How do you approach negotiation as a procurement professional? Do you go in looking to get the best deal possible? What does it even mean to get the best deal? Unfortunately for many procurement departments, getting the best deal means getting the lowest price possible. Procurement departments are still largely measured on how well they control cost, and procurement professionals are evaluated on the savings they have managed to secure.
Welcome to the game versus game!
Procurement professionals enter a negotiation with the mindset of a versus game. It is procurement professional versus the vendor, and the win condition for the procurement professional is often to get the lowest cost possible for the contract. However, the lowest cost approach is not the approach that necessarily leads to the best value. To get the best value out of a contract negotiation, procurement professionals must rethink what it means to compete because, increasingly, collaboration is the new competition.
To understand how collaboration can help you, we must first understand how blind competition for “the best savings” can hurt you. Suppose for a moment, that you need to obtain a hundred sensors for your fleet of one-hundred trucks. You also need a service contract with the company supplying the sensors as they will gather the data generated by the sensors, and transform it into meaningful insights within your organisation’s logistics.
Now,… you could beat-down the vendor on price and obtain the sensors at the lowest price possible and you can also drive a hard bargain on the data service contract. Although driving a hard bargain may yield cost saving, it may not give you the best value.
They need to keep the lights on.
Take a moment to empathise with your vendor. They have the right to keep their lights on too!
If you drive the price of the sensors too long, you may get cheap sensors that won’t last long, meaning that in the long run, your organisation may end up paying more through needing to replace the hardware more often. On the service front, driving too hard a bargain might cause the vendor to “nickel and dime” you on all additional services and upgrades or, as is all too common, make their money through overpriced support contracts. So we have to ask ourselves, who is winning this negotiation? Are there any winners?
Game intertwined with game – this is collaboration.
Both our society and our economy are highly complex, interconnected systems where competition is increasingly the losing strategy. Instead, there is money to be made in collaboration where firms that can build, manage and widen connections win out . Take for example the case of Samsung and Apple. Apple launched the iPhone X to great fanfare, and Samsung’s stock went up. Why? Because Samsung is in Apple’s iPhone procurement chain. Samsung is the only company that can supply Apple with the OLED screens at the volume which Apple demands.
Samsung wins when Apple wins, despite the fact that both are direct competitors in the smartphone market. Of course, the Samsung and Apple example is not a perfect example of collaboration winning over the competition. But it highlights the complexity and interdependence of our current economies. Samsung could try to deny Apple access to their OLED manufacturing facilities and keep their OLED screens for their Galaxy range of phones alone. Indeed, not too long ago, Samsung might well have tried to keep exclusive access to their OLED screens. But today, the benefits Samsung might gain from having exclusive access to the OLED screen is far outweighed by letting Apple have the screens too.
Let us return to our example of the sensors for trucks in our fleet. If we are not, as procurement professionals, consumed by the need to deliver savings and are not judged solely on our ability to control costs what additional values can we generate for our organisation through a more collaborative and empathetic negotiation?
Comprara helps organisations gain more ground. We support you and your team build your negotiation strategies helping you to expand your procurement department’s outlook deliver greater value through collaboration.
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Let’s collaborate, let’s start with a chat!
Phone +61 (03) 8547 3940 | Email: info@comprara.com.au
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