Supplier negotiations can be a pivotal moment where the future destiny of your company can be changed. Crafting a successful supplier negotiation strategy can put you in a strong position to grow. However, a poor deal could leave you struggling financially while also weakening your bargaining position should you wish to correct your initial deal.
As businesses attempt to navigate the delicate terrain of negotiating with your supplier, there are a number of factors you need to consider if you wish to come out the other side with the terms you wanted. In this blog, we unravel the intricacies of the primary negotiation types and discuss a strategic roadmap that can help to propel your company towards a fruitful future without the need to worry about insolvency.
Four Main Negotiation Types
There are a number of different negotiation types. The difference between these forms of negotiation are generally regarding the ultimate outcome, and the position each side in the process has when coming to an agreement. The main types of negotiation are competitive and collaborative, accommodating tactics, and negotiations of compromise.
The four main negotiation types are:
Competitive Negotiation
A competitive negotiator will push for their preferred outcome and give little consideration to the other party. This brand of discussion is one of the more common; one party’s gain is the other’s loss.
A competitive negotiation will often involve haggling and attempts from both sides to squeeze as much value as possible out of the talks. Pros and cons of competitive negotiation are:
- Pros: A highly competitive negotiation could lead to a quicker resolution. It is also useful for better clarification of both sides’ positions, leading to a clear and decisive outcome.
- Cons: Competitive negotiations can also result in strained relationships between both sides if an agreement cannot be reached. It also has a chance to increase the possibility of a deadlock and of damaging your reputation.
The competitive style of negotiation can be extremely effective in certain situations, particularly when speedy decisions are necessary. However, it comes with the added risk of potentially seriously damaging relationships and your reputation. This may make it unsuitable for scenarios involving long-term collaborations.
Collaborative Negotiation
The purpose of collaborative negotiation is to create as mutually beneficial a process, and in the end an outcome, as possible for all parties involved. This method places emphasis on cooperation and collaboration in order to maximise the takeaway for both sides.
Pros and cons of collaborative negotiation include:
- Pros: The main pros of a collaborative approach to talks is that it can help build long-term symbiotic relationships that can benefit both parties for a number of years.
- Cons: The negatives of this method are that it can be very time-consuming attempting to come to a conclusion that suits all parties. Collaborative negotiating also relies heavily on trust and can therefore lead to manipulation if you are not careful.
Collaborative supplier negotiation can help build much stronger relationships, leading to shared benefits. However, it will take a great deal of time, commitment, and a high level of trust between both parties.
Accommodating Negotiations
Believers of accommodating negotiations see the most important tactic to win somebody over is to give them what they want. This method prioritises the interests of the other party in the name of putting you in a good position for negotiations to come.
Some pros and cons of being accommodating during negotiations are:
- Pros: Being as accommodating as possible during talks is a surefire way of ensuring that the process is wrapped up as quickly as possible. It can also contribute to building a hugely positive working relationship with your supplier based on the goodwill built.
- Cons: The most obvious negative is that you will likely agree to a somewhat unbalanced deal. It can also diminish your leverage in the long term. Additionally, much like with collaborative negotiation, accommodating the other party(s) could leave you open to being taken advantage of.
Accommodating negotiation can be very useful in certain situations, particularly when the act of preserving the relationship is more important than that particular deal.However, it carries with it a great deal of risk and could leave you in a bad situation. If you were to go down this route, it is vital that you carefully balance accommodating your supplier with protecting your own best interests.
Negotiations of Compromise
A negotiation of compromise is essentially where both parties agree to ‘split the difference’. This often results in both sides settling for a bit less than they would have wanted in the interests of moving things on quickly and amicably.
Benefits and drawbacks of this method include:
- Pros: Compromising is excellent to preserve relationships without needing to concede too much. You can make a balanced agreement, which can be resolved quickly with minimal chance of conflict.
- Cons: Contrastingly, a system of compromise could also easily lead to a suboptimal outcome should concessions be made without enough consideration and thought. It’s possible that it could also be perceived as a weakness, leading your supplier to push for even more advantageous terms next time.
Negotiating compromises can be a highly practical approach for many types of situations. It can foster positive relationships and efficient agreements. However, you should always carefully consider the drawbacks and make attempts not to compromise too much and weaken your position.
A Supplier Negotiation Strategy That Can Actually Work
There are a number of important steps to follow if you want to ensure a successful supplier negotiation strategy.
Step One: Decide The Best Negotiation Strategy
Before you begin your supplier negotiations, you must select the best option for you. When doing so, there are four key factors you must keep in mind:
- Consider Your Relationship With Your Supplier
- Analyse the Other Party
- Assess the Urgency of the Negotiation
- Determine Your Objectives
First things first, evaluate what relationship you have with your supplier. This should play a huge part in how you go into your talks. If you have a long-standing positive relationship, a collaborative approach may be beneficial. A purely transactional relationship may be better suited to a competitive strategy though.
You must then look to assess your supplier, their reputation, reliability, and responsiveness. These are all key to determine where you stand before going into talks.
At this stage, consider the negotiations’ urgency. If you need a quick decision, it may be vital that you go in with a direct and assertive strategy if you want to get anything out of the conversation. Similarly, if you plan ahead enough and time is not of the essence, you can consider a more patient and measured approach.
Finally, you must also clearly define what your objectives are going into your supplier negotiations. Do you just want to cut costs? Improve the quality of your service/the product you receive? Are you looking to build a long-term relationship? Use these desires to help guide you towards the optimal strategy for your situation.
Step Two: Determine the Facts
With your preferred negotiation method in your head, it is important that you work to build as comprehensive a bank of knowledge about the party you’re looking to negotiate with as possible. This should provide you with insights into the value involved in the deal, current spending, the demand for the product in question, and an idea of both sides’ profit margins.
It’s also important that you gather market intelligence to stay ahead of the curve wherever you can. This will allow you to better understand your current conditions, trends in the market, common price points, key competitors you could leverage should it be required, etc. This information will provide you greater contect for your talks and should allow you to gain some competitive advantages.
At this stage, you need to remember that supplier negotiations will not always be simply about winning or losing; it can be about creating value and forging mutually beneficial relationships. Try to keep a long-term perspective and balance this with getting the best deal possible in the short term. The best way to do this is to try to put yourself into their shows and determine what you think would be a good deal for you, for them, and find a good middle ground.
Step Three: Strengthen Your Position
If you want to maximise your chance of success, then you should do whatever you can to ensure that your bargaining position is as strong as possible before opening talks with your supplier.
A good way of doing this is to establish a Best Alternative to a Negotiated Agreement (BATNA). This requires you to find the most advantageous alternative out there should an agreement not be found. This means that, if negotiations were to fail, you would have some form of alternative. Having a BATNA in place provides a benchmark to base your negotiation against, and gives you added leverage, as you can negotiate knowing that you can walk away if the terms don’t meet your expectations.
Step Four: Build Trust
You’ll never successfully get a good deal in your supplier negotiations if the two sides don’t trust each other. The best method of building trust ahead of, and during your talks is to initiate consistent open and transparent communication. This step can foster a positive working environment where both parties feel more comfortable sharing information, building trust, and ultimately laying the foundation for a collaborative partnership.
During these positive conversations, it would be beneficial to identify some common goals for both sides. Having shared objectives in place with an external party can foster a sense of partnership and will encourage the parties to work together.
Open communication will also enable either side of the talks to feel more confident addressing their concerns proactively. Discussing possible issues openly and working together to overcome them will demonstrate commitment to building a long-lasting relationship and help to effectively build trust.
Step Five: Lead Negotiations
Leading the negotiations will put you in a solid position to dictate the conversation. The best way to begin talks is to open negotiations with a strong anchor and stick to your plan wherever possible. However, if you’re leading talks, it’s important that you’re not too hard and appear open to change.
Tips to effectively lead negotiations include:
- Be simple and straightforward, do not over complicate things
- Remain professional throughout
- Care is important when applying your negotiation tactics
- Prepare for back-and-forth. It’s unlikely that you will be allowed to have everything totally your own way.
Step Six: Secure the Deal
With a verbal agreement in place, the next stage in the process is to draft comprehensive contracts that outline all terms and conditions of the deal. You must ensure that you include specific aspects such as the pricing structure, expected delivery terms, quality standards, and more. The better drafted your contract, the less risk there is of misunderstanding and of disputes.
For assistance with your contract, you may want to engage a legal professional to ensure that everything drafted complies with relevant laws and regulations. Having a legal review in place will provide a layer of added protection to ensure that every aspect of the deal is legally sound and above board.
The final stage to secure the deal is to obtain sign-off and final approval from all relevant stakeholders. You must ensure that all necessary parties are totally aligned with the deal.
Step Seven: Look Ahead
Following the positive conclusion of your supplier negotiations, and with a new deal in place, it is important that you continue to work to maintain your relationship with your supplier. This is most effectively done by continued open communication.
Should your company’s situation change, and the agreed-upon terms are no longer suitable for you, it is important that you be as proactive as possible in speaking to your supplier to do whatever you can to adapt the partnership.
Additionally, you can keep your supplier in mind for potential collaboration down the line. Your relationship can evolve over time and open the door to new possibilities.
Are Your Business’s Finances Fragile? We Can Help
In the ever-shifting process of supplier negotiation, your chosen path can lead to either triumph and continued financial health, or it could leave you in turmoil and financial issues. If you’re struggling to pay your suppliers, and debt is looming on the horizon, the financial pressures are sure to mount. If this scenario sounds familiar, the expertise of an insolvency specialist is vital.
During these times of financial distress, navigating the many complexities and stumbling blocks of debt management will require a seasoned guide who has seen it all before. This is where the proficiency of Inquesta’s team of insolvency experts prove pivotal.
When supplier deals are allowed to spiral out of control and corporate costs are rising and rising, it’s easy for a long shadow to be cast on your financial stability. During these times, the experienced and nuanced support of Inquesta can act as your beacon — illuminating your path towards solvency and securing your financial future.
Find out more about how we can assist you today by contacting a member of our today.