By: ProcurementIQ Staff Writer, Ashley McKay
How strategic do you get during negotiations? For some organizations, saving money is their ultimate priority, so they may go in just wanting the lowest price the vendor can offer. There are other companies that have set specific expectations for the vendor and take time strategizing to be sure they’re offered the “best” deal based on those terms.
“However,” according to Dominik A. Steffani, Principal at the Boston Consulting Group, “the strategic approaches relied on by so many established companies, have two major weaknesses…
- The ‘human factor of the buyer and stakeholders’: Often, a number of self-imposed constraints have been defined by the requester. Typically, those constraints are based on individual judgement and experiences. A systematic evaluation is missing and leaves room for interpretation, when deciding on the business award.
- The lack of competitive dynamics: Buyers usually only engage in conventional formats of negotiation, e.g. they bilaterally negotiate with one supplier after the other, without a game plan how to leverage imbalances between offers and how to spark competitive dynamics throughout the process.”
So, what’s the best strategy to use during negotiations?
Steffani believes that game theory based awarding provides the buyer with much more leverage. In his article, “Game Theory – The New Art of Negotiations,” he defines the method as a model that “…predicts how [the buyer and seller] will react and how they make decisions. It is no longer about meeting ‘in the middle.’”
In addition to being aware of the tactics Dominik highlights, it’s also important to understand each product and service that your organization plans to source. Going into negotiations with knowledge on the trends impacting the market will give you additional leverage. You’ll have a better idea of the price you should be paying for that product or service, what might be driving costs now and in the future, what questions you should ask vendors to ensure you receive the highest value and how you can best achieve ROI from the purchase.
As your company and procurement department becomes more strategic in its processes, these are all things to consider and to begin implementing to win negotiations and avoid meeting in the middle.