Procurement negotiation has much to gain from understanding and applying the 10 best practices that form the basis of the negotiation programme at the world-renowned Harvard Law School.
Applying best practices to the field of procurement negotiations
These 10 best practices from international law are applicable to both major types of procurement negotiations:
Integrative negotiation, whereby two parties (buyer and supplier) reach a mutually acceptable solution, where everyone wins. Listing a new supplier, for example.
Distributive negotiation, which aims to allocate a fixed resource in which one wins and the other loses, such as in tariff renewal negotiations.
Note that the art of the negotiator is to transform a distributive negotiation into an integrative one, such as by achieving better service in exchange for a price increase.
The 10 best practices promoted by Harvard Law School provide the necessary tools to achieve your goal. They apply in all three stages of procurement negotiations:
- Preparing for the negotiations;
- The negotiation process;
- Monitoring the execution of the contract.
Best practices upstream of the discussion in procurement negotiations
Before starting the discussion, it is important to be prepared and take a number of preliminary precautions.
Define your “Best Alternative”
The BATNA is a fallback solution in case the negotiations are unsuccessful.
The idea is twofold:
- Before you enter into discussions, define the limit beyond which the deal is no longer to your advantage;
- Identify an alternative solution so that you never end up with your back to the wall.
Having your “Best Alternative” allows you to approach your procurement negotiations with maximum peace of mind. In this way, you can be sure that you are closing a deal that is advantageous to you, in accordance with the business's established strategy and value.
Agree on the negotiation process
The frequency of contact, the composition of the teams and the choice of meeting venues all play a role in the quality and effectiveness of discussions during procurement negotiations.
These points should be clarified in advance to ensure that the buyer and the supplier are on the same page. In reality, this is anything but straightforward and often requires some prior adjustments, particularly with regard to the composition of the teams. This round of the procurement negotiation process should also be an opportunity for you to test your future partner.
Although this is not always easy during time-sensitive procurement negotiations, it is very useful to take a few minutes at the outset to get to know your main contact, supplier or colleague. Getting to know each other, discovering a mutual interest or, at the very least, having the shared will to bring the negotiations to a successful conclusion are all ways of reaching a deal.
If the procurement negotiations are planned to take place exclusively by email, it is still important to set up an initial telephone contact to create the best possible conditions for the discussion. The shared pleasure of getting the deal done is one of your assets!
Best practices during contract negotiations
When negotiating the signing of a contract, there are several steps to consider.
Practise active listening
Some negotiators may need to practise their presentation and rehearse their arguments in their heads before speaking. The advice from Harvard Law School is not to use your counterparts’ speaking time to practise this exercise.
Indeed, it is important to listen carefully to what they have to say. You will benefit from this in three ways:
- Put your counterpart in the best possible position towards you and your investment in the discussion will be clear;
- Put yourself in a position to reformulate your partner’s argument point by point and thus ensure that you fully understand them;
- Consciously record information given by your counterpart which you can then use in your own argument.
Ask the right questions
Asking open-ended questions is an effective way to move procurement negotiations in the right direction, let alone an integrative negotiation where all options are theoretically open. Don’t hesitate to ask your future partner about their terms, needs, limitations or future expectations.
The idea is to get the person you are working with to disclose information about themselves in order to better understand their real issues. Perhaps their primary goal is to get you on their books. This information gives you the opportunity, for example, to offer a “customer story” to share publicly — at no cost to you — in exchange for an extra effort on deadlines or for speeding up electronic invoicing.
Move forward step by step
Time management is certainly a key distinguishing factor between distributive and integrative negotiation. While the former usually takes place in a single discussion, the latter can be conducted in a series of rounds.
To succeed in your integrative procurement negotiations, take it step by step! Each meeting should be an opportunity to focus on a particular aspect of the collaboration arrangements. You need to be able to draw up an agreement step by step where each party takes a step that costs them the least. In this way, solutions can be found that satisfy both parties.
For example, if your counterpart wishes to improve their expertise in logistics and turn your collaboration into a testing ground, they will be particularly open to your requirements in this area. On the other hand, if you are about to conclude a scope acquisition, you may be inclined to increase the volume of your order...
Beware of “anchoring bias”
The Harvard Law School negotiation programme defines “anchoring bias” as the influence of the first figure quoted in the course of a negotiation, even if the figure stated at the outset is not particularly substantiated. Where a third-party observer would set in good faith 50 as the reasonable balance point, the bias implies that by announcing 30 at the outset of a deal, a party is more likely to get 40.
Based on this concept, the programme’s advice is to announce a benchmark figure first and then use the discussions to drive the negotiation in your direction. If your counterpart is aware of this principle and takes the lead on anchoring, then you should have your “Best Alternative” in mind to avoid being dragged along where you don’t want to go!
Submit multiple offers simultaneously
Rather than making a single proposal per theme, make multiple offers! If you are talking about delivery conditions, mention three different methods, using the variables of frequency, delivery points and time slots, for example.
The point is to never find yourself in a “take it or leave it” situation, but to work with your partner to find the best possible solution that suits both parties. Even if no deal is satisfactory at the outset of the negotiations, being open leads the other party to make an effort to explain the basis on which they would be prepared to make a deal.
Best practices for securing the future when seeking collaboration
Once the contract has been signed and the collaboration confirmed, there are still some best practices to apply to consolidate the newly concluded partnership.
Negotiate binding clauses
Procurement negotiations are a leap of faith. Each party makes commitments that it believes it can keep in the moment, knowing that the context — for both parties — is evolving in a so-called “VUCA” perspective. Promises may prove more difficult or costly to keep than originally anticipated.
To avoid unpleasant surprises, make it more expensive for the supplier to abandon its commitments!
Binding clauses with penalties have two advantages:
- Quantifying non-quality and/or breaches of contract;
- Inducing arbitration in your favour from the supplier in the event of unforeseen difficulties in performing the service.
Plan evaluation steps in the organisation of the partnership
The ultimate best practice in procurement negotiations is to set aside time — and often forums — to assess how well the contract is going.
In a partnership, there are things that are immediately obvious (delays in delivery) and things that are less obvious (a gap in an innovation programme). The principle is to mutually agree on the correct execution of 100% of the contractual clauses and to give each other every opportunity to detect any slippage.
The idea is to be able to deal as quickly as possible with the “root causes” of any problems in order to remain in keeping with the spirit of the initial negotiations throughout the contract’s execution.
In conclusion, the successful outcome of procurement negotiations is based on both know-how and interpersonal skills. Remember to define your “Best Alternative” and beware of anchoring bias! Prepare the negotiations carefully, focus on what your counterparts are saying, manage the time to your advantage and anticipate how the negotiations will go and what might go wrong.
By adopting these 10 best practices, you will improve your profile as a procurement negotiator. You will put yourself in the best position to re-evaluate your supplier portfolio (service or product). This deepens the relationship with certain key players and facilitates the integration of new partners.
To learn more about rationalising your panel, read the white paper “Rationalise your supplier portfolio”.