5 of the Most Effective Negotiation Strategies for Supply Chain Management | Innovation Management

How can negotiation support your supply chain management goals? Being skilled at negotiating makes it easier to create mutually beneficial agreements with suppliers.

Well-developed negotiation skills can help your supply chain deliver in many areas. These include competitive pricing, superior quality and service, and higher customer satisfaction.

Expert-led supply chain negotiation training prepares managers to work effectively with vendors. Working jointly, you can better achieve the goal of sustainable logistics management. The right strategies can work to make your procurement procedures more effective. In turn, you are more likely to increase your competitive advantage. Here are some of the negotiation strategies to make your supply chain more effective.

Know Your Suppliers

Before discussions, engage in research to understand your supplier’s organization. Discover their unique advantages, logistics practices, cost bases, products, and competitors. Knowing your suppliers supports your efforts to design and secure win-win contracts. You are better able to engage in constructive talks with prospective suppliers when you’re familiar with their needs.

Learn your suppliers’ capabilities and logistical challenges. You are then better positioned to guide your suppliers. Provide guidance on how best suppliers can deliver the right value on time to meet your organization’s goals.

When you’re familiar with your supplier’s operations, you can position your organization as an informed partner. Present yourself as ready to establish and commit to mutual objectives. When you pursue common objectives, you can work with suppliers to improve production and cost-effectiveness.

Use Leverage Effectively

As a bulk buyer, you may hold some powerful leverage over your suppliers. The temptation may be to bulldoze your way into a one-sided agreement. A win-lose agreement may provide your organization with some short-term advantages. Yet, the deal may not be sustainable in the long run. An agreement that’s not sustainable is likely to hurt the effectiveness of your supply chain. It can also compromise your organizational goals.

Confectionary company Hershey’s learned about the dangers of over-applying leverage the hard way back in 1999. Reportedly, Hershey’s used their leverage to pressure their enterprise software makers into implementing a new enterprise resource planning (ERP) system.

At the same time, Hershey’s was pushing employees to adopt the new system. While the unions and the ERP provider agreed to deadlines, implementation was slow. For Halloween that year, Hershey’s failed to deliver over $100M worth of Jolly Ranchers and Hershey’s Kisses. Hershey’s ineffective use of leverage resulted in a stock price fall in excess of 8%.

Trainers encourage managers to use leverage to work out a mutually beneficial agreement. This is in contrast to using leverage to bully suppliers into a deal. Point out to your suppliers why the leverage you hold can work to their advantage. For instance, for large volume purchases, instead of bombarding your supplier with demands for discounts, point out the cost-effective advantages.

Use Calibrated Questions

Most early talks with potential suppliers are fact-finding missions. It helps to know your supplier and use that information to your benefit. Using calibrated questions can guide discussions towards win-win results.

Calibrated questions make it easier to form a big picture of your needs and your suppliers’ capacity. Calibrated questions pinpoint problem areas and create avenues for finding solutions.

Effective questioning drives dealmaking forward. Your questions make clear the value you expect, and make clear the level of value your supplier can deliver. Matching values creates room for adjustment as your organization considers alternatives.

For instance, imagine a scenario where one supplier initially seems perfect. However, they come from a region with different laws, so the supply chain may be compromised. Calibrated questions can guide talks on how to get over such external hurdles. From here, you can adjust deal terms to achieve mutual benefit.

Adopt an Appropriate Negotiation Style

Meeting with different teams might mean using different negotiation styles. Unskilled negotiators tend to approach each team the same way. Those without proper training tend to choose styles based on limiting factors. These include natural temperament, personal preferences, and cultural influences.

Focused negotiation training teaches skills for supply chain managers to mix up negotiation styles. The most appropriate style to use depends on the circumstances. Some negotiation styles for approaching your suppliers include:

The skilled negotiator adopts a strategy that’s based on end goals and supply chain objectives.

Create Value Addition

Suppliers often have to compete for pre-qualification to a request for quotation (RFQ). A supply chain manager can use persuasion skills to create extra value beyond the terms defined in the RFQ.

Most negotiated contracts go beyond the stated terms included in the RFQ. Supply chain managers have to contend with more than just price. Areas of potential value addition include:

Negotiation training equips supply chain managers with tools to create value and claim value in exchange. Even when adopting a compromising style, your organization’s interests should come first.

A skilled manager can use an RFQ as a platform to negotiate a more comprehensive contract. An RFQ can also be used to attract greater compensation. For instance, let’s say you’re negotiating supplies to one location of a national outlet. You can use this discussion to propose supplying locations nationwide.

The supply chain works to manage the flow of goods and services. This process may require the cooperation of many organizations. To make the flow seamless, supply chain managers can discuss terms with suppliers for better results.

With the five negotiation strategies above, supply chain managers can create long-term agreements and put in place effective and economical systems.

Guest post by Negotiations.com.