A huge hidden profit opportunity for businesses is better negotiated purchase prices for their raw materials, services, and components. This opportunity is hidden because a company and people don’t know what they don’t know. How should a large reduction in raw material cost change the price of the components that use that material? What is the impact of my volume on this vendor’s manufacturing costs? Having an expert provide business negotiations training to your purchasing team on proven negotiation tactics combined with a proven negotiations template can be one of the best training investments your organization will ever make!
The existence of having a strong BATNA, Best Alternative To a Negotiated Agreement, is a very powerful tool for a negotiation, but I am here to tell you it is not a necessity for a skilled negotiator to achieve outstanding results. I like to think of BATNA as my plan B if the negotiation fails and the two parties cannot reach an agreement. It is a safety net and one, of many potential, leverage points. Most of the time for purchasing managers your BATNA is moving the business to an alternative vendor, moving the job in-house, or using a substitute part. Having a competitive bid from an unqualified source is a very soft BATNA unless you can move to that option quickly.
For some companies and supply chains you can develop strong BATNAs very quickly and inexpensively because the new part/new vendor approval process is not very onerous. But, for many industries that are heavily regulated, the cost to even approve a single new part from a new supplier is very time consuming and costly. Much less the cost of approval for the full list of parts from a supplier.
I have worked with several co-workers who felt they had no leverage on vendors in these types of supply chains. The situation seemed hopeless to them. I inherited a situation similar to this where I was given the responsibility to drive down the cost of purchased components. We had a heavily regulated business with a very difficult process to approve a new part/vendor, and where almost 100% of the components were singled sourced. It took a lot of creativity to generate and apply leverage on the supply chain to extract price reductions. Over a 20-year period my team and I were able to consistently drive down costs when most of the time we had no or a very weak BATNA. Over time we did invest resources to improve our BATNA situation, but until then necessity was the source of our negotiations creativity.
One of the first steps I did, to the best of my ability, was to insist all discussions related to component prices came through me or my team. Keep engineers and other managers out of discussions on price unless you invite them into the conversation. Salespeople love to use both groups of people to mine competitive information, or lack of competitive information. This can be a tricky task, especially with executive management, but let them know if you are going to be held responsible for cost reductions, you need to be in control and aware of all price/cost discussions. Then one of the tactics I first used was to build some source of ambiguity with the sales person regarding the complexity and competitiveness of the supply chain. Competition and even the threat/appearance of competition are strong motivators to get a sales person to the negotiations table, and is just one of many leverage points I outline in my new book, Negotiations – Prepare to Win – an Analytical Approach. Many of the leverage points I outline in the book have nothing or little to do with the concept of BATNA.
They deal with business climates, business volume, cost of raw materials, exchange rates, manufacturing processes, relationships, etc., and were developed and deployed by me as a matter of need given the reality of the situation I found myself in. These leverage points and the template I outline in the book were very successful.
If you feel your purchasing team and organization could benefit from effective business negotiations training, please contact me. To receive a free excerpt and table of contents of my book and additional information on the consulting services I provide please visit my website.
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