Negotiating with Suppliers
Checklist
Five key steps to an effective negotiation
1. Establish negotiation team
2. Analyze the parties & the deal
3. Decide strategy & tactics
4. Negotiate & record the agreement
5. Reflect all negotiated points in the contract
1 Establish Negotiation Team
Activity Tips
Form the negotiation team. Consider the mix of skills and
experience required:
Facilitation skills Depending on the nature of the procurement
a Negotiator experience activity, a team of three or four people is ideal.
Subject matter expert/technical expert Avoid negotiating on your own.
Financial analysis skills
Legal support.
Agree the roles people will take: The leader should be a credible, skilled
b Lead the negotiations and facilitate discussion negotiator. Brief senior managers about the
Track concessions and points of agreement. negotiation.
Check that the team has the authority to negotiate, agree
Get your authority recorded in writing. Check
c all of the contractual terms and commit the agency to a
what signoffs are needed and when.
contract.
2 Analyze the parties and the deal “If I had nine hours to cut down a tree I would spend six sharpening my axe!”
Your key concerns – the big picture: For example, are you seeking a short-term
• What are your goals? transactional relationship or a long-term
a • What are your key issues and pressures? collaborative relationship? The relationship you
• What sort of supplier relationship do you want? are seeking with the supplier will influence your
• What timeframes do you need to meet? approach to the negotiation.
Understand the supplier:
Conduct some research into the current market
• How does the supplier view you?
and the supplier’s place in the market. Try to
• How does the supplier view the potential deal?
gain an understanding of the supplier’s needs.
• What’s its position in the market?
b Assess the likely balance of power in the
• What are its needs, goals and pressures?
relationship. Early in the negotiation, test your
• What concessions can it give?
understanding by asking questions. Fill
• Who are the key decision-makers?
information gaps. Check assumptions.
• What is its culture and style?
Analyze the variables & define the negotiating range:
• What are the variables in the negotiation?
• For each variable, define the value and relative
Variables are the different factors or elements of
importance to you and the supplier
the negotiation. Parties can expect some ‘give
• For each variable, identify outcomes that would be (a)
and take’ over the variables. You might value the
very good, (b) acceptable and (c) not acceptable
c variables differently from the supplier. It’s
• Identify any ‘deal breakers’.
useful to identify the values you place on
• What concessions can you give?
variables – this will show you where the best
• What concessions can you gain?
concessions are.
• What is your ideal outcome?
• What is a compromise outcome?
• What is your fallback position?
Identify your BATNA Your starting point
• List everything you could do if you don’t reach Supplier’s starting point
d agreement. Point you won’t go past
• Explore each of your options and try to improve on them. Point supplier won’t go past
• Choose your best option. This is your BATNA. Zone of agreement
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c
BATNA is your Best Alternative to a Negotiated Agreement
3 Decide the strategy and tactics “An objective without a plan is a dream.”
Activity
Top tips
a Develop strategies to achieve one-way movement: • Develop strong and logical explanations for your key
positions. Use facts and evidence • Prepare ‘emotional’ responses using concepts such as ‘trust’, ‘loyalty’,
‘collaboration’, ‘partnership’, ‘disappointment’ and ‘fear’ • Prepare responses that allude to potentially negative
outcomes e.g. that something is a dealbreaker.
‘One-way’ movement is where you seek concessions from the other party without needing to offer any concessions
in return. A good strategy for one-way movement incorporates a mixture of logic, emotion and threat (of a
negative outcome). Plan to seek one-way movement early in the negotiation.
b Develop strategies to achieve two-way movement: • Identify a credible bargaining range based on your analysis
of the variables • Identify what you want to gain in return for trade you’re willing to make • Don’t focus only on
price. There are other measurements of ‘value’ such as volume, payment terms, early payment discounts, length
of contract and exclusivity.
‘Two-way’ movement involves bargaining and compromise by both parties. Try to identify concessions that have a
lower value than the concessions you might receive in return. Plan two-way movements late in the negotiation as
a means of closing the deal. Don’t be too greedy or you could alienate the supplier.
c Make a contingency plan in case the negotiations don’t go well: • Identify the various situations that could derail
the negotiations • For each situation, identify a plan to defuse the
In planning the negotiations, include ‘timeout’ so that parties can re-evaluate. This can also be helpful if things
become heated. At worst, suspend the meeting and reconvene another day.
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situation and get things back on track. However, if the worst case scenario happens, you might need to revert to
your BATNA.
4 Negotiate and record the agreement
Activity
Top tips
a Arrange the initial meeting: • Set the agenda • Send the agenda to the supplier in advance • Organise the venue
– allow for breakout rooms • Arrange a way to record points of agreement – whiteboard or flip chart • Arrange
regular breaks and refreshments.
The agenda should deal with your most important issues first. Ensure the venue is large enough for the group.
b Rehearse with your negotiation team: • Run through your approach: - Initial clarifications - Opening proposal -
Trade-offs - Closing tactics • Ensure everyone is clear on their role • Check that the facilities and technology are
ready and operational.
There may be information that you need to control carefully. Make sure the whole team is aware of what it is and
appoint one person to manage how the information is released and when.
c At the meeting: • Start by getting everyone to introduce themselves • confirm that the supplier’s team has the
authority to close the deal. Test assumptions and ask questions. Table your position: • Assess the reactions and
gauge the supplier’s position • Use your tactics to attempt one-way movement. Signal movement: • Probe with
tentative proposals where you might be willing to make concessions • Seek the concessions that suit you best •
Respond to signals from the supplier • Exchange concessions • Close the deal.
Try to make everyone comfortable. Take time to build rapport. Be respectful of cultural differences. Take care
to be polite but firm and always professional. Chair the meeting – own the agenda. Regularly summarise and
record agreements throughout the discussions. Avoid putting down the first marker. Be creative: “If we agree X,
would you concede Y?” Bargain by reducing increments.
“Effective negotiation should result in a cost-effective agreement that is fair, durable, meets the legitimate
needs of both parties, and improves the relationship.”
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d Record the agreement: • Record in writing exactly what has been agreed • Confirm with the supplier exactly
what has been agreed before ending the meeting.
These records will need to be incorporated into the contract. They must be clear, accurate and unambiguous.
5 Reflect all negotiated points in the contract
Activity
Top tips
• List the negotiated points. • Identify where they need to be reflected in the contract. • Check each point off as
it is written into the contract.
Fully brief the legal team who are preparing the contract on the importance and impact of each of the negotiated
points. Make sure their wording in the contract reflects what has been agreed.
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