Procurement negotiations: The ten best practices according to Harvard Law School

procurement negotiation
January 21th, 2020
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Following on from the "Nine best practices for procurement officers to outperform themselves in 2020", we are continuing to examine procurement best practices. When it comes to negotiations, there is certainly much to be learnt from the ten best practices around which Harvard Law School's Program on Negotiation is structured. The recommendations from this world-renowned educational establishment can also be applied to a procurement scenario.

These ten best practices from the field of international law can be adapted for procurement purposes for both main types of negotiation:

  • Integrative negotiation, in which two parties reach a mutually acceptable solution that benefits both sides. For example, the onboarding of a new supplier.
  • Distributive negotiation, the aim of which is to allocate a fixed resource in such a way that one party benefits and the other party is disadvantaged. For example, the renegotiation of prices.

A skilled negotiator turns a distributive negotiation into an integrative negotiation, for example by obtaining an improvement to the service provided in exchange for an increase in price.

The ten best practices promoted by Harvard Law School are relevant to the three stages of procurement negotiations:

Procurement negotiations: Best practices prior to the discussion

Establish your BATNA

Your BATNA[1] is a fallback solution that you can resort to if the negotiation fails.

The idea is twofold:

  • Before the discussion begins, establish a limit beyond which the deal is not advantageous for you
  • Identify an alternative solution so that you never find yourself backed into a corner 

Having a BATNA enables you to handle your procurement negotiation calmly.

Negotiate the process

How often you meet, who is present and the location of the meeting are all important factors that influence the quality and efficiency of discussions during a procurement negotiation.

By clarifying these details in advance, you make sure that both parties are on the same page. In reality, such details are not always obvious and it is often necessary to make some adjustments prior to the negotiation, in particular regarding who will attend. This stage in the procurement negotiation process should also be used as an opportunity for you to find out more about your future partner.

Build rapport

Although tight deadlines mean that small talk is not always feasible, taking a few minutes at the outset to get to know your counterpart is very beneficial. Having a better understanding of one another, discovering a common interest or, at the very least, acknowledging that you both want the negotiation to be successful makes it more likely that you will reach a deal.

Even if the plan is for the procurement negotiation to only take place via email, it is still important to initiate a conversation by telephone beforehand in order to lay the best foundations for the negotiation. The shared sense of achievement upon reaching a deal is a factor in your favour!

Purchasing negotiations: Best practices during the negotiation itself

Listen actively

Some negotiators may feel the need to rehearse their contributions in their mind and think through their arguments right before they speak. Harvard Law School advises not to do so while your counterpart is speaking.

In fact, it is important to give your counterpart your full attention. Doing so will benefit you in three ways:

  • It will give your counterpart a favourable impression of you because it will be clear that you are invested in the discussion
  • It will enable you to summarise your partner's arguments point by point and ensure that you understand correctly
  • It will allow you to consciously take note of information given by your counterpart that can be used to your advantage in your own argument

Ask good questions

Asking open questions is a good way to steer a procurement negotiation in the right direction. This is especially the case in an integrative negotiation where, in theory, there are countless possible outcomes. Do not hesitate to ask about your future partner's projects, limitations or plans for the future.

The idea is to encourage your counterpart to share information about themselves that will help you understand their true priorities. Perhaps their main goal is to have you as a partner. Among other things, this information opens up the possibility of offering them a "client testimonial"—which would cost you nothing—in exchange for additional effort at their end to shorten delivery times or the acceleration of invoice digitalisation.

Take things one step at a time

It goes without saying that time management is a key difference between distributive negotiation and integrative negotiation. The former is usually completed during a single discussion, whereas the latter may require a series of meetings.

To ensure that your integrative procurement negotiation is a success, take things one step at a time! Each discussion should be an opportunity to focus on a specific aspect of the collaboration arrangement. You should be able to come to an agreement gradually, with each party making a concession involving something that is less important to them.

For example, if your counterpart wants to develop in the field of logistics and your collaboration will be an experiment in this area, your counterpart will be especially open to your logistical requirements. In contrast, if you are about to complete an acquisition that will expand your distribution area, it is likely that you will be inclined to increase the volume of your order…

Be aware of the anchoring bias

Harvard Law School's Program on Negotiation defines the "anchoring bias" as the influence of the first figure mentioned in the negotiation process. This applies even if the figure announced at the outset is arbitrary. If a third-party observer sets the reasonable midpoint as "50" in good faith, the bias means that a party who announces "30" at the outset has a greater chance of obtaining "40".

Based on this concept, the programme recommends being the first to mention a reference figure and then using the discussions to guide the negotiation in your desired direction. If your counterpart is aware of this principle and states the anchoring figure, be sure to keep your BATNA in mind to avoid ending up in an undesirable situation!

Present multiple equivalent offers simultaneously

Rather than making one offer per topic, make several! If you are discussing the delivery terms, list three different options that vary in terms of specific details such as frequency, delivery points and time slots.

The aim is to never find yourself in a stalemate with a "take it or leave it" situation, but to work with your partner to find the best possible solution that benefits both parties. Even if no solution is suitable at the outset, showing that you are open to discussing things further will encourage your counterpart to make an effort to explain on what terms they would be willing to accept your offer. 

Procurement negotiations: Best practices for ensuring a secure future

Negotiate binding clauses

A procurement negotiation involves betting on the future. Each party makes commitments that they currently believe they will be able to fulfil, yet they are aware that the situation—for both parties—is constantly evolving in terms of VUCA[2], meaning that their promises may ultimately be more difficult or costly to keep than originally expected.

To guard against unpleasant surprises, make it more costly for your partner to break their promises!

Binding clauses offer two advantages:

  • They quantify insufficient quality and/or breach of contract
  • They force your partner to make tradeoffs in your favour in the event of unforeseen difficulties when executing the contract

Plan times for assessment

The ultimate best practice in procurement negotiations is to plan times—often just an instant—for assessing whether the contract is being executed correctly.

In a partnership, some aspects are immediately evident (delivery delays) and some are less easy to identify (an innovation programme being behind schedule). The key is to work with your partner as equals to verify that 100% of the contractual clauses are being implemented correctly and to ensure that you will have every possible opportunity to detect any issues.

This approach enables you to resolve the root causes of any issues as quickly as possible and in doing so remain true to the aims of the initial negotiation throughout the execution of the contract.  

In conclusion, the successful completion of a procurement negotiation depends on your knowledge as well as your soft skills. Don't forget to establish your BATNA and be aware of the anchoring bias! Prepare for the negotiation carefully, focus on the words of your counterpart, manage time to your advantage and anticipate how events and any possible issues will unfold...

Applying these ten best practices to your work will enable you to improve your skills as a procurement negotiator. You will create the ideal conditions to reassess your partner portfolio, strengthen existing relationships with certain key players and establish new ones. To go one step further in streamlining your supplier base, read the white paper "Streamline your supplier portfolio

 

[1] Best alternative to a negotiated agreement
[2] Volatility, uncertainty, complexity, ambiguity

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