Perhaps purchasers have it pretty easy during a recession – the perception tends to be that buyers have more power than sellers and they use it. Suppliers get beaten with a club to achieve cost savings.
But no matter how big the competitive (“red” in ENS International terminology) club is that purchasers use, eventually either:
- no further savings can be achieved (without the risks of corners and quality being cut or supply becomes uncertain)
- or, as we come out of the recession, the perceived power of balance shifts to the sellers.
If we are going to come out of the recession, purchasers need to change their procurement negotiation strategies before the buyers sense the potential shift in balance in their favour.
Co-operative Negotiation Strategies
Either way purchasers will benefit most if they start adopting more co-operative (“blue” in ENS International terminology) negotiation strategies. Savings and efficiencies will now be achieved by working with suppliers towards joint goals and joint gain. This is a very different skills set. To change negotiation strategies not only requires different negotiation skills, but also requires subtle influencing. This means changing the mind-set of the sales person, changing the relationship, anchoring different approaches and shifting from short-term to long-term.
A real example
A client of ours spends a large budget on uniforms. Over the last four years the cost per uniform has dropped significantly and the appropriate commodity purchaser has been praised. Someone has noticed that the uniforms don’t seem to last nearly as long and so did some investigating and found that the cost per wear has increased significantly. The commodity purchaser for uniforms was informed and he challenged the uniforms supplier. The uniforms supplier did their own investigation and reported back that it was not their fault, but the poor handling and inappropriate cleaning by the laundry supplier. Laundry comes under services purchasing and so the services purchaser for laundry challenged the laundry services supplier. The laundry supplier did their own investigations and reported back that they were not to blame it was the poor quality of the material and workmanship of the uniforms’ manufacture.
External threats and internal friction
So now we had a situation where not only were the purchasers threatening each supplier, but there was internal friction between one of the commodity purchasers and one of the services purchasers.
ENS International were already engaged in this company, so got involved in this negotiation as a side issue. We advised a more collaborative approach to really understand what both suppliers were saying, and what each would want to make the uniforms’ supply and use more effective. These conversations were to get ideas about potential solutions but more importantly to change the relationship from one of blame and threats to inclusion, working together and jointly agreeing a mutually beneficial solution. With this new relationship they were willing to attend a joint meeting of the uniform supplier and purchaser and the laundry service supplier and purchaser.
The agreement was an improved specification for the uniforms and slight modifications to the process used by the laundry.
- This increased the cost of the uniforms by 12% – something the uniforms purchaser admits he would never have agreed to independently – and doubled the life of each uniform on average
- By getting all parties working together (co-operatively) we had achieved a cost per wear efficiency saving of nearly 40%.
- An added and unexpected bonus was that the staff much preferred the better quality uniforms.
Purchasers will need to change their purchasing negotiation strategies for some supplies over the next year. Those that don’t have the skills to do this effectively will get left behind by those who can. How much commercial psychology do you utilise in your purchasing negotiations?
To discuss this article in more depth and explore options for negotiation skills training, please contact us via email or call +612 9299 9688.