Bargaining in a Modern Era!
In an increasingly digital world, the importance of technological competency, hard skills, and analysis in procurement and sourcing cannot be overstated. However, these aspects are just one piece of the puzzle. Enhanced digital capabilities have enabled procurement professionals to bid and negotiate with a higher level of transparency and visibility into supplier offerings. But it's essential to remember that a value chain is a harmonious engine of various moving pieces, and a solid foundation of supplier relationships and collaboration is crucial to its smooth operation.
Current strategies for creating win-win situations in buyer-supplier relationships focus on building trust, collaboration, and mutual benefit rather than adversarial bargaining. Procurement organizations can effectively renegotiate and find shared goals by employing a combination of relationship-building, transparency, and strategic flexibility.
Key strategies include building rapport and communication, expanding options and transparency, adopting integrative (win-win) negotiation, active listening and flexibility, and avoiding common pitfalls. Successful negotiators carefully listen to supplier proposals, staying open to alternative solutions that may not be initially obvious but offer mutual benefit. Flexibility in negotiations demonstrates collaboration intent, cultivating goodwill for long-term partnerships.
To effectively renegotiate and find mutual goals, procurement organizations can use clear KPIs and Service Level Agreements (SLAs) to measure supplier performance, employ contract lifecycle management tools and frequent supplier reviews for real-time visibility and continuous improvement, focus on strategic sourcing and collaboration to identify joint cost-saving and efficiency measures amidst rising supply chain costs, and approach renegotiations as collaborative problem-solving sessions rather than zero-sum battles.
A formal relational contract that specifies mutual goals and establishes governance structures to keep the parties' expectations and interests aligned over the long term is a remedy suggested for souring buyer-supplier relationships. A new approach in negotiation and contract formation is emphasized, focusing on creating win-win situations in buyer-supplier partnerships.
Emotional Intelligence is crucial in a digital world, as no technology or machine will ever be able to compute with the same level of human and emotional intelligence as humans. Mixing Machine Intelligence with Human intelligence results in strong category competency and negotiation experience with fact-based bidding trends. Solutions such as Kodiak Rating provide merit-based negotiation power, allowing users to gain supplier ratings and analytics to negotiate based on real compliance and supplier performance.
In a new age of negotiation, it's important to embrace the soft skills associated with procurement. Negotiations, communication, and collaboration skills have been, and will always be, the common denominator to procurement success. Negotiations are opportunities to reach a consensus between a buyer and supplier, with compromise being necessary for consensus. Understanding where there are opportunities for compromise, rather than entering with preconceived notions of a necessity for compromise, will put parties in a position to amicably find solutions within the framework of the agreement.
The application of AI technology within bidding and negotiation gives procurement teams an edge in suggesting pricing and timing. Solutions like Best-of-breed solutions like BidOps use cognitive/AI-driven negotiation and sourcing, providing procurement teams with cognitive capabilities to suggest pricing and timing within negotiations with suppliers.
The remedy suggested is adopting a formal relational contract that specifies mutual goals and establishes governance structures to keep the parties' expectations and interests aligned over the long term. A new approach in negotiation and contract formation is emphasized, focusing on creating win-win situations in buyer-supplier partnerships.
Buying boils down to two sides of the negotiation table, and the two people sitting on each side. A buyer and a seller. Most companies pursue some form of collaboration with their suppliers, but only about two in every five programs follow standardized approaches, focusing narrowly on operational efficiency. Early adopters and innovators of supplier collaboration initiatives have long reaped benefits, such as Chrysler in the 1980s, which produced billions in savings through its SCORE program.
The HBR article titled 'A New Approach to Contracts', published in 2018, uses the Dell & FedEx agreement as an example of a souring buyer-supplier relationship. The agreement between Dell and FedEx, filled with "supplier shall" statements and detailed metrics, led to dissatisfaction for both parties, despite FedEx meeting all contractual obligations. This example underscores the importance of adopting a relational contract approach that focuses on creating win-win situations and fostering long-term partnerships.
- In the realm of procurement, finance departments can partner with technology solutions like Kodiak Rating to leverage merit-based negotiation power, enhancing their ability to procure goods and services at optimal costs while fostering education-and-self-development in understanding supplier ratings and analytics.
- Given the significance of building long-term, collaborative buyer-supplier relationships, education-and-self-development in emotional intelligence and negotiation skills can prove instrumental, as successful negotiations often require the strategic use of compromise and understanding the potential for win-win scenarios.
