The following article was prepared by Mike Taylor, C.P.M.


Creative Negotiation (part1)
November 2003

 

In a recent article we talked about the problems evaluating supplier performance. Of course we want to consider a supplier’s past performance…. but there are issues.  One of the key questions becomes; "what the heck can we do about it?"

All too often, we end up using a supplier despite performance concerns. If we have to use them anyhow, then I suggest addressing past performance when developing a negotiation plan.

Experienced buyers understand that every contract is negotiated. They ask probing questions, and discuss all aspects of the proposed contract with the supplier. These buyers understand that every discussion with a supplier is a negotiation with the purpose of reaching the best possible agreement.

Try thinking of it this way:

The buyer and the supplier are negotiation partners and a poorly formed or incomplete contract is the enemy.

Great buyers realize there is much more to a contract than just the price. They consider possible outcomes, problems and concerns, then address them when negotiating a contract. Even if price is not on the table, there are dozens of other issues that can affect the success of a contract and can be of direct value.

I’m not talking about a huge negotiation stage production with 6 lawyers and two accountants;  I’m talking about the day-to-day discussions that happen between buyers and sellers, where most contracts are created. It’s not rocket science, it’s making constructive use of the every-day skepticism that buyers develop when contracts go wrong because they forgot to ask,  “what if….?”

Example:

[Sounds like a favorite stand-up comic routine. “You know you’re a real buyer, when…”]

Effective buyers also realize that every factor not discussed before award is an opportunity lost. Before starting the contracting process, they develop a comprehensive list of contract elements, issues, factors and concerns, to address, discuss and resolve. The bigger the list, the more complete the agreement and the more chance of success.

The most creative and valuable members of the buying staff go beyond the typical aspects of contract formation and seek creative ways to make the contract better. They consider changing needs, product improvements, alternative solutions and creative ways of improving contracting efficiency.

If performance history is a concern, then include factors in the negotiation that will mitigate and improve performance. I’m talking about including provisions, terms and agreements that will “improve” contractor performance. Sure, you can add a massive late-delivery penalty. But if the contract fails and shuts down production, who cares if there is a discount on the next delivery? [Might be useful while hunting a new job?].

Instead, consider why the delivery might be late, then include contract provisions that will preclude those problems.

Here are some examples:

Also, try asking the supplier to part of the solution. “What can we include or change in this agreement that will help ensure on time delivery?”  If the supplier has a history of problems, but still wants the business, then the supplier has a vested interest in finding a way to make the agreement acceptable.

Try asking these questions:

The bottom line:

To create the best possible contract, consider all of the ways to improve it and include them in discussions with the supplier before award.  Don’t get hung up thinking that negotiation is a major exercise. It doesn’t have to be.

Start at the beginning:

With practice you’ll become an effective and creative negotiator.

Read more articles about negotiation and creative contract solutions in the Purchasing Toolbox at http://www.mltweb.com/prof/tools.htm and in the BuyTrain news article archive at http://www.mltweb.com/tools/buytrain/index.htm


 

MLTWEB is assembled and maintained by Michael L. Taylor, C.P.M. 
Materials and articles prepared by Mike may be shared for purchasing education provided that this source is cited and no fee is charged. The rights for any other use are withheld.
Copyright;  Michael L. Taylor, C.P.M.
Last Updated: 11/26/2016