results. This can be done through innovative training, development programs or even self-disciplinary.

A Matter Of Mindset And Emotions

A negotiation mindset is beneficial for everyone from clients to employees. We must also negotiate with ourselves, be aware of instinctive reactions (psychological and physical), in order to regulate them and respond consciously and appropriately to the circumstances so that we get the best result.

Imagine you’re about to negotiate with a competing firm about a possible merger. You enter the conference room and find a reasonable and fair representative from the other company, but you’re in a terrible mood: on the way to work, you were rear-ended by a distracted driver talking on his cell phone. As you sit down at the negotiation table, you contemplate the hassle of repairs and insurance claims. Even though you’re still seething, you’re certain that you can separate your rage and emotional triggers from the task at hand. But can you? Probably not. Emotions of all types alter our thoughts, behavior, and underlying biology.

In negotiations, the fact that integral emotions—feelings triggered by the negotiation itself—affect outcomes is well documented. For instance, if you found yourself negotiating with an old nemesis, you would experience integral anger. We now know that incidental emotions, or feelings unrelated to the negotiation at hand, also can have a significant effect on negotiations.

The triangle approach to negotiations treat the negotiation not as a “tug of war” where you and the other party are digging your heels in and trying to pull things in your direction – but as a triangle where the issue to be negotiated is actually the third point of a triangle i.e. it’s separate from the two parties. The two parties might see the situation from slightly different angles, but can work together to understand the other’s view, establish commonalities and solve the issues as partners. This is a highly effective way to depersonalize the issues and adopt a collaborative, problem-solving approach to negotiations.

Create Win-Win Situations

Contrary to what some believe, negotiation skills are not about beating the opposition out of the other party. In fact, the best negotiators are the ones who are able to create win-win situations, in which everyone walks out thinking that the deal is a good one. While the ability to aggressively get what one wants might seem like a victory at the moment, the reality is that the lack of goodwill generated by this can cause problems down the road.

There is no question that finding a deal which makes everyone happy is difficult, but this is exactly why it is so highly valued. Do not agree with your counterpart’s demands too quickly; do spend time to understand for a more amicable agreement. Acknowledge your counterpart’s perspective. You may invite another party to express his views, suggest alternatives and react to initial proposals. Avoid escalating expectations as this could lead the other side to expect another. By using the possible delay agreement, concessions may enable a more satisfied a deal.

The conflict table shows situations on several possible negotiations outcomes. Focusing on the “You Win – I Win” strategy is highly encouraged!

3 Negotiation Factors for Greater Impact

• Building trust: Successful negotiators who are open, speaks honestly and acts legally build trust in the most effective way. Put in efforts to learn about your counterparts. Prepare yourself prior negotiation sessions. Respond in a reasonable time frame. Act and speak sincerely during interactions. Follow up on important matters.

• Earning respect: The master negotiator not only understands but also acknowledges her counterpart’s situation and her expectations for the negotiation’s outcome. If a matter is important, don’t say it’s important and then not make the connection. Communicate in the same language can smoothen discussion. Allow your counterpart to respond and react. Responding in a timely manner underscores the value of respect. Commit to confidentiality and understand the consequences of failing to deliver.

• Gaining your reputation: Effective Negotiators realize that their reputation is not just a backdrop, but a tool. It goes without saying that you should never lie, cheat or steal. However, it is shocking how many do such things in the corporate world. Don’t violate company policy. Submit only legitimate business expenses on your expense reports. Make personal calls on your own time and send personal packages on your own dime. Use your computer for company business and not for online shopping. You will build your credibility when you behave ethically.

Going on Digital Procurement Negotiation

A procurement negotiation function relies on big data and advanced analytics to drive insight and bolster decision-making. Executives often receive more than 100 emails each day, ranging from the trivial to the crucial. As we all struggle to keep up with the constant flow of data, it’s not surprising that trusting, collaborative online negotiations are rare. Without an advanced information management capability, obtaining agility is almost impossible. The crucial factor comes down to technology when determining the most effective of procurement companies.

Digital supply chain procurement comes in the ability to outpace and outperform companies that aren’t taking advantage of the technology. The benefits of digital procurement are non-doubt substantial and inarguably although building a digital procurement organization also requires a big investment.

Using technologies to dig deeper into more contextual information about is foundational to building AI-enabled predictive models that help enhance the negotiation process and improve future decision making. For example, for a retailer that has many brick-and-mortar storefronts, a contract management tool could analyze a variety of rental contracts to identify average price per square foot, the efficiency of space, sales per zip code, etc., in order to make future recommendations on negotiation goals.

The Five Negotiation Styles

People often ask, “which is the best negotiation style?” As with much management theory, there is no single “best” approach. All five profiles of dealing with stressful and high-pressure negotiations are useful. Determining which one to use depends on the given situation. Although we’re capable of using all five, most of us tend to have between one to three preferred styles. We tend to use these unconsciously in negotiations. Our temperament (nature) or our upbringing (nurture) can also affect which negotiation styles we prefer.

Let’s explore each of these 5 important negotiation profile styles to understand which style to apply during different negotiation scenarios.

1. Competitive Style

I Win – You Lose: Competition can be an effective defense against negotiators with a conflict profile. Commonly used when it is non-negotiable and needs immediate compliance. However, it is recommended to use a blended approach. Both sides locking horns in a competitive battle can result in a spiraling deadlock.

2. Collaborative Style

I Win – You Win: Collaboration requires more time and needs to be at the right level. Find a mutually beneficial balance between own needs and the other party’s. Use when a relationship and your market reputation are important. Recommended to use for high-risk deals (e.g. new market or new product or both.) You could also build a relationship at another level of their organization. The same advice goes for buyers in reverse.

3. Avoiding Style

I Lose – You Lose: The avoiding style can be a typical reaction to high compete negotiators. Use this style when the value of investing time to resolve the conflict outweighs the benefit and the issue under negotiation is trivial to both parties. Best to use to calm down a difficult conflict situation or stalling time is also a common sales tactic when knowing the buyer urgently needs our product or service. Be cautious though as mutual resentment may build-up, leading to losing deals.

4. Accommodating Style

You Win – I Lose: For accommodating style negotiators, the relationship is everything. It can promote or create strong, enduring and harmonious relationships. Accommodating profiles think that the route to winning people over is to give people what they want. By usually giving away value early in the negotiation, the other party may assume that if the goal is unimportant. It is easily seen as a sign of weakness by high compete negotiators but sometimes the best option is to concede gracefully.

5. Compromising Style

I Win/Lose some, You Win/Lose Some: Compromising often involves one or both negotiators settling for less than they want or need. This can result in an end position of roughly halfway between both sides’ opening positions. Whichever negotiator starts with the more ambitious opening position wins the compromise. So, calculate early on who stands to gain if it comes down to compromises.

Conclusion

The goal of a negotiation is to get the best deal possible for you and your organization. Learning how to be an effective negotiator can be challenging, which is why it is always great to have tools at your disposal that can assist in that goal.


References

Chew Jin Swee. (2018). “Essential Strategies for a Successful Procurement Negotiation”. Retrieved from SIPMM: https://sipmm.edu.sg/essential-strategies-successful-procurement-negotiation/, accessed 10/06/2019.

Chris Banschbach, Kristin Ruehle, Alison Detwiler and Tom Fahey. (2017). “Digital procurement: The future begins today”. Retrieved from https://www.accenture.com/us-en/blogs/blogs-procurement-ruehle-detwiler-fahey-banschbach, accessed 17/06/2019.

Jacobo Ducay Ferré. (2017). “Negotiation: A Matter Of Mindset And Emotions”.Retrieved from https://www.ie.edu/insights/articles/negotiation-matter-of-mindset-and-emotions/, accessed 17/06/2019.

Harvard PON Staff. (2019). “Emotional Triggers: How Emotions Affect Your Negotiating Ability”.Retrieved from https://www.pon.harvard.edu/daily/negotiation-skills-daily/how-emotions-affect-your-talks/, accessed 30/6/2019.

Harvard PON Staff. (2019). “How To Negotiate Online”. Retrieved from https://www.pon.harvard.edu/daily/negotiation-skills-daily/how-to-negotiate-successfully-online-the-challenges-of-virtual-negotiation/, accessed 30/6/2019.

Tang Wei Wen. (2018). “Key Challenges for Effective Procurement Negotiation”. Retrieved from SIPMM: https://sipmm.edu.sg/key-challenges-effective-procurement-negotiation/, accessed 10/06/2019.

Stuart R. Levine. (2015). “5 Ways To Earn More Money By Improving Your Reputation And Gaining The Trust Of Your Colleagues”. Retrieved from https://www.forbes.com/sites/forbesinsights/2015/11/20/5-ways-to-earn-more-money-by-improving-your-reputation-and-gaining-the-trust-of-your-colleagues/#6431413f7bc7, accessed 17/06/2019.

About the Author: Jane Koh Lye Choo has substantive years of experiences in the field of administration and procurement, specifically in the semiconductor industry. Jane is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Procurement and Supply Management (DPSM) in June 2019 at SIPMM Institute.

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